Rebecca Hotsko chats with Brian Martucci. In this episode, they discuss how to invest in the most tax advantaged way, what are the different types of tax advantaged accounts and how to decide which to contribute to each year, which types of securities you should hold in each account, how to determine if you should buy life insurance, how to use life insurance as an investment and when you should consider this, what kind of returns you can expect from using life insurance as an investment, and so much more!   

Brian Martucci is a Finance Editor at Money Crashers where he writes about investing, credit cards, banking, insurance and other personal finance topics. 

IN THIS EPISODE, YOU’LL LEARN:
00:00:00 – Intro
00:01:43 – What the differences between a Roth and Traditional IRA are
00:05:39 – How to decide which account to contribute to each year
00:26:17 – Which types of securities you should hold in each account
00:30:01 – When a Millennial may want to consider buying life insurance
00:38:32 – What the different types of life insurance are
00:41:14 – How to decide whether to go with a term or whole life insurance policy
00:44:18 – How life insurance can be used as an investment and when you should consider this
00:47:31 – What kind of returns you can expect from using life insurance as an investment
00:49:15 – How to use life insurance to borrow against it and when this makes sense
00:53:14 – How much life insurance should you buy? 
00:56:36 – Should you open a joint/custodial taxable investment account for your kids? 

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I’m Rebecca Hotsko, an investor and entrepreneur 💼 based in Canada; co-founder of a luxury boat ⛵ sharing club in Kelowna, British Columbia. I graduated from the University of Saskatchewan with a bachelor’s degree 🎓 in Economics and completed CFA level I and II. I gained valuable experience working as an analyst for the Bank of Canada 🏦, the federal energy regulator and in investment management. My passion for teaching others how to invest using time-tested strategies backed by empirical data led me to create an investing blog 💻 in 2020.

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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

Investing in an individual retirement account (IRA) is a smart way to save for retirement. There are two types of IRAs: Roth and traditional, and each has its advantages and disadvantages.

First, let’s discuss the differences between Roth and traditional IRAs. With a traditional IRA, you contribute pre-tax dollars, and your contributions reduce your taxable income for the year. When you withdraw money from the account, you pay taxes on the contributions and earnings at your ordinary income tax rate. In contrast, with a Roth IRA, you contribute after-tax dollars, and your contributions do not reduce your taxable income. When you withdraw money from the account, you do not pay taxes on the contributions or earnings, provided you have held the account for at least five years and are over 59 ½ years old.

According to tax-efficient investing expert Brian Martucci (MI220), there is no clear winner when it comes to Roth IRA vs. traditional IRA. The right choice depends on your personal financial situation, including your current and expected future tax bracket, your current and future income, and your retirement goals.

“For example, if you’re in a high tax bracket now and expect to be in a lower tax bracket during retirement, a traditional IRA may be the better choice,” says Martucci. “On the other hand, if you’re in a low tax bracket now and expect to be in a higher tax bracket during retirement, a Roth IRA may be the way to go.”

Another important factor to consider is your income level. Roth IRA contributions are subject to income limits. For 2021, the income limit for contributing to a Roth IRA is $140,000 for individuals and $208,000 for married couples filing jointly. If you earn more than that, you may not be eligible to contribute to a Roth IRA. In contrast, there are no income limits for contributing to a traditional IRA, although there are income limits for contributing tax-deductible contributions.

Furthermore, another important advantage of a Roth IRA is that you can withdraw your contributions at any time for any reason without penalty, although withdrawal of investment growth before age 59 ½ may result in taxes and penalties. “This flexibility can be a valuable safety net if you need access to your retirement savings before age 59 ½,” explains Martucci.

In conclusion, deciding between Roth IRA and traditional IRA is a significant financial decision, and it’s crucial to consider all factors, as listed above. Ideally, you should consult with a financial advisor to determine the best strategy for your unique situation. However, given Martucci’s expertise, he concludes that the key to tax-efficient investing is to maintain tax diversification by utilizing both types of IRA account types as appropriate.