M ISCELLANEOUS T OPICS. Retirement Accounts, Regular Accounts, and Annuities. Why? ’Cause ya’ gotta’ put yer money somewhere!. Regular Taxable Accounts versus Retirement Accounts. Bonds. “Cash”. Bonds. Stocks. Options. Futures. Stocks. “Cash”. Margining. Real Estate. Shorting.
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Retirement Accounts, Regular Accounts, and Annuities
Why? ’Cause ya’ gotta’ put yer money somewhere!
IRA, 401(k), 403(b), Roth IRA, etc.
Strict limits on contributions
No limit on contributions
No limits on investment types
Strict limits on investment types
Pay taxes every year
Tax-deferred (Roth IRA – tax-free)
Although there are many subtle and not-so-subtle differences, the major differences are how they are taxed by the IRS, how much money you can contribute, and what you can have in the account.
“What? I thought it stood for Individual Retirement Account!?”
They all work very much like the Traditional IRA except for the Roth IRA, “Roth 401(k),” and “Roth 403(b).”
But the whole $100 still goes into your account
So Why Contribute to a Roth IRA?
But a Roth IRA is Not for Everyone
IRA / Roth IRA Contribution Limits
Contributions are limited to the lesser of your gross salary or the maximum yearly contribution. If you make at least $5,000 in any year, you have until April 15th of the next year to put the maximum into a IRA or Roth IRA. Your spouse is also eligible for contributions even if he/she does not work.
401(k), 403(b) Contribution Limits
Contributions are limited to the lesser of your gross salary or the maximum yearly contribution. (Same rules as Traditional IRA / Roth IRA.) In other words, if you make $17,000 in year 2012, you could put your entire income into a 401(k) or 403(b) or 457. These amounts are now indexed to inflation and go up over time. There is a loophole in the law that allows those in the public sector to “double contribute” $17,000 into a 403(b) and $17,000 into a 457 – or $22,500 and $22,500 if you are 50 or over!
Tax Credit for Low Income Earners
If you do your own taxes, do not forget this. If you have someone do them, make sure to remind them you put money away in a retirement account. TurboTax handles these well.
“Roth 401(k)” / “Roth 403(b)”
This is a great option for those who do not need the tax break now. However, unless your employer offers matching contributions, I prefer the Roth IRA.