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#SaturdaySchool So today's post on retirement savings accounts is geared towards those that are above the Roth IRA income contribution limit. This one is a twofer because while the government has created rules to say that Roth IRA is capped after a certain level ... they for some reason allow for Roth Conversion aka Backdoor Roth IRA. 🙄Ya I don't get it either ... I learned not to ask questions when it comes to figuring out what the government is thinking. Traditional IRA: Who qualifies for a Traditional IRA: - Technically everyone qualifies as there is no income limit, but you should definitely do a Roth if under the income limit over a Traditional IRA - Can still use even if doing an Employer 401(k) - If you don't work, but your spouse works and you file jointly you can do a Traditional / Spousal IRA What is a Traditional IRA: - Special retirement savings account that is funded by PRE-tax money and grows capital gains free, but is considered taxable income when withdrawn after 59.5 years of age - Contibutions can NOT be withdrawn early like a ROTH IRA without penalty - Within the confines of a Traditional IRA you can invest in stocks, bonds, and other stuff like you do here on Public Where can I find a Traditional IRA: - Lots of options to explore, but I use Fidelity because no fees and fractional shares When should you start a Traditional IRA: - If Roth IRA is not an option, then no time like the present to allow for things to have extra time to compound - Generally you would want to do 401(k) match first and then potentially max 401(k) first if Roth option - Traditional IRA are more advantageous if you are in peak earning at your presumed highest tax bracket Why should I start a Traditional IRA: - Immediate tax savings as it is funded by PRE-Tax money and then funds invested grow capital gains tax free Backdoor Roth IRA: - Government allows you to convert Traditiona IRA money that was funded with PRE-tax money into POST-tax Roth IRA only after you agree to pay the taxes - This means that converting the Traditional to Roth IRA immediately before investing will minimize your Tax Burden and then allow you to invest capital gains tax free and then later withdraw tax free - Even if you are in a high tax bracket this conversion can be helpful if you are still young and far off from 59.5 year age limit, because the money with compounding will grow huge and it would be best to be tax free money - If you are older and in the highest tax bracket, then keeping the money in as Tradiational IRA is probably best so that you can keep that PRE-tax savings ... but if you were to retire or stop working then this might be the time to consider a conversion if you drop into a lower tax bracket Resource: Investopedia, Fidelity Video Link: Traditional IRA - Backdoor Roth IRA - P.S.: Remember this conversation is meant to get the ball rolling. I'm not a CFP or CPA ... so be sure to do your own homework and ask a professional if you need help with the nitty gritty. If you are curious about a Mega Backdoor Roth then check out my YouTube as that was the one that gets realeased this morning. #TaxTail #RetirementSavings #WeekendVibes
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