Blog

Should I Choose a Roth or Traditional IRA?

Posted on November 1st, 2018

Do you have questions about which type of Individual Retirement Account (IRA) is right for you? When deciding between a traditional IRA and a Roth IRA, consider factors to such as tax incentives, age restrictions, and income restrictions before making your decision.

Tax Incentives

One of the main differences between the traditional IRA and the Roth IRA is the tax incentives provided by each. When deciding which is right for you, focus on what tax bracket you plan to be in when you retire and if that bracket will be higher or lower than the one you’re in now.

  • Traditional IRAs – A traditional IRA is the best choice for you if you believe your tax rate will be lower in retirement than it is right now. With traditional IRAs, you are not taxed when you contribute money to your account. Taxes are paid when you withdraw the funds.
  • Roth IRAs – Roth IRAs are the best choice for you if you believe your tax rate will be higher in retirement than it is now. When you contribute to a Roth IRA, you pay taxes on the funds as you put them in. You will not have to pay taxes on funds when you’re able to withdraw.

Age Restrictions

In addition to considering tax incentives when choosing between a traditional IRA and a Roth IRA, it is important to keep in mind that with a traditional IRA, there are age restrictions for contributions.

  • Traditional IRAs – Anyone younger than 70 ½ with earned income can contribute to a traditional IRA.
  • Roth IRAs – Roth IRAs don’t have age restrictions.

Income Restrictions

  • Traditional IRAs – You can contribute to a traditional IRA regardless of how much money you make. However, the amount of money you contribute can’t exceed the amount of income you earned that year.
  • Roth IRAs – For some high-income earners, Roth IRAs are out of the question. To contribute to a Roth IRA, single tax filers must have a modified gross income of less than $135,000 (in 2018). Married couples filing jointly must have modified AGIs of less than $199,000 (in 2018) to be able to contribute to a Roth IRA. The amount you contribute to a Roth IRA can’t exceed the amount of income tax you earned that year.

Withdrawal Rules

Both traditional and Roth IRAs allow their owners to begin taking penalty-free distributions at age 59 ½. A major difference between traditional IRAs and Roth IRAs is when the savings must be withdrawn:

  • Traditional IRAs – Traditional IRAs require you to start withdrawing funds at age 70 ½, even if you don’t need the money.

 

  • Roth IRAs – Roth IRAs don’t require withdrawals during the owner’s lifetime, which means that you can let your Roth IRA continue to grow throughout your life (tax-free) if you don’t need the money. To avoid incurring a tax payment, Roth IRAs require that the first contribution be made at least five years before the first withdrawal.

Since Roth IRAs don’t require that you withdraw funds in your lifetime, and beneficiaries aren’t required to pay taxes on withdrawals, Roth IRAs can be a good wealth transfer strategy.

Other Considerations

  • Traditional IRAs – Contributing to a traditional IRA lowers your adjusted gross income for that year, which can help you qualify for other tax incentives such as the child tax credit or the student loan interest deduction.

With traditional IRAs, if you are under 59 ½, you can withdraw up to $10,000 from your account to pay for qualified first-time home buyer expenses and higher education expenses, without paying the 10% early-withdrawal penalty. You are still required to pay taxes on the distribution.

  • Roth IRAs – Roth contributions (but not earnings) can be withdrawn penalty and tax-free at any time. Even before age 59 ½.

If you are under age 59 ½, you can withdraw up to $10,000 of Roth earnings penalty-free to pay for qualified first-time-home-buyer expenses, if at least five tax years have passed since your first contribution.

Roth IRAs can be invested in almost anything you want: index funds, life cycle funds, individual stocks, or other investments.

Remember, whether you choose a traditional IRA or a Roth IRA, it is important that you begin contributing as soon as possible to accrue savings, and avoid withdrawing earnings before age 59 ½ to avoid penalties.


Traditional IRA VS. Roth IRA

Posted on September 18th, 2018

More commonly known as an IRA, the Individual Retirement Account is exactly what it sounds like. An IRA is a tool used to put away investments for your retirement. An IRA allows you the opportunity to earn and earmark funds for yourself later on in life.

Understanding the difference between a Roth IRA and a Traditional IRA is very important as using one or the other can have a great impact on yourself and your family’s savings in the long term. While there are a great many variables between the two, but we are going to look at the primary differences that will ultimately affect your decision on which option is best for you and yours.

Traditional IRAs come with a specific age restriction. Any individual who is receiving an earned income from their employer and is under the age of 70 & ½ may contribute to their Roth IRA. Now, there are some variables when it comes to whether or not what you contribute to your IRA is tax deductible. If you or your spouse have a 401(k), or a similar retirement plan already in place that can change your contribution’s tax deductible status as can the level of your income.

