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Planning for retirement could be simple, but it could also be complicated. You will have to think hard about the choices you will make, but at least you have choices. A wise choice could pay a handsome lifestyle when you retire. This video will provide you with basic information about the differences in choices you could make, but must consult a financial consultant to answer some of the detailed questions you may have….(read more)
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retirement planning is a crucial aspect of financial management, yet it is often overlooked by many individuals. People often assume that saving a small amount every month in a savings account will suffice to meet their post-retirement expenses. However, this could prove to be a grave mistake. Instead, it is crucial to opt for retirement plans like IRA, Roth IRA, or Self-Directed IRA (SDIRA) to secure a comfortable future.
To begin with, let’s understand what IRA, Roth IRA, and SDIRA are.
IRA or Individual retirement account
An IRA is a type of retirement plan where an individual can make contributions with pre-tax money. There are two types of traditional IRAs: the deductible and non-deductible. The deductible IRA allows the individual to deduct their contributions from their taxable income, while the non-deductible IRA does not provide this tax benefit. The earnings on the contributions in the IRA grow tax-free until the individual withdraws the money after retirement.
Roth IRA
A Roth IRA is a type of retirement plan where the individual contributes with after-tax money. The contributions cannot be deducted from their income taxes, but the earnings from the contributions grow tax-free. Therefore, the individual can withdraw tax-free money after retirement.
SDIRA or Self-Directed IRA
A Self-Directed IRA is a type of IRA where the individual can invest in a broader range of assets, including real estate, private equity, and other alternative investments. The investor has complete control over the investments made, but it also means that they take full responsibility for the success or failure of their investment decisions.
Let’s compare these three retirement plans:
IRA vs. Roth IRA
Both IRA and Roth IRA allows an individual to save money for retirement, but the main difference is the timing of the tax benefits. In a traditional IRA, the tax benefits occur upfront, as the contributions are tax-deductible. In contrast, in a Roth IRA, the tax advantage occurs when withdrawing money in retirement, as the contributions are made with after-tax money.
Another difference is that Roth IRA does not have required minimum distributions (RMDs). RMDs require individuals aged 70 ½ or older to withdraw a certain percentage of their account balance each year. However, Roth IRAs do not have RMDs since the owner has already paid taxes on the contributions.
IRA vs. SDIRA
The most significant difference between an IRA and SDIRA is that the latter allows a broader range of investment options. In traditional IRA, the investments are usually limited to stocks, bonds, and mutual funds. In contrast, SDIRA allows the individual to invest in real estate, private equity, and other alternative investments.
However, the downside to SDIRAs is that they require a lot more effort, time, and knowledge to manage because of the increased level of control that the individual has. The person has sole responsibility for the success or failure of their investments.
In conclusion, selecting the perfect retirement plan is important based on an individual’s financial goals, risk tolerance, and future expectations. IRA is a more commonly used plan that benefits the individual when taxes are the lowest. Roth IRA can better benefit those who expect high taxes in the future. An SDIRA can benefit those who want complete control over their investment options. Thus, it is crucial to evaluate the pros and cons of each option before making the final decision.
Where do you open Roth IRA?
Good information. I have a TSA account and a traditional IRA along with a Roth. I'm retired and thinking about a Roth conversion. Of course my financial advisors advise me to do this while I'm in a lower tax bracket. But, I'm thinking about hiring a fiduciary for advice. Have you ever thought about using a certified fiduciary?
Roth is good
Thank you po sa helpful info.
Here is something that most people do not address for retirement/moving overseas. I used to have a 401 with Fidelity. Before retirement I contacted them to see about a rollover for a self-directed 401 from them. Since I was planning on moving out of the US with no alternate US address ( not a family address that I can use), I could no longer be with them. Talk with multiple banks to see where you can rollover your 401. Some banks will allow free international money transfers if you maintain a minimum balance with the sum total of checking, savings, 401. This will save a lit of money over the years, especially when Xoom, western Union, Palawan etc charge a percentage. There will be a relatively small fee from the Filipino bank. This must be set up before you do your permanent move. Consider if they can transfer dollars. And open your dollar/peso accounts before your permanent move ( in Filipino spouse name).
With Roth IRA, withdrawal of EARNINGS (not contributions) BEFORE age 59-1/2 and METS the 5-year rule will be subject to tax and penalty but can avoid BOTH if the owner qualifies on an exception. If the 5-year rule is NOT MET and EARNINGS (not contributions) are withdrawn BEFORE age 59-1/2, the earnings will be subject to tax and penalty as well but may avoid the PENALTY only if the owner qualifies on an exception.
Salamat po sa mga video na ganito. It's an awareness to all Filipino to prepare for our retirement.
I'm a Filipina and while I'm here in america I plan my retirement already so when I get 60 i have a good life to enjoy. Please visit also my channel how to open Tradtional IRA and Individidual account first step to trade in stock market and investment. Let us all plan our retirements.
get both.
I believe you failed to mentioned two things:
1. On a Roth IRA it is only tax free on the Federal side however, you still need to pay taxes to the State. And 2. You can have both Traditional and Roth IRA at the same time subject to the maximum limit, $6,000 for 2020.
I love your videos! Thank you for sharing your knowledge! I have a question about Inherited IRA, 401-K. Should I cash them all out or can I just leave it alone in the account? How is it taxed? I was named sole beneficiary. This is Florida. I am a US citizen. Thanks!
Hello there, I have question about FATCA and FBAR .
when you declare your bank accounts in the Philippines does it mean na IRS will tax you?
Whatabout yung mga monetary inheritance that's the reason kaya ako nagkaroon ng bank accounts sa Phlippines.
kasama po ba iyon sa reporting sa FBAR??
Great. I wonder, if I am not a Philippino citizen but I want to buy a lot of land (to build a house or do farming or whatever business I want to do there) on the Philippines: a) will the Philippines government allow me to buy a lot of land or not? b) if yes, and I buy a land lot to own it, how secure is my ownership? can the government take my property away from me if they decide to do it? thanks.
here's the scenario… I retired last year at 62 and i needed to roll my 401k. I ask my advisor about rolling it over into a roth ira. and that's what she told me…
on the rothira, dont you have to wait 5 years before you can start withdrawing otherwise you get penalized?
I love watching your videos sir. Very informative and you gave us ideas on theIRA. How about 401K converting to Roth IRA? Maybe you can make a short videos on this matter. Again thank you for explaining to us about IRAs
Salamat Kuya Danny. Learning for my retirement while exercising on my elliptical machine. Win win. I was always curious about the different Roth IRA's. I have a 401K with my employer, but may open a SDIRA after I retire. Anyways thanks for the information sir.
Very informative. Keep up the good work.
Only big negative about retirement income is the effect of aging.
One of my better retirement instruments, (and i am not advising) was overpayment of premiums on a life insurance policy that i retained from an early career.
I overpaid a premium just to see what the insurance would do.
They applied the overpayment amount to the cash value which currently pays 4 percent, tax free. If need be i can borrow against it, (without a tax penality).
Of course it is not insured, but is one of the largest life insurance companies.