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This information is provided to you as a resource for informational purposes only and should not be viewed as investment advice or recommendations. To get professional financial advice from a fee-only financial advisor near you, please visit www.napfa.org.
The decision about when you retire is one of the most important financial decisions you will make in your life. I urge you to seek professional financial advice as you make this decision. Ideally from a fee-only financial adviser, AND a CPA AND an attorney. Having the perspective of all three professions will help you make the decision that is right for you and your family.
This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors.
This information is NOT intended to, and should NOT, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, and/or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.
I don’t believe in “get rich” programs. Rather, I believe in doing your homework and working with professionals who are a fiduciary to you 100% of the time. Advisers that have at least a decade of experience helping their clients achieve their goals….(read more)
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When it comes to saving for retirement, there are some things that the wealthy know that the average person might not. By understanding these tips and strategies, you can optimize your retirement savings and potentially increase your overall wealth.
1. Contribution Limits
Most people know that they should be contributing to their IRAs and 401Ks, but not everyone realizes that there are contribution limits. In 2021, the contribution limit for a traditional or Roth IRA is $6,000. For a 401k plan, the contribution limit is $19,500 ($26,000 if you are over 50). Wealthy individuals know these limits and maximize their contributions each year to take advantage of tax-deferred savings and potential investment gains.
2. Roth IRA Conversions and Backdoor Roth Contributions
Roth IRAs are popular among affluent investors because they offer tax-free growth and withdrawals in retirement. However, there are income limits on Roth IRA contributions. In 2021, individuals earning more than $140,000 and married couples earning more than $208,000 are not eligible to contribute to a Roth IRA.
Wealthy individuals may instead choose to do a Roth conversion, where they convert a traditional IRA into a Roth IRA. This requires paying taxes on the converted amount but sets them up for tax-free growth and withdrawals in the future. Alternatively, they can make a backdoor Roth contribution by contributing to a traditional IRA and then converting it to a Roth IRA.
3. Self-Directed IRAs
Self-directed IRAs allow investors to invest in a wide range of alternative assets beyond stocks and bonds, including real estate, private equity, and precious metals. For wealthy individuals, self-directed IRAs can be a powerful tool to diversify their investments and potentially earn higher returns. However, self-directed IRAs often have higher fees and require more due diligence on the part of the investor.
4. Stretch IRA Strategies
Stretch IRA strategies allow the wealthy to pass on tax-advantaged retirement accounts to their heirs. Rather than taking a lump sum distribution and paying taxes, the heirs can stretch out the distributions over their lifetimes, potentially saving thousands in taxes. These strategies require careful planning, including setting up trust accounts and designating beneficiaries properly.
5. Sophisticated Investment Strategies
Finally, wealthy individuals often have access to sophisticated investment strategies that the average person may not be aware of. This might include investing in hedge funds or private equity, using leverage to increase returns, or employing options strategies to protect against market downturns.
While not all of these strategies may be appropriate or accessible to everyone, learning about them can help any investor optimize their retirement savings and potentially increase their wealth over time. By maximizing contributions, taking advantage of Roth conversions and self-directed IRAs, and exploring sophisticated investment strategies, you can set yourself up for a more comfortable and financially secure retirement.
=== Azul's "Scammer" Warning & Disclaimers. PLEASE READ!! ===
Be careful of scammers. In the comments, I will NEVER suggest you contact me, offer any investment products, recommend an adviser or anything similar. Some scammers ask for investment help in the comments and later, other commenters post how "great that idea/investment/person is" in the replies. This is a scam. Do not fall for it.
3 buckets
3 buckets
A lot of folks have been going on about a March rally and said stocks that would be experiencing significant growth this new year season, any idea which stocks this may be? I just sold my home in the Boca Grande area and I’m looking to remunerate a lump sum into the stock market before stocks rebound, is this a good time to buy or no?
More on 3 buckets and Roth
3 BUCKETS!
Diversifying is the key to investing. When I hear someone say they have a million dollars in their 401K and that's all they've invested in the fist thing that comes to my mind is are you stupid? When my 401K got to a certain amount I stopped putting money into it and just let it grow. I started using the money I was putting into my 401k to buy rental properties. I retired 10 years ago at 50, I sold most of my rental properties to pay off three condos that I currently rent out. I only kept the condos because they're less maintenance and easier to manage as I get older. I definitely made a lot more money by investing in real estate than if I had kept putting money into my 401k. It might not work for everyone but it's worked well for me.