Roth IRAs do not bear an age restriction. This means that you’re never too young (or too old, for that matter) to get started. The restrictions that Roth IRAs carry are more related to your income. The breakdown can be a bit tricky so allow us to explain.

If you are a single tax filer then your modified adjusted gross income (AGI) may not exceed $135,000.00 (up $2,00.00 from 2017).

If you are a married couple that is filing jointly then your modified AGI may not exceed $199,000.00 (up $3,000.00 from 2017).

Roth IRAs and Traditional IRAs both offer tax breaks. Contributions to your Traditional IRA are tax-deductible on both the State & Federal level for the calendar year in which the contributions were made. Neither your Roth nor your Traditional IRAs offer tax breaks for your contributions, but you are generally able to avoid taxes when retrieving your funds during retirement. You should also know that (as long as the funds are still in their respective accounts) you will pay no taxes on the increases that you see to the funds you’ve contributed.

There are rules in regards to the withdrawal process for you your IRA, specifically when you may begin withdrawing your funds. Once you’ve reached 70 & ½ years of age your Traditional IRS will require that you begin withdrawing from your account. Roth IRAs do not require this. In fact, with a Roth IRA, you can leave that money untouched for the entirety of your life, if you so desire. Both Roth and Traditional IRAs will allow you to begin making withdrawals at the age of 59 & ½.

Lastly, it is important to note that Both Roth and Traditional IRAs have a plethora of investment opportunities, from individual stocks to index funds.


How to make the most of your 401(k)

Posted on May 26th, 2018

If investing in your future is something that rests entirely on your shoulders, know that there are options. If you have employer-sponsored plans like 401(k)s, it’s imperative to that you properly optimize that plan to its fullest. But saving for retirement is a process, and its best to understand your avenues even if you’re just starting out. So here are some tips on how to start preparing for retirement.

– Consider maximizing your contribution which is matched by your employer in the 401(k) program at your company. In some cases, you could get a 50 percent return on your investment. By having the money taken directly out of your paycheck, you have an easier time-saving money without really thinking about it. If you match your contribution and had a direct deposit set up to add more, you will be on a good path towards affording retirement.

– Consider opening a Roth IRA or Roth 401(k) account with an investment firm. There are tax differences between the two, so it is important to discuss the pay taxes now vs. late discussion with an advisor or tax accountant

– Look into a myRA  A singular investment option by use of U.S. Treasury retirement savings bond. This is a great option for those who do not have a 401(k) account at work but have dispensable income. The myRA is convenient in that it accept smaller contributions, with low-balance fees and a higher interest rate than a savings account. Contribute your next tax refund, payroll deduction, or a deposit from a checking or savings account. You have options in size, just know with this plan that once you save $15,000, the money must be rolled into a private Roth IRA. Start saving and keep saving! Whether you’re saving for retirement or for another goal – don’t give up. If you’re just starting to save, start small and try to increase the amount each month, know your options as you get into more opportunities to save more money for that end goal.


5 Budgeting Tips to Save Cash

Posted on March 6th, 2018

Saving money is a difficult commitment to make, but it provides benefits in the long run. Life throws unpredictable events at us, and preparing our budgets to account for accidents or emergencies grants peace of mind. Saving is also one way to hold off on wanton spending that drains accounts rapidly. The following tips to save money can inspire balance in your daily financial habits.

Stick to a 30 Percent or Less Rule

It’s hard to save money without setting up a cap on your spending. When payday rolls around and there are new products or items grabbing our attention, it’s incredibly difficult. We recommend setting a limit of 30 percent of your paycheck to spend on entertainment and leisure. This reserves 70 percent use for essentials. Use 30 percent as a starting point and decrease the limit to save even more money as you become more confident in your saving strategy.

Establish Financial Goals

Nothing helps curtail personal spending and establish a direction more than creating a strategy. By writing down financial goals, such as paying off your car by a certain date, you lay a foundation for future success. Knowing where your money flows is liberating and strengthens resolve in saying no to frivolous purchases.

Manage Personal Cash Flow Daily

Dedicating one minute a day to looking over your bank account makes you aware of where you spend the most. This also promotes comfortability in managing one’s finances. Get cash out daily or weekly to keep to a specific spending amount, which is a research-proven technique that keeps your cash account stable. When swiping cards is the go-to, the convenience causes individuals to spend much more.

Shop Realistically

When new products appear on the market, whether a new gadget or guilty pleasure, it is important to hold back the impulse to buy it. Impulsive shopping tends to influence purchasing habits and tricks us into buying items we don’t need.

