Learn all about #RetiredAccounts – #TaxDeferred accounts, #TaxExempt accounts, #RothIRAs, #TraditionalIRA, #401(k), #403(b). I am going to be going through many different types of retirement accounts, explain their purpose, advantages and disadvantages. Also, I will tell you what my wife and I do when it comes to retirement accounts.

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What IS a retirement account? Retirement accounts are special type of accounts, which are designed specifically by the government to help people save up for retirement. These accounts offer the account holders special benefits primarily in the form of tax breaks. The IRS provides these tax breaks because the government wants to incentivize people to save for retirement during their working years.

There are two broad categories of retirement accounts – tax-deferred accounts and tax-exempt accounts.

Tax-Deferred Accounts – 401(k) & 403(b)
• First, you must be an employee of a company offering such a plan and you must be at least 21 years of age.
• Second, there are contribution limits set by the IRS every year. For2021, the limit is $19,500. This means that your contributions cannot exceed $19,500 for the tax year. If you’re above age 50, you can contribute an additional $6,500.
• Third, withdrawals are not allowed before you reach age 59 ½ years without penalty. If withdrawals are made before you reach age 59 ½, a 10% penalty is applied and taxes are due on the withdrawals.

• And finally, after you reach the age of 72 years, you MUST withdraw funds from your 401(k). This is called Required Minimum Distribution or RMD. The RMD percentage or amount is also set by the IRS.

Tax-Exempt Accounts – Roth IRA
• Contributions must be made using earned income. i.e. you must earn at least as much money as you contribute towards your traditional IRA.
• There are contribution limits set by the IRS each year. For 2021, the limit is $6,000 per year, with an additional $1,000 per year for those aged over 50 years.

• There are no maximum income limits to qualify for a traditional IRA. However, at higher income levels, you are unable to deduct your contributions on your tax return. As your earned income increases, your allowable deductions go from the full contribution amount, to partial deduction, and finally, to no deduction.
• Just like a 401(k), withdrawals are not allowed before the account holder reaches age 59 ½ years without penalty. If withdrawals are made before the account holder reaches age 59 ½, a 10% penalty is applied and taxes are due on the withdrawals.
• There are a few exceptions to the early withdrawal rule – withdrawals up to $10,000 to help pay for a first home, and withdrawals to pay for college expenses.
• Required minimum distributions (RMDs) must begin at age 72, just like 401(k)s.

Recap
• There are two main types of tax advantaged retirement accounts – tax-deferred and tax-exempt accounts.
• Contributions in tax-deferred accounts are deductible against your tax bill in the year of the contribution. Withdrawals in retirement are taxed as regular income.
• Contributions in tax-exempt accounts are made with after-tax money, but withdrawals in retirement are not taxable.
• Examples of tax-deferred accounts are 401(k), 403(b) and Traditional IRA (Individual Retirement Accounts).
• The main example of tax-exempt accounts is a Roth IRA.
• There are certain rules that must be followed while using both tax-deferred and tax-sheltered accounts including eligibility requirements, contribution limits, and withdrawal limitations.

**Disclaimer**
The content in this or any other video on this channel is for entertainment purposes only. Nothing expressed in this or any other video on this channel shall be construed as investment, legal, financial, insurance or tax advice. Please consult a registered professional if you need any advice on any matter….(read more)

LEARN MORE ABOUT: IRA Accounts

INVESTING IN A GOLD IRA: Gold IRA Account

INVESTING IN A SILVER IRA: Silver IRA Account

REVEALED: Best Gold Backed IRA

Retire A MILLIONAIRE: Roth IRA | Traditional IRA | 401(k) | 403(b) | Retirement Accounts

When it comes to retirement planning, there are several options available to individuals seeking to secure their financial future. Four popular retirement account options in the United States are the Roth IRA, Traditional IRA, 401(k), and 403(b). Understanding the differences and benefits of each can help you make the right choice for your retirement needs.

1. Roth IRA:
The Roth IRA is an individual retirement account that offers tax-free growth and tax-free withdrawals in retirement. The contributions are made with after-tax income, meaning that you pay taxes on the money before it goes into the account. The main advantage of a Roth IRA is that the withdrawals made in retirement are tax-free, making it an excellent option for those who anticipate being in a higher tax bracket during retirement. Additionally, there are no required minimum distributions (RMDs) for Roth IRAs during your lifetime, allowing for more flexibility in managing your funds.

2. Traditional IRA:
Unlike a Roth IRA, contributions to a Traditional IRA are made with pre-tax income, reducing your taxable income for the year. The earnings on the account grow tax-deferred, meaning you don’t pay taxes until you withdraw the funds in retirement. Traditional IRAs are suitable for individuals who expect to be in a lower tax bracket during retirement. However, once you turn 72 years old, you must begin taking required minimum distributions (RMDs) from your Traditional IRA.

3. 401(k):
A 401(k) is an employer-sponsored retirement plan, offered by many private companies. One of the main advantages of a 401(k) is the potential for employer contributions, which can significantly boost your retirement savings. Contributions to a traditional 401(k) are made with pre-tax money, reducing your taxable income. The earnings grow tax-free until withdrawal, and taxes are paid when you withdraw the funds in retirement. Similar to a Traditional IRA, you must start taking RMDs at age 72.

4. 403(b):
A 403(b) plan is similar to a 401(k), but it is available to employees of public schools, colleges, and certain tax-exempt organizations. Contributions to a 403(b) are also made with pre-tax money, and employer contributions may be available. Like the other retirement accounts, the earnings grow tax-free until withdrawal, and taxes apply when funds are withdrawn in retirement. RMDs are also required at age 72 for a 403(b).

Choosing the right retirement account for you depends on factors such as your tax situation, income level, and future retirement plans. It is best to consult with a financial advisor or tax professional to determine the most suitable option for your specific needs.

Regardless of the retirement account you choose, it is important to start saving as early as possible to take advantage of compound interest. The power of compounding can significantly grow your investments over time, helping you retire as a millionaire.

In conclusion, understanding the differences between the Roth IRA, Traditional IRA, 401(k), and 403(b) is crucial when planning for retirement. Each account has its own advantages and considerations, and it is essential to evaluate your personal circumstances to select the best option for your financial goals. By maximizing your contributions and starting early, you can increase your chances of retiring as a millionaire and enjoying a comfortable and secure retirement.