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“You have two choices! You can work for your money, or you can have your money work for you!”.
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5 Things to do Before Moving into Your First Family Home
When a couple moves into their first family home, they want to make sure everything goes as smoothly as possible. As such, here are five things every potential homeowner should do before moving into their first family home. This first time home buyer guide should not only be used for your first home, but any additional homes you may purchase down the road.
1. Secure A Great Mortgage
Every applicant has a certain style of mortgage that is right for them. For instance, veterans can take advantage of A VA hybrid loan, or can research a VA hybrid review to see if this type of loan is right for them. Many first time home buyers take advantage of mortgages that cater to their budgets and needs. Still others look for a larger mortgage that can be paid off in less than 30 years. Every person has a different type of mortgage that works best for their needs, and they should know the varieties available before they settle on one.
2. Have The Home Inspected And Evaluated
A professional inspection and evaluation may cost potential homeowners a little bit of money, but it’s worth every penny for the peace of mind in the end. An inspection can detect areas of concern that can affect the value of a home, including rotting wood, unauthorized additions, and even a sinking foundation. An evaluation of the home lets potential homeowners know what their new home is actually worth so they can better bargain price at closing.
3. Know The Neighborhood
Along with knowing the safety and value of a home, a couple wishing to buy their first family home should learn about the neighborhood as well. Knowing crime rates, actual neighbors, proximity to schools and parks, and other things that can affect children is something every person should know about any home they are interested in.
4. Choose A Home A Family Can Continue Growing In
Many couples choose a home with only a few bedrooms, only anticipating the immediate future. If homeowners choose a home they can see themselves living in for 15 years or more, they are more likely to go with a home they can have several children in for the entirety of their childhoods.
5. Stay Within Budget
As a general rule, new homeowners should stay within their income level when buying a home. If a home exceeds more than twice a family’s annual income, they should seriously consider the affordability of their new home. In choosing a real budget right away, new family homeowners can keep themselves from drowning in debt from a house they cannot really afford.
An IRA retirement account is one of several critical pieces of planning for retirement. Millions of Americans have an account how they contribute to. If you can be eligible for an account, contributions ought that they are made consistently, each and every year. This stands out as the easiest solution to financially plan on your retirement. To reap the advantages of each using the benefits relating to all the account, you can find some common mistakes that ought to be avoided. The following will discuss 4 within the 9 most frequent retirement mistakes which might be made.
Retirement Mistake #1: Not Naming a Beneficiary
Upon opening an IRA, you aren’t required to name anyone as being a beneficiary for that account. Even though this action seriously isn’t required, it can be strongly suggested. If something happens for you and there isn’t a beneficiary named for the account, it’s going to turn out in probate. This might often be a long, drawn out process which will cost money that didn’t should be spent. The money from the account will likely be disbursed since the remaining life expectancy during the deceased account holder. This is generally a shorter volume of your energy approach expectancy of a beneficiary. In short, which means money will probably be disbursed faster that can place a really heavy tax burden about those who’s receiving the fortune, and that may be determined in probate. Naming a beneficiary once you open the account will eliminate this. You will then be absolutely sure where your remaining account will go after your death. You could also determine how fast the funds is going to be distributed.
Retirement Mistake #2: Forgetting the Deadline for IRA and Roth IRA Contributions
Don’t forget the core intent behind Roth IRA’s – to fund it just just as much when you possibly can for retirement! Many people believe that one more day they will produce a contribution is on December 31, in one more day within the year. This seriously isn’t true! You may still contribute as much as April 15 of these year. IRA contributions are based for the tax year – not the calendar year, so don’t miss this extra time by assuming the end in the year means the end of contributions. The best way to prevent these common retirement mistakes should be to fund as much as you’ll be competent to early in the year. If you meet the ideal simple contribution limit or Roth IRA contribution limit, you won’t miss out on saving an abundance of funds. The date of April 15 is known for being an extended contribution deadline. These few extra months could create a tremendous difference for some savers as part of your retirement account.
Retirement Mistake #3: Not Knowing Spousal/Non-Spousal Inheritance Rules
There is often a difference in the rules of inheritance that applies to spousal and non-spousal beneficiaries. If you might be a spousal beneficiary, you have two options. You may roll the funds into an account that is already with your name, or else you might change the name on the inherited account. After it truly is complete, the money will be viewed as though it were yours all along. Contribution and withdrawal rules will apply as though it were your own personal account. Non-spousal inheritances work differently. You won’t have the ability to roll the funds over to your individual IRA. You may also be not allowed to generate any contributions for the initial account.
Retirement Mistake #4: Not Contributing Because of Stock Market Volatility
Due towards recent currency markets meltdown, lots of individuals are questioning whether they should continue contributing therefore to their IRAs. The fact is simple. Never stop contributing! Regardless of what are the marketplace is doing at any given time, you ought to take full benefit in the numerous benefits offered by an IRA retirement account. One of those benefits is often a tax break. No matter what are the state from the marketplace is, you will still obtain tax breaks on all money contributed. If you might be lucky enough to figure for the firm that can match your contribution, you will be making much more assets while using the account, along with with the added tax breaks that will of course result in retirement income when it is time for you to spend it.
Related Articles: Traditional IRA vs Roth IRA – Understanding The Difference
Want to get started down the right retirement road?
One of the best things you can do today to improve your chances of a comfortable retirement is to open a Roth IRA and start contributing regularly (automatically, if you can) to a diverse set of investments.
The Roth IRA is not an investment though, like a stock or bond. A Roth IRA is simply an account within which you can hold your investments. Why would you want to hold your investments in this account versus just buying them straight up? The answer is simple: fewer taxes.
Roth IRA Definition Basics
The Roth Individual Retirement Account (or IRA) was created in the late 90s to provide a tax break and encourage you to save money for your own retirement.
The main difference between the Roth IRA and other tax-related retirement accounts (like the 401K or traditional IRA), which allow you to avoid tax on contributions, is that the Roth allows you to avoid taxes when the money is withdrawn in retirement.
If saving a lot of money on taxes sounds like a good idea to you, then a Roth IRA is going to serve you well. Picture yourself with a healthy Roth IRA account in retirement. Now see yourself taking money from that account each month to cover your living expenses, securing lower life insurance rates, and what ever else you need. Now see yourself not paying any tax on those withdrawals. Nice, right?
Another difference between the Roth IRA and the 401K is your ability to control the investments. With your company 401K you’re pretty much stuck with the investments that your administrator will offer you. On the contrary, you can open a Roth IRA where ever you like, and it can contain just about every investment type under the sun.
Not everyone can participate in this type of account though. To be able to contribute your adjusted gross income (check your latest tax return) must be less than $135,000 if you file your taxes individually or $199,000 if you file with your spouse as a couple. FYI – Those are 2018 numbers. Be sure to check the latest numbers.
Roth IRA Annual Contribution Limits
Additionally, you can’t just throw a bunch of money into this account all at once. Contributing too much will trigger an excess contribution tax and penalty.
For some reason the government felt the need to force you to slow-play your savings efforts. Right now (2018) you can contribute up to $5,500 each year to your Roth IRA. Like the income limit above, this changes periodically so pay attention to dates. Also, there is a “catch-up” rule that allows folks 50 and older to contribute an extra $1,000 each year.
Where to Open a Roth IRA
Most banks and large financial institutions will offer Roth IRAs. I typically don’t advise this route as not only are the accounts typically restrictive, some come with administrative fees. Just stay away from the banks when it comes to your retirement accounts.
You could also open a Roth IRA with a mutual fund company like Vanguard. Keep in mind that these companies typically have minimum contribution limits in the thousands. Also, they only offer their investments. So for instance, you couldn’t have a Roth IRA with Vanguard and invest in individual stocks. Not necessarily a bad thing. Just a difference.
If you have a small amount to begin investing, you may want to start with a discount online stock broker like OptionsHouse or Zecco. They have no-fee IRAs with very low minimums, if any.
I could go on an on about why the Roth is a good retirement account, but I think you’ve got the basics down now. There’s no reason not to own one really. All that’s left to do is figure out what investments you actually want inside your account. We’ll leave that lesson for another time.
It’s good to invest for retirement.
It’s even better to invest for retirement if you can also pay less in taxes during the process. That’s what the traditional and Roth IRA provide. They allow you to pay fewer taxes. But they have a few differences, which I will explain below.
The federal government has decided to encourage you to do your own saving for retirement. You see, back in the good ole days, everyone either had a pension from their employer, or they just worked until they died. Only the rich were investing in the stock market.
In the modern era of investing, the pension started to go away. Thus, the government started feeling pressure to take care of older citizens. Because social security isn’t supposed to be a complete answer to your retirement needs, and because Americans started living longer, they needed a solution. They needed something to encourage do-it-yourself investing.
Along came ERISA and the traditional IRA in 1974. The traditional IRA is a retirement account in which the contributions you make to that account are tax-deductible. In other words, if you contribute $1,000 to a traditional IRA, you will be able to reduce your taxable income for the year by $1,000. Depending on your tax bracket, this could mean up to $250 in tax savings. All that just for saving for your retirement.
Over the years, the traditional IRA has seen come changes. We now have limits to the amount that you can contribute each year towards your IRA. Also, if you participate in an employer sponsored plan, like a 401K, you will not typically be able to invest tax-deductible dollars into a traditional IRA. Additionally, if you make over a certain amount each year, you will not be able to contribute tax-deductible dollars to your account.
