30-11-2020
3. Rich Retirement Planning
Welcome to Questioning Your Cents where you can get real-world, pragmatic tax & financial advice for business owners, entrepreneurs and independent contractors. We are your hosts, Kevin Molen and Charles Steinmetz. Our job is to help people with education on how to manage your money and save on taxes. We hope you will use the knowledge from this episode on traditional IRA’s, Roth IRA’s and retirement accounts. We will discuss how they are different for each other and the factors to look out for when investing. The main idea of using these vehicles is when you retire you have a lower tax bracket and hence you save your tax money and get a high returnThe retirement vehicles do not matter as much how much money is invested or how it will perform, they are based on how you can enter and exit the system, which then changes your taxes. Comparing the Vehicles: Traditional IRA You can always add money to the IRA but depending on how much you make determines if it can be considered as tax deductible or notIf you plan on making less money in after retirement (and a lower tax bracket) this can be a useful strategyTraditional IRA’s mean tax savings initially, but then the tax hits you again on a higher amount later on due to investment increases. If you are strategic and take out the money slowly, this could be advantageousAfter inheriting a Traditional IRA money needs to come out over 10 years and will be taxed.After you turn 72 you need to take out the money from the Traditional IRA, not all of it, but a required minimum distribution (RMD). This amount depends on many factors. If you own multiple Traditional IRA accounts, you can take money out of the poor performing account and write it out without touching the better performing accounts. Generally, the RMD amount is 3-5% of the total value of the account. If you don’t take it out then there will be a penalty of 50% of RMD, which is a very high penalty. Roth IRA No tax write off can be done for money invested in a Roth IRA.In order to withdraw money from a Roth IRA, there is a minimum of 5 years that the account must be held and if you take the money out after you turn 59 then no penalty is applicable on that money taken out.Money invested in a Roth IRA is taxed initially so no tax is taken after investment growth. This could mean huge tax savings if you plan on retiring at a higher tax bracket.If you make more than $139k/year in adjusted gross income you cannot invest in a Roth IRA. If you are married filing joint, then the limit is $260k of adjusted gross income.It is easy to transfer a Roth IRA to a child or spouse since the income has already been taxed, it will not be taxed again upon transfer. 401(k) Plan This type of account is normally provided by your employer and automatically deducts from your payrollThe maximum that can be added is $24k annuallyCompared to IRA, a401(k) can have a lot more money contributedNo income limitationsYou can’t take the money out until you retireNeed to be careful in how the 401k is investing as some 401(k) providers don’t offer the best investment options Contact us: info@molentax.com 281-440-6279 Find us on social media: https://www.facebook.com/molentax https://www.instagram.com/molen.tax/ https://www.youtube.com/channel/UCTHFFst-BRli8M_aTyXhAuw https://www.linkedin.com/company/molen-&-associates https://twitter.com/molentax https://www.molentax.com http://questioningyourcents.com Time stamps: 00:03:00 - Introduction 00:05:00 - What to look for in a retirement account 00:06:45 - Traditional IRA 00:15:55 - Roth IRA 00:22:15 - Roth vs Traditional IRA scenarios 00:26:00 - Inheritance of IRA’s 00:31:40 - Required Minimum Distributions 00:39:15 - How 401(k) works 00:47:45 – Comfort Zone - Questions round 00:48:02 - Benefits of filing taxes early 00:52:00 - Paying taxes after the deadline 00:56:00 - Difference between Exemption, credit and deduction 01:00:00 - Outro
