I like to call Roth Accounts the “Never Taxed Again” account because you are taxed on the money you put in, but you are not taxed when you take it out nor are you taxed on the earnings.
Traditional Retirement Accounts are tax-deferred. This means you get a tax deduction when you put money in, and you pay tax when you take money out (usually in retirement). Most typically, these are your Traditional 401k and Traditional IRAs.
Ok, so, you are maxing your retirement plans, you’ve got your college funding figured out and you have plenty of money for emergencies and other upcoming expenses – but you still have money left over. What to do?
It is unfortunate, but to understand why diversification works, we must understand a little math. This mathematical magic is the key to constructing a portfolio that your well-thought-out financial plan deserves: a beautifully diversified investment strategy!
A revocable living trust is a legal method of passing assets from one owner to the next without going through probate. Trusts typically provide much greater protection for your wishes.
We have many choices when investing. Today, we are going to look at the different ways an account may be taxed: now, in the future, and never again. Given these choices, we might think the “never taxed again” structure is best and the “taxed now” is worst, but there’s much more to the story.
How much will you spend in retirement? This is an important question, and we can get nearly there by looking at your current expenses. However, the biggest determinant of your future spending is actually inflation.
How much time do you have left?Knowing the answer to this question would greatly ease your financial planning process. But, of course, this is one of the many variables we don’t know.
Buying an individual stock is like placing your money on a single number in roulette, but much, much worse. In the United States, there are hundreds of large investment firms trying to pick the best stocks. Within these firms are talented, educated and well-connected analysts whose sole responsibility is to know whether to buy or sell 5-10 individual stocks.
If you are in the savings/investing mode, would you rather stock prices today be over or under the true value of the companies you are buying?
Needing access to your investment accounts in an emergency creates enough of a logistical hurdle but holding investments that may take weeks or months to sell can really cause a problem.
When investing, it is easy to be attracted to the various vehicles, sectors, and strategies that surround us. Wall Street (and other financial agitators) knows this and they invent new angles every day with the primary goal of getting into your pocket.