How to Choose your Retirement Pension Plan?(2)

Which retirement plan suits me best?

No matter what type of retirement plan you choose, the only rule is: the sooner you join, the better!

These three retirement plans have their own advantages and disadvantages: the government requires that each person can deposit these accounts each year with functions of tax deferral or reduction. The choice should be based on your own use of funds, career planning, retirement planning, income level, risk taking, etc. to make a decision.

How to choose between 401K and IRA?

Generally speaking, the best order is: deposit 401K at the upper limit of the company's Match> deposit IRA at the upper limit> deposit 401K at the upper limit.

Is there a difference between 401K and IRA investment items?

401K accounts can generally only invest in funds, not in individual stocks, unless certain companies allow 401K to invest in company stocks. In general, there will be 10 to 20 different funds to choose from in 401K. The investment range of IRA accounts is much wider, mainly bond funds which can be invested in general securities investment accounts.

What is the most profitable, traditional IRA or Roth?

You must be wondering if the current tax rate is high or the post-retirement tax rate is high!

If you think the current tax rate will be higher than the tax rate after retirement, you should choose the 401K or IRA that you receive only before paying the tax. If you think your tax rate will be higher after retirement, you should consider Roth IRA or Roth 401K, which pays taxes first.

Generally speaking, people who have just entered the workforce, are younger, or have lower tax rates and are expected to increase their income in the future, may consider using Roth IRAs. Investment will accumulate over time and future non-taxable income will grow like a snowball.

The United States maintains a graduated tax rate. The higher the income, the higher the tax rate. For most people, income after retirement will be considerably lower than income during their employment, so that the personal income tax payable upon withdrawal will drop considerably.

What should I do with my original 401K account when I quit my job?

You can choose to transfer the funds to the new company's 401K or your own IRA account.

Can these pension accounts coexist?

As long as the AGI (adjusted gross income) for the year complies with the regulations, 401K and IRA / Roth IRA can be opened at the same time and be renewed. IRA and Roth IRA can also exist at the same time, but the money deposited in the two accounts cannot exceed the limit of a single account, that is to say 5500 $ (less than 50 years) or 6500 $ (more than 50 years) . Likewise, 401K and Roth 401K can also exist at the same time, but the two accounts cannot be deposited before the limit of one account, i.e. $ 18,500 or $ 24,500 (2018).

Roth IRA has income restrictions, but I have heard that this can be bypassed by Backdoor Roth IRA?

Yes! Roth IRA has income restrictions. If the person's annual income exceeds $ 135,000 or the family's annual income exceeds $ 199,000 (2018), you cannot apply for a Roth IRA account. But! You can use Backdoor Roth IRA to bypass this restriction and deposit funds in Roth IRA in a reasonable and legal manner:

Step 1 ｜ Open a traditional IRA account and deposit funds.

Step 2 ｜ Convert this traditional IRA account to a Roth IRA account or transfer the funds to an existing Roth IRA account.

Does traditional IRA have a tax deductible income limit? How to cope?

Yes. The IRA adopts a decremental tax payment mechanism and there are income limits for tax credits (not available for 401K). If the individual's annual income is less than $ 63,000, you can take full advantage of the amount deposited; if you exceed $ 73,000, you cannot take advantage of the tax credit; if the family's annual income is less than $ 101,000, you can take full advantage of the amount deposited, if you exceed $ 121,000 No (the above figures are for 2018). In other words, if your personal annual income is more than $ 73,000 or your family's annual income is more than $ 121,000, the funds you deposit in the IRA cannot be deducted (non-deductible). Since the money deposited in the IRA at the time of tax filing cannot be deducted from tax, the tax must be paid when the money is withdrawn from the IRA in the future. At this time, the money should be deposited in the Roth IRA first.

What should I do if I want to withdraw IRA / 401K money earlier but want to avoid fines?

Consider transferring IRA / 401K money directly to Roth IRA. Since this part of the money was not taxed when it was deposited in IRA / 401K that year, the tax has to be paid when it is transferred to Roth IRA. However, after transferring to Roth IRA and depositing for 5 years, you can start to withdraw the main party, and there is no need to pay tax or penalty.

If I am helping a spouse with no income to apply for a Roth IRA account, how is the maximum deposit calculated?

If you open an account in the name of your spouse, the annual deposit limit for you and your spouse is calculated separately, i.e. you can save up to $ 5,500 and your spouse up to $ 5,500, so the two total up to $ 11,000. (Provided your annual income is more than $ 11,000)

Can I help my child create an IRA / Roth IRA account?

Yes, as long as your child can legally work in the United States and have a legal income certificate. In addition, money stored in the IRA / Roth IRA can be withdrawn in the future as miscellaneous tuition fees for higher education without being fined.

Several reference scenarios for the selection of retirement plans

Example 1 - People looking for an ideal retirement

Consider maximizing the employer's 401K matching quota and opening IRA / Roth IRA.

Example 2 - People who want to balance their lives easily, now and in the future

May consider 401K, which can reduce annual personal income tax, and there is a business to match.

Example 3 │ No money problem, interested in investing and hoping to avoid tax

The IRA can be considered, which can reduce the annual personal income tax, and can also invest through the retirement pension account. The IRA has more investment objectives and no tax deduction for them. investment income. If you need to withdraw in the future, you can also transfer to the Ruth IRA account, and you can start withdrawing after 5 years.

Example 4 - Who will not stay in the United States all their life

Roth IRA can be withdrawn 5 years after opening, and can be withdrawn at the same time after the legal age, without paying other taxes.

Example 5 │ Those who need to buy a house or pay their children's school fees in the short term

IRA can be considered. There are non-discriminatory discounts for prepayment which constitute the first down payment for accommodation which is not available in 401K and tuition fees in higher education. (401K will face a 10% fine)