馃攳
2020 Retirement Account Limits // Retirement Plans Explained // Roth vs Traditional IRA / 401k - YouTube
Channel: Financial Awareness with K.Scholl
[0]
have you ever felt confused and
overwhelmed with all of the different
[4]
types of retirement plans that are out
there and thought to yourself which is
[7]
the right one for me then you'll like
this two-part video where we will be
[10]
reviewing the various types of qualified
retirement plans some that are a little
[14]
bit more common and some that maybe you
haven't heard of yet let's get to work
[21]
what's up friend I'm KScholl welcome
to another financial awareness video if
[26]
you're trying to make better financial
decisions grow your wealth and financial
[30]
literacy then you're in the right spot
in this first video we'll be reviewing
[34]
some of the more popular and well-known
plans such as the Roth IRA traditional
[38]
IRA 401 K 403 B and 457 plans but if you
feel very comfortable about those and
[45]
you want to skip ahead to the second
video about these plans right here then
[48]
click this link right there okay first
up Roth IRA this is a qualified
[54]
retirement account funded with after-tax
dollars from your checking account so no
[58]
tax deduction for whatever you
contribute into your Roth IRA although
[62]
it will fluctuate in value over the
years it will likely receive capital
[66]
gains and dividends but as it grows it
will grow tax-free and when you're ready
[72]
to liquidate this account in your
retirement years in your 60's it will be
[75]
liquidated and it will come out tax-free
as well. Sounds awesome
[80]
I know but because of how fantastic this
account is the IRS put income limits on
[85]
who would be able to contribute to a
Roth IRA if you're single and make under
[89]
one hundred and twenty four thousand
dollars a year of modified adjusted
[92]
gross income then you're good to go if
you make between one hundred and twenty
[96]
four thousand and one hundred and thirty
nine thousand then you won't be able to
[99]
do the full amount and over $139,000 sorry you're
[103]
phased out and can't fund a Roth IRA for
married filing jointly it's a hundred
[108]
ninety six thousand to two hundred and
six thousand respectively don't be
[112]
scared when you hear Modified Adjusted
Gross Income your MAGI is defined as
[118]
your household adjusted gross income
plus any tax exempt interest income and
[123]
certain deductions added back in. Now if
you are flirting with any of those
[128]
income thresholds I mentioned a moment
ago make sure that you double check with
[132]
your CPA and your
financial advisor so that you are
[134]
financially aware of your specific
situation the amount you can contribute
[139]
into your Roth IRA usually does increase
each year and is currently capped at six
[144]
thousand dollars well for most people at
six thousand you see kids sometimes in
[151]
life you lose your hair and sometimes
you grow old and sometimes you wake up
[157]
one day like my buddy and you realize
that you just turned 50 but don't worry
[164]
because now that you're 50 you can do
what's called a catch-up contribution of
[168]
an additional thousand dollars per year
which is awesome one of the downsides
[172]
would be you're pretty much locking your
money up until the age of 59 and a half
[176]
so as you throw money into this account
during your working career you need to
[180]
make sure you have a long term approach
and the right expectations if you have
[183]
the ability of saving more money towards
your future it is a little bit of a
[187]
bummer that they cap it at $6,000 per year now if you fall within the
[191]
parameters of being able to fund a Roth
IRA it is a fantastic account to grow
[195]
and nurture during your working years
while you can still fund the account, but
[200]
people often ask me which one is better
the Roth IRA or traditional IRA and the
[205]
answer to that question is in the eye of
the beholder, but you should be aware of
[208]
two things...first and foremost you can
own the exact same mutual fund in both
[214]
of these accounts and number two your
capped at six thousand as I mentioned
[218]
earlier but that's six thousand into
either the Roth IRA or the traditional
[223]
IRA or a combination of both so you
could put two thousand dollars in the
[228]
Roth IRA and four thousand into the
traditional as an example the pros and
[233]
cons comparing the Roth IRA and the
traditional IRA are more so based on the
[238]
tax benefits of each of these accounts
your income your financial plan and most
[243]
importantly your exit strategy of
liquidating these accounts during your
[247]
retirement years side note the backdoor
Roth IRA strategy is going to require
[252]
its own dedicated video so keep an eye
out for that the traditional IRA is like
[257]
the Roth IRAs brother they're obviously
related but have quite different
[261]
personalities
unlike the Roth IRA the traditional IRA
[264]