One thing I noticed when I was working and on business trips it doesn't look like much fun traveling when you get old!! So my wife and I picked one lactation that we enjoyed traveling to and bought a condo there and that's were we do 90% of our traveling to. It's great because we don't have to pack a suitcase and we don't have to get a rental car. At the end of ski season in Tahoe we just buy a one way ticket to Maui, lock the front door on our condo and take an Uber to the airport. When the ski resorts open in Tahoe we just buy another one way ticket back.
In January 2022 I moved 95% of my IRA (401K) into cash just sitting there. I don't care if I never make another penny off of it. I figure I got out of the largest pyramid scheme on top and I'm good with that!! Aloha!!
Tax rates will go way up soon and most will be far better doing Roth IRAs and Roth 401Ks for most of their working years. Every retired couple we know who waited until 70 to begin SS are now receiving more income than when working full time 10 years ago.
How do you think we should think about the upcomign tax changes in 2026 if we're working, but close to retirement by 2026-2027? Should we go all Roth on our employer accounts for the last few years, as our current tax bracket (24%) may easily be 25% or more even in retirement?
A positive as an artist is that it is really hard to get into a mind set of savings. My Roth IRA trained me to start putting money away. I think of it as money under my mattress
I can’t put anything in bc I make less now than I did 20 years ago. Their plan is working
Hello Azul. Stumbled upon you the other day. You have the knack for being friendly, informative and concise. Congrats.
A number of my colleagues and I are facing the following delimmna:
– We still have pensions. $0.5M and up.
– We have substantial traditional 401K. All of our money went into this (employer match). None into Roth IRA
– We are facing retirement this year: Most of us would choose to have a pension based annuity stream, because it includes spousal benefits. But, we are concerned about the future financial viability of our companies, so we are tempted to lump sum into retirement. We do not have confidence that subsequent owners of our companies are interested in taking on the burden of our pension fund and will find a way to legally default on the obligation.
– How can we avoid the 20-25% tax bite on the pension lump sum?
3B
A Roth 401(k) would be an interesting topic for discussion to include maximum amount of 401(k) versus an IRA Roth, and the effect of my income on both vehicles
Just buy Bitcoin
Hello and thanks for the great videos. Could you offer your take on annuities? A general overview would be great. We have a financial adviser trying to push one but in the back of my mind I have a negative impression of them.
Great videos! Very interested in the 3 buckets.
We experienced the pinnacle of our era, but it is now gone. Like what happened to Rome, the corrupt
administration will bring this nation to an end. My condolences go out to anyone who is close to
retiring and may be worried about whether their pension will be enough to pay the rising cost of living.
Insane fiscal policy, poor regulatory policy, poor energy policy, and poor foreign policy
Also, don’t forget pulling 401k/IRA can also drive up your Medicare cost, IRMAA. Another cost to consider.
I wished my company had offered Roth 401k when I was working but sadly all we had was the basic 401k and the choices we had for investing was absolutely horrible…..I couldn't wait to retire so I could roll it over into an IRA which opened up the world of investing for me…..But I have to admit I was in the 401k with matching funds for 24 years at my last job and it has served me well in my retirement until I finally decided to start drawing SS and I still had money in the IRA for many years to come.
The wisest thing that should be on every wise individual's list is to invest in different stream of income and don't depend on the government to bring in money especially now the pandemic is hitting the economy
Just wait till Biden starts taxing your unrealized capital gains. Thanks Libtards.
I would say the Roth is a tax me once account. My problem is I have a great match from my employer that makes Roth tough until I retire. I am talking a 10% match….
It's not that rich people know about this, it is more about informed people know about this. All my life I taught myself what I needed to know about managing my own money. My Mom taught me all about managing money at a young age and she was a waitress most of her life – not rich at all. I retired at 52 thanks to my own hard work at educating myself and not paying others to do something i could easily do.
Two points I'd like to mention. First of all, if your household income is high enough then the tax deferral of a traditional 401K/457/ or IRA maybe much more beneficial considering the amount that you can sock away annually is over three times more than the allowable dollar amount for a Roth. These employer saving vehicles helped save us from huge and of season tax bills year after year. Also, a Roth not only limits your annual contribution (I believe its $6500 in 2023), but your income levels may prevent you from qualifying at all. I would say the most important factor no matter what savings vehicle you choose is to start and save. Save hard and be consistent. Let time be your friend. Roth's are a great tool, I'm not knocking them.On the contrary, I have both my children investing in them, but that is the investment vehicle that best suites their respective positions and availability at this time.
