Vaginance | Money & Life In The New Roaring 20s

Vaginance | Money & Life In The New Roaring 20s

Retirement Accounts Galore | 16

May 05, 2021

401k-IRA-Roth-GOAT What does it all mean?! We break it down, make it sexy, and even share the secret to why low income years (from unemployment to stay-at-home parenting) might just be your new favourite thing. Whether you plan on normal retirement, early retirement, or a mix all your own, this episode has something for you.

Types of Retirement Accounts

There are a surprising number of different retirement accounts but it’s a lot easier to navigate which ones are right for you if you know the two main categories:

Based On How They Are Taxed:

* Traditional Retirement Accounts* Examples: 401k, IRA, 403b, 457b* This Year: No Taxes!* You won’t pay income tax on the money you contribute to your Traditional Retirement accounts.* During Retirement: It’s Tax Time Baby!* You will pay income tax on the money you take out of your Traditional Retirement accounts each year.* Roth Retirement Accounts* Examples: Roth 401k, Roth IRA, Roth 403b, Roth 457b* This Year: It’s Tax Time Baby!* You will pay income tax on the money you contribute to your Roth Retirement accounts.* During Retirement: No Taxes!* You won’t pay income tax on the money you take out of your Roth Retirement accounts each year.

Based On Who Sets Them Up:

* Retirement Accounts Set Up By Your Employer* 401k, 403b, 457b – both traditional and Roth versions of these accounts* Retirement Accounts You Can Set Up Yourself* IRA* Individual Retirement Account or Arrangement* IRAs provide a lot more freedom to choose your plan provider and the types of investment options they offer.* Roth IRA* You might not have access to this type of retirement account if your annual income is too high. For 2021, the Modified Adjusted Gross Income limits are $140,000 for single taxpayers and $208,000 for married filing jointly.

Retirement Accounts For Self-Employed Badasses

* SEP IRA* Any business with one or more employees is eligible for a SEP IRA, including freelance workers and independent contractors.* Only the employer can make contributions to a SEP IRA account.* 2021 Contribution Limit: 25% of adjusted net earnings, up to $58,000* Solo 401k and Roth Solo 401k* Eligibility: Only available for businesses where you are the only employee (or you and your spouse are the only two employees).* You get to contribute as both the employee and as the employer.* 2021 Contribution Limit: $58,000 total* Up to $19,500 as the employee* As the employer, you can contribute 25% of your employee compensation up to the combined total of $58,000

Handy dandy calculator for comparing your contribution limits as a self-employed person so you can pick the best account for you:

Bonus Round! Did you know that HSAs (Health Savings Accounts) are the most impressive retirement account of all?

* Turns Into A Retirement Account: Pre-retirement it allows you to reimburse yourself for medical expenses. Once you reach retirement age, it converts to a retirement account and you can take retirement distributions from it (they don’t have to be for medical related expenses).* No Income Taxes: You don’t pay taxes on the money you put in, you don’t pay taxes on any health care expenses you get reimbursed from the account, and you don’t pay taxes on any money you take out during retirement.* Invest It! You can invest the money that’s sitting in the account so that money is growing and compounding over time.* Accessible before retirement age.