Pay off Larger Debts First

When paying off credit card debt or loans, it’s beneficial to chip away at a loan with a higher interest rate. If you wait to pay, amounts owed increases exponentially. Although paying off smaller amounts of debt with smaller interest rates seems more manageable, they won’t cost as much as high interest debt. By hedging larger loans and limiting the traction their high interest gains, the debt is more manageable over time.


Helpful Tips for Any Small Business Owner

Posted on November 1st, 2017

People looking to start small businesses face a daunting task. With the dominance of larger companies, global competition provided by the internet, and the increasing number of competitors within other small businesses, you may feel overwhelmed. However, these simple yet effective tips should help keep you ahead of the curve and competitive in the modern market.

1) Make Yourself Known: A great way to get your name out is through community outreach efforts, or even sponsorships of local sports teams. These efforts go beyond regular marketing efforts in that they allow local communities to know you, as well as your business, and make purchasing your goods and services personal.

2) Have a Plan: Before even starting your business, have a strong business plan that acknowledges your company’s niche, market potential, and values your current assets. This can help you in deciding a direction for your venture and can cut back on unnecessary expenditures in the future.

3) Quality over Price: With the constant presence of corporations like Walmart and Amazon, trying to price match competitors can lead to a loss of profit, as well as confidence. Instead of trying to compete fiscally, focus on honing your service in a way that these companies cannot. Not only will your product benefit from your drive for excellence, but patrons will overlook price differences for superior quality products and service.

4) Acknowledge Missteps: Nobody likes to be wrong, but being able to accept flaws in your business’ model or your product is essential in setting yourself apart from your competitor. Accept criticism as opportunities to improve. Adaptability is essential in the modern marketplace. 5) Use Technology: With the internet and technologies focused on the management of small businesses, the barrier for marketing and sales in greater regions has more or less been lifted. Be sure to use all of the resources at your disposal, whether this means creating a web-based storefront, or managing your accounts with programs like QuickBooks. While these strategies are just the tip of the iceberg in terms of establishing a successful business, they are helpful in getting your business a leg up over the competition.

5) Use Technology: With the internet and technologies focused on the management of small businesses, the barrier for marketing and sales in greater regions has more or less been lifted. Be sure to use all of the resources at your disposal, whether this means creating a web-based storefront, or managing your accounts with programs like QuickBooks. While these strategies are just the tip of the iceberg in terms of establishing a successful business, they are helpful in getting your business a leg up over the competition.


How to Achieve Financial Goals with a Budget

Posted on August 8th, 2017

Planning ahead for your finances can save you stress down the road, and ensure the success of your personal and professional goals. Outlining a monthly budget is one of the most effective ways to both organize your finances and chart your progress. The following guideline offers some helpful suggestions to stay organized and motivated as you chart your financial future.

The Importance of Setting Up a Budget

Assessing the amount of money you earn every month after taxes is the first step toward setting up a reliable budget. Next, you should determine how much is needed to satisfy monthly bills and necessary living expenses. Setting up a budget will go a long way toward helping you accomplish your financial goals as you streamline purchases.

Splitting your monthly income into three categories is a popular budgeting method. Under this system, half goes toward absolutely necessary expenses like housing, transportation, utilities, and food, 20% covers retirement and debts, and the last 30% is spent on personal expenses, such as entertainment, personal care, or charity, to name a few examples.

As far as personal purchases are concerned, you should really weigh the overall value of what you’re spending money on. Is the purchase an impulse? Does it benefit your daily life in any way beyond instead gratification? One popular sentiment many apply to their spending habits is the idea that memories are more valuable than individual material goods. The Big (and Small) Picture

The Big (and Small) Picture

As you establish your financial goals, it’s helpful to organize a plan that addresses each goal in smaller, bite-sized installments. We can easily overwhelm ourselves with long-term goals, so assessing what can be realistically accomplished within the near future may ensure long-term success.

Along with drawing up a budget, creating a financial calendar will help organize your tax schedule, whether you have upcoming appointments or need to remind yourself to pay quarterly taxes on time. This visualization can also help you track long term goals through smaller, more immediately achievable tasks, while also allowing you to track your current status. Knowing where you stand will help you stay current on financial goals. Tracking your net worth can also prevent the resumption of bad spending habits and stop current ones in their tracks.

Making the Most of that 20%

The simple act of listing your debts will help you form a plan of attack. Focusing on interest rates instead of what you owe will allow you to effectively prioritize the payoff of individual debts. The bill with the highest interest rate is costing you the most money, so it should take top priority on your list. Once that debt is paid, apply the same method to the next item.




Schedule a Consultation


Get In Touch


Featured Articles


Subscribe to our Emailed Newsletter