Many people needlessly worry about taxes in retirement. Most people are not pulling hundreds of thousands a year in retirement. If married and filing jointly, we can pull up to 115K and still only be in the 12% top marginal tax bracket after std deductions. Looking forward for 2023, our STD deduction will be 27,700. So we can make that before paying any fed tax. Then we can make 22K above STD deduction before we enter the 12% bracket. So we can make 44,700 and stay in the 10% bracket. Nice ! And really, if we pulled 80K the taxable part is just nothing to worry about. IMHO. But do take advantage of ROTHs when you can and have some tax free and non income triggering events in retirement. It's all good.
Great point about 401Ks and IRAs being a "box" and the tax implications; specifically that tax bracket changes could negatively impact your planning and the reality that equity-based 401Ks and IRAs will be treated as ordinary income, regardless of their holding period. We are about 70/30 split between taxable/non-taxable and will plan out our cash-flow needs each year in retirement to optimize our tax burden. Of course, we'll have to recon w/RMDs in the process… Great content!
401k fees are destroying your retirement. Here’s just a sample of them: revenue sharing, expense ratios, wrap fees, soft dollar costs, transactions costs, account charges, redemption fees, deferred sales charges, advertising costs for the plans and the companies who run them, fees to various investment managers, fees for buying and selling stocks and bonds, and 12b-1 fees.
These fees are taken off the top of investment returns or share prices. In other words, the rate of return and share prices reported to you in your account statements and plan documents are post fees. Because of this, retirement and bank account statements contain no evidence of these fees! Thus, account holders generally have no idea how much these fees are costing them.
Funny, set my self up to retire at 50. Still do some work and I pulled the trigger early. Never saw the need for the stuff. Just fluff for me but does serve a purpose for some people.
HSA is far better to invest in (triple tax free). Also you can save the maximum now, don't touch it, pay out of pocket right now for medical expenses and keep the receipts. In the future you canwithdraw tax free from HSA whatever you paid put of pocket now, and use it for whatever you want.
Convert 401k to annuity from insurance company.
Would love to hear about your bucket strategy
Good advice
They screwed people on non spousal inherited IRA's in 2020. Prior to 2020 you could pull an inherited IRA out over your lifetime. They changed it so you have to pull it all out over a 10 year time period. So now you can't save that money and use it for your retirement or allow it to grow and only pull it out as you need it. You have to take the tax hit in the first 10 years.
It's the biggest con Wall Street pulled on average Americans. They got trillions of dollars of new capital, at the expense of ordinary Americans converting capital gains taxes to income taxes
When discussing Tax on 401K you need to mention Required Minimum Distributions (RMD) can result in Huge tax burdens if you put off withdrawing
Three buckets!
Just discovered you (new subscriber now) – great content, thank you! Preparing to retire from the military at age 55 in two years (after 30 yrs). I'm interested in your "3 buckets" strategy — we have Roth IRAs we've been contributing to for a couple decades (always maxing out and now w/catch-up for the past few years for 50+ age), have some other mutual funds, and have a TSP that (unfortunately) I've had as a "Traditional" vs. "Roth." I did just flip it the other month to now contribute 100% Roth TSP, but 90% of it is Traditional. I kick myself for not paying attention when they started offering it as a Roth about 10 yrs ago, but is what it is. I know I'll be taxed on it come withdrawal time — so, I'm clearly interested in your "3 buckets" now. Thanks again for your channel!
The last thing on your mind for retirement is taxes. That is a catchword/scare tactic invest brooker crooks use to scare you from making money for you and not them for retirement. The only reason you pay taxes is when you make money. The only way to live in retirement is saving 100% S&P 500 for your working years…garannteed Then and only then you will be set to retire.
Deep dive on the great benfits of Roth IRAs and conversions during early retirement. Powerful.
Excellent content Azul. Just found your channel! Keep the vid coming.
Great advice again from you!
Thanks for mentioning the Roth IRA. I'm very glad I started one of those some years ago.
I do just Roth the match from my company will give me taxable once I’m close to retirement I can switch to more taxable if there is a tax benefit for it
A married couple in Oregon who own their house no write offs other than themselves will pay less than 1000 taxes between Federal and state on $83,000 per year income if their 65 plus years old, So yes, your IRA is still a good idea. This guy is a idiot. One of the problems if your income is terrible (to low) and have to buy Obama Care retired and Not 65. When you take that money out it may cause you to show to much income and thus have to pay the government back for the free health care.
IRA's are only good for the very wealthy who they were created for in the first place and still holds true today.