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Meaning of IRA, Individual Retirement Account || Should You Invest in IRAs for Retirement? - YouTube
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hello everyone welcome back this is joe
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orbit coming at you today we are going
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to talk about
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iras what are they how do they work why
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you should or should not invest in them
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and how it's going to relate to your
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retirement plan so let's start off with
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what does ira stand for it stands for
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individual retirement account you cannot
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share it with your partner you can't
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share it with your spouse you can't
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share with anybody else in fact
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you can't even give away your ira
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the only way to get rid of an ira is to
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die so when i'm talking about an ira an
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individual retirement account i'm also
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including 401ks 403bs simple seps keoghs
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457 plans and 401a plans they all
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eventually could become ira accounts
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what does the ira do for you it allows
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you
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to put money away for retirement on a
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tax-deferred basis but let's start at
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the beginning what's most important
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about the ira because the only reason
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you would ever put money into an ira is
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if you feel that in the future taxes are
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going to be
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lower than what they are now how do you
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put money into an ira well
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the money can come out of your pocket
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the money can come out of your earnings
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you might do it at your work in your
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place of you know wherever you're
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employed at the time but know that the
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money you stick into the ira is going in
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pre-tax
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that means you're not going to pay tax
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on that money this year that money is
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going to be taxed at a later time in the
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future it's very important you
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understand that it is pre-tax
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the other thing you need to understand
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about an ira
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is that you own that ira along with the
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u.s government they only allow you to
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access the account without any penalties
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once you've attained age 59 and a half
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so when you open up the ira you are
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signing a partnership agreement with the
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u.s government the treasury department
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and you are allowing them to own a
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portion of your retirement account and
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why do i say that what do i mean by that
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i mean that a portion of that account is
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going to be taxed
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do you get to pick the tax rates in the
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future no the u.s government sets those
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tax rates so they get to decide how much
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of your ira they own if you don't like
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that don't get an ira so let's get back
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to it so the money goes in pre-tax okay
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and then every year as it grows or
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hopefully grows it grows tax deferred
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and what i mean by that is it earns
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money you know interest dividends
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capital gains whatever and the us
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government does not tax you on that
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money in the year it's earned they let
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the money grow tax deferred that's what
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tax deferred means
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how long do they let it grow tax
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deferred well the new law just changed
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back in december of 2019 and that law
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now says you're allowed to let that
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money grow tax deferred until age
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72.
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that is the age that the government
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forces what's known as an rmd or a
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required minimum distribution think of
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this as a forced distribution whether
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you want the money or not you have to
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take it out now what they do and these
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tax laws may change between now and then
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but the way they're set currently is at
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age 72
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they make you divide the number
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27.3
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into the value of your ira as of
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december 31st of the year prior to
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turning 72 and then the result from that
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math is how much has to come out for
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your required minimum distribution and
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guess how much of that's taxable
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100 of it is taxable some things you
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have to also realize about it not only
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is that money taxable but if you're
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receiving social security the rmd will
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cause your social security to become
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taxable so that distribution will have
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massive effects on your tax brackets on
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your tax future and how much money you
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actually get to keep in the future now
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some of you may be thinking well joe
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i'll get to 72 they'll have the rmd and
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i just won't take the money out
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i wouldn't do that because if you forget
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to take your required distribution they
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hit you with a 50
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penalty that means that you owe the
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government a 50
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excise tax on the amount of money you
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were supposed to take out so let's say
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your required minimum distribution is
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thirty thousand dollars and you forget
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to take it out you owe a fifteen
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thousand dollar tax fine you still have
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to take the thirty thousand dollars out
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and pay tax on that entire amount
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with the most recent tax law updates of
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the secure act that passed back in 2019
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when you inherit an ira
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the beneficiaries are given the choice
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now do they want to take the money up
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front or do they want to wait 10 years
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it used to be they could stretch out
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those distributions over their life
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expectancy and if you give the average
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beneficiary the option hey here's a half
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a million dollar ira do you want it now
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or do you want to wait 10 years most of
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them are probably going to say give it
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to me now and if it's sitting in the ira
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100 of that is taxed imagine what tax
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bracket they're going to be forced into
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if they suddenly have to add hundreds of
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thousands of dollars of income to their
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income in that year it could be 30 40
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taxes so think about that you're not
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paying the taxes now you're pushing off
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the taxes and when you pass away
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somebody else has to pay whatever the
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future tax brackets are so you should
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sit down with a qualified planner you
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should talk to your cpa but you want to
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make sure that you're doing the right
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thing don't just put money into an ira
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because that's the way everybody else
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did before now think about taxes think
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about where we are right now in the
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economy our taxes high our taxes low
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these are things you have to think about
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i hope you enjoyed the video as always
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if you want to learn more
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i'll see you next week
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