is funded with
tax dollars however technically speaking
[268]
you can fund your traditional IRA from
the same checking account where you
[273]
would normally be funding a Roth IRA
from the difference comes when you file
[277]
your tax return because as long as you
fall within the IRS income limits then
[282]
you can deduct your contributions into a
traditional pre-tax IRA no matter how
[287]
much money you make you can always
contribute to your traditional IRA and
[291]
the account will continue to grow
tax-deferred however if you make too
[295]
much money then you won't be able to
deduct that contribution so that's a
[299]
bummer if you are single and make under
$65,000 dollars a year of
[304]
modified adjusted gross income then
you're good to go with deducting your
[307]
contributions if you make between $65,000 and $75,000 then you won't be able to
[313]
deduct the full amount and anything over
$75,000 dollars a year
[317]
sorry you're completely phased out and
can't deduct anything from married
[322]
filing jointly those figures are $104,000 to $124,000
[326]
respectively so
if you fall within those income
[330]
limitation guidelines then you have the
option of contributing to either of
[333]
these accounts so from a financial
planning perspective you just simply
[338]
have to ask yourself do you want to pay
taxes on the seed or on the harvest and
[344]
here's what I mean in this example
you'll notice that this account totals
[348]
$677k dollars after investing approximately
[352]
$500 a month for nearly a 30-year
stretch of time and of that $677k
[357]
you only
contributed $205k
[361]
dollars so you just simply need
to ask yourself the question would you
[364]
rather pay taxes on $205k dollars and have $677k dollars
tax-free or would you rather let $205k
[373]
dollars grow
tax-deferred and then pay taxes on $677k
[378]
as you pull money out of the account each
[381]
year during retirement if you pull any
money out of your traditional IRA before
[387]
the age of fifty nine and a half you run
the risk of being assessed a 10% early
[391]
withdrawal fee however currently going
on right now there is a very unique
[396]
exception to this rule
due to the
[399]
CARES Act if you liquidate money out of
your traditional IRA between this window
[405]
of time then you will not be assessed
that 10% early withdrawal fee and there
[410]
are some financial hardship exceptions
as well but generally speaking as a rule
[416]
of thumb you do not want to liquidate
money out of your traditional IRA before
[421]
the age of 59 and a half. RMD stands for
required minimum distribution and due to
[427]
the SECURE ACT you now have to start
taking your RMDS by age 72. This is a
[432]
huge strategic planning difference
between Roth and traditional IRAs. The
[438]
government gets its revenue by taxing us
and in return we get social benefits. As
[442]
that relates to your traditional IRA
required minimum distributions that's
[448]
pretty much like the government saying, "Hey, we let you save all that money without
[453]
paying taxes and now we want our revenue. I don't care if you don't want
[458]
to take the money out...we're going to
require that you take at least a minimum
[463]
distribution!" Death and taxes. If you've
been funding a pre-tax retirement
[468]
account through your employer and you
leave that job you'll likely roll those
[473]
funds over into a traditional IRA which
is another reason why those accounts are
[478]
so popular. 401Ks and 403Bs are
employer-sponsored plans. A 401K is for
[485]
a for-profit organization and a 403 B is
for a nonprofit organization or
[491]
government employer one of the best
benefits of these types of
[495]
employer-sponsored plans is that they
are automatically deducted from your
[498]
paycheck before the money ever hits your
checking account so for you there's a
[503]
little bit less emotional attachment to
these accounts because it's out of sight
[507]
out of mind the maximum that you can
contribute to these accounts is $19,500
[512]
dollars unless you
are 50 years old or older
[516]
then you can do some catch-up
contributions totaling $26,000
[520]
dollars per year that would be in
addition to whatever your employer match
[524]
might be. Not every employer offers a
401k match to whatever you contribute so
[530]
as you are weighing different job
opportunities and
[533]
career paths you need to make sure that
you take into consideration what the
[536]
retirement benefits package looks like
throughout your career because some
[541]
companies offer no match some companies
do offer a match and some companies
[545]
offer a match plus profit sharing for
example you could contribute 6% and your
[552]
employer could contribute 4% for a total
of 10%
[556]
however if you contribute say 5% you
might not get that full 4% from your
[563]
employer so people often say I'm maxing
out my 401k but sometimes what they
[568]
really mean is they're maxing out their
contