Here’s a very good idea to consider – if you have a teenager who has a part-time job, rather than putting those earnings solely into a savings account (or worse, a car), open a Roth IRA. The money contributed to this account will mostly be tax free, since the first $12,400 (2020 figures) of earned income is not taxed for a single filer that is a dependent of another. Since contributions to the Roth IRA are “after tax”, the first $6,000 earned (for 2020) and the future earnings on that income will never be taxed if contributed to a Roth IRA. And since as a parent you’re paying for most everything else that the child needs anyhow, why not encourage him to make a contribution of his first $6,000 of income into a Roth IRA? One downside (or maybe it’s an upside?) to this strategy is that the contributions will […]
IRA
Beyond 401(k) and IRA
You’re contributing as much as you’re allowed to a 401(k) or other employer-sponsored retirement plan. If your income allows it, you’re also contributing the maximum annual amount to your Roth or traditional IRA. But you still want to set aside more money beyond 401(k) and IRA, to make sure your retirement is everything you hoped for. What options do you have? Here are some things to consider… Before moving beyond – are you really maxing our your 401(k) and IRA? IRAs and employer-sponsored retirement plans like 401(k)s have some real advantages when it comes to saving for your retirement. So, before you go any further, make sure you’re really contributing all you can. In 2020, most individuals can contribute up to $19,500 to a 401(k) plan, and up to $6,000 to a traditional or Roth IRA (subject to income limitations). If you’re age 50 or better, though, you can make […]
Should I Use IRA Funds or Social Security at Age 62?
Image via Wikipedia Folks who have retired or are preparing to retire before the Social Security Full Retirement Age (FRA) face a dilemma if they have IRA assets available. Specifically, is it better to take an income from the IRA account during the years prior to FRA (or age 70) in order to receive a larger Social Security benefit; or should you preserve IRA assets by taking the reduced Social Security benefits at age 62? At face value, given the nature of IRA assets, it seems like the best thing to do is to preserve the IRA’s tax-deferral on those assets, even though it means that your Social Security benefit will be reduced. If you look at the taxation of Social Security benefits though, you might discover that delaying receipt of your Social Security will provide a much more tax effective income later in life. In the tables below I’ll […]