When you pull money out of your traditional IRA (called a distribution), you will have to pay taxes on the money. So even though you skipped the taxes on the way end, you will make it up in retirement. Your contributions and earnings from those contributions will be taxed when you pull them out.
Lastly, you should know that there are penalties if you pull money out of your traditional IRA before you retire, and there are also required minimum distributions you must make starting in retirement. The traditional IRA has a lot of restrictions, but it’s the best place to save for retirement for those without a 401K who are looking for an instant tax deduction.
That brings us to the Roth IRA. The Roth IRA was created by the in Tax Act of 1997, which was authored by William V. Roth, Jr., a Senator from Delaware. The Roth IRA was aimed at helping people save outside of their employer 401Ks.
You contribute after-tax dollars to a Roth IRA, but when it’s time to withdraw those funds in retirement, you can do so tax-free. Nice, right? Just like the traditional IRA, the Roth has income limits and contribution limits you must deal with. See more at the Roth IRA explained.
Other than that, there’s not much downside. Since the funds are after-tax (meaning you’ve already paid taxes on them), you have a lot more flexibility. You can withdraw your contributions without many limits and you can withdraw them in retirement any time you want. No required minimum distributions.
Traditional IRA vs Roth IRA
A good thing to keep in mind is that if you qualify for both accounts you can certainly contribute to both. There’s no rule saying you can’t. Keep in mind that if you do, you need to watch your contribution limits as those will be spread across both accounts.
The traditional IRA and Roth IRA are both excellent tools to help you get started with your retirement savings effort. It’s more important to get started with something than stopping down because you are stuck deciding which one of these is the best.
As a quick rule of thumb, I like to tell people that if you don’t have a company 401K, then consider the traditional IRA if you want to see some savings to your high tax bill. If you do have a company 401K, then just go with a Roth IRA to do all of your extra investing. That’s what I do.
Once you decide which account to use, you can start thinking about what to put inside your IRA. Good luck.
Can you contribute to a Roth IRA and 401k? Yes, you can contribute to a Roth IRA and 401K at the same time.
In this post I’ll share my experience of simultaneously contributing to a Roth IRA and 401K, as well as the requirements you’ll need to meet in order to do the same.
When it’s time to get serious about your retirement, it’s not a stretch to imagine you might start thinking beyond your 401K. If you have a 401K at work, that’s great. Your employer cares about you and your ability to support yourself in retirement. If your employer is offering a matching contribution, well, you’ve struck gold. That’s free money. The next logical step is to consider a Roth IRA.
Before you consider a Roth IRA, you should be fully taking advantage of your company 401K. By that I mean contributing enough annual dollars to get the full match that the company offers. It’s likely that you are already doing that so let’s dive into the next step of also investing in a Roth IRA.
As a side note, if you don’t have a 401K, then consider reviewing the Difference Between Roth IRA and Traditional IRA.
Difference Between 401K and Roth IRA
Remember that the Roth IRA and 401K are just accounts where you keep your investments. They aren’t actual investments. They are just the account (or vehicle, as some put it) where the money is held. These accounts are great because they get special tax treatment.
You are able to contribute pre-tax dollars to a 401K. This means that no tax is taken from your money that is placed into the 401K. If you earn a dollar and put it in your 401K, you pay $0 in taxes on that dollar. If you earn another dollar and put it in your checking account instead, you have to pay taxes on that money.
There is a limit to your contribution though. It changes every year usually, but right now you can contribute $18,500 (2018) to your 401K.
You can’t contribute pre-tax dollars to a Roth IRA. You can only contribute dollars that have been taxed already. However, unlike a 401K, when you distribute that money to yourself in retirement, you don’t have to pay a tax. Nice, huh? For more on this account see the Roth IRA Explained.
401K and Roth IRA
Because the Roth IRA and 401K have opposite tax treatments, the IRS allows you to contribute to both at the same time. The only thing you have to worry about is the income limitation set on the Roth IRA. Your ability to contribute to a Roth IRA starts to “phase out” at $189,000 (2018) for those who file “married filing jointly”.
Here’s a strategy I follow. To contribute to both of these accounts, just make sure you start with contributions to the 401K to get the match. Then, switch to contributing to the Roth IRA. Once that is maxed out for the year ($5,500 for 2018), then you can go back to the 401K until you reach your annual limit there.
I did that for the tax years 2016 through 2017 and saw significant increased in my tax-advantaged retirement investing accounts. Not to mention, I have two different account with different distribution rules. So now I can consider things like using my Roth IRA for a down payment.
How about you, do you contribute to a Roth IRA and 401K at the same time?