Now when it comes to retirement accounts there are three main questions that I see people asking but not getting clear answers
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1. Selecting the right retirement plan for you
– Although you have a bunch of retirement plans with a bunch of options
– Usually, they all fall under two categories
– Pretax and after-tax contributions ( aka get taxed now or get taxed later)
Here Are Some Options:
– Roth Ira and Traditional Ira: the Roth ira allows you to contribute after-tax cash, that you will never be taxed on because you already paid taxes on it. While the traditional Ira allows you to put in pretax cash which you can deduct from your taxes and not pay taxes on it until you start to withdraw money. ( picture example)
– 401k or Roth 401k: It’s the same idea, one it’s pretax the normal 401k, and the other one is after-tax, the Roth 401k. ( and currently, I invest in both)
– 403 (b) sort of like a 401k plan for nurses and teachers and so on. And they also have Roth options
– SEP IRA: its doesn’t have Roth options but has very high contributions, usually its better idea to get incorporated and hire yourself and pay less taxes overall and get one of the plans I mentioned above.
2. Plan for Contributions
– Here is how I would contribute to these plans to maximize my retirement
– The worst thing is to retire and not to have enough money
– Because if you don’t have a paid-for house, you’ll probably have to go back to work, or go live on your SS in a different country
Options:
Individual Retirement Plan: between a Roth ira and traditional Ira, you can contribute up to 6000 per year and 7000 if you are 50 or older. ( I would pick to contribute into the Roth ira that 6000 per year, that way all the money is mine and I don’t have to worry about taxes) – over 40 years at an 8% return that’s 1.6M which all is yours, if it was pretax around 24-36% of it would go to uncle sam.
Employer Retirement Plan: 401k or the Roth 401k
– Same idea except you can contribute up to $19,500 between both of them. ( so usually I would go with the Roth options)
– However, your employer can also match your contributions to make the total contributions up to 57k per year ( but most of them won’t)
– And because of tax regulations, the match will have to put into a normal 401k plan and not the Roth option.
– So basically you do 19500 on the Roth option, and they can contribute the match to the 401k side, which is okay because of its basically free money.
Tip: I recommend you contribute around 20% of your after-tax income, and by the time you retire you will have enough.
Ps. You can also have a side hustle and literally contribute even more money towards retirement.
3. Plan for withdrawal
– The goal that at some point you’re going to need this nest egg to live off and retire off
– Here is how much money you will want ( 25x your current income for retirement to be really safe)
– So if you make 40k that’s $1M and if you invested 20%(8k) over 40(8%) years that’s 2.2M. more than enough
Withdrawal:
– For Roth style accounts: usually once your 59.5, you can start withdrawing your money fully tax-free no problem ( I recommend you withdraw 4% a year, and that should give you one full year of your salary or double depending if you did the 20% rule)
– If you have a normal 401k or traditional ira: same age but it comes with taxes ( but there is some called back door, I have another video on it)
Ps: you can also fund for real-life emergencies without penalties and also buying your first house. ( so if you want a video of different ways to take money out before 59.5 let me know)
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Some links in this video may be affiliate links, and I may earn a commission. Content is educational and accurate as of posting; offers may change. I’m an accountant but not your accountant; always consult your own accountant/CPA or financial advisor. No income or results are guaranteed.
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