Thursday, 1 August 2019

Top Apps To Save for Retirement

Top Apps To Save for Retirement

In this article, I am going to do a step by step process that you should go through once you have decided that you want to put money aside for retirement.

  • Find out do I have a retirement plan offered by my job

  • Find out do they match my contribution, so if my put $50 in there they are going to give me $50 too. So you have $100 in the account.

That is the idea behind a match, some company only match half. So you only want to contribute to your jobs retirement account. If they offer you a company match.

  • Whenever you put money into a 401k or 403b, it locks the money in there until you turn 59 years old. The money is not really flexible, it's not really available to you and that is not the smartest thing to do with your money as a young professional.

You never know what is going to happen and extreme emergency could come up in 5 or 6 years and you might want t access the money that you put into your saving for an extreme emergency.

  • I don't encourage people to use the money they put in their retirement, obviously if you put the money in there it should be with the mindset that you are going to touch it for like 30 years, until you retire, but you just never know, life happens, so you want to prepare for that.

You want to have your money in a place that is as flexible as possible. And a 401k or 403b, these places, you can't really take money out. But until you are 59 years old 

If you do take it out before then, then you are going to get smacked with taxes and a penalty fee of 10%, so you are going to lose a big chunk of all the money that you work so hard to save and so you want to avoid that.

Company With No 401k or Match

If your job offers a 401k or 403b but no company match or if you find out that your job doesn't have a retirement account for you at all, then your best option is to open your own IRA (Individual Retirement Account) Or Roth IRA.

I personally love the Roth IRA and a lot of financial advisors out there will tell you the same and the reason why is because the Roth IRA is the most flexible place for a young professional to put their money

What Makes a ROTH IRA so Flexible?

  • You can take out ROTH IRA contributions tax-free and penalty-free anytime for any reason! (Not recommended.)

  • 5 years after converting or rolling over money from other accounts,s that money can be withdrawn tax-free and penalty-free too!

  • You only pay 10%penalty for withdrawing your earnings before age 59 and a half years old. (There are even some ways you can avoid this!)

Another nice thing about Roth IRA is that when you put money into it, is the money that you already been taxed on, and this is different from a 403b or 401k at work because those accounts take pre-tax money, so it's your income before it's even been taxed. That goes into the retirement account with your employer 

Which means that when you turn 59 and a half years and it's time for you to get your money out and retire, you are going to be taxed at the tax bracket that you are going to be in that age, which if you are a young professional who is starting out in their career now you are probably not making that much on your prime making an average salary and by the time you are 59 and a half you are going to be making much more money, hopefully, than you are making now.

You are going to be taxed at a higher tax bracket, so it doesn't make sense to pay more taxes later, you might as well get the taxes out of the way now with a traditional IRA you are also putting in the money in the account after it's been taxed

But the difference is that you are going to report the traditional IRA contributions that you make on your taxes, so that is why

Roth IRA contributions are not reported on your taxes.

You might see turbo tax and other services like that they advertise like open a traditional IRA, make the IRA contribution today and you will get a tax deduction, you get a tax break.

Which is true they are not lying but what they are not telling you is that you are going to get a tax break today and you are going to pay more taxes later in life, which doesn't really make sense in the grand scheme of things.

Before I wrap it up I want to let you know some resources for where you can go if you want to open a Roth IRA or a traditional IRA or any type of retirement account that you want to open.

I recommend 

  1. Betterment
  2. Vanguard
  3. Wealthfront

All of these have low fee compared to all the other competitors and then they have good customer service as well so if you have any question you can reach out to chat or call. You can get enough information before you undecide to open your account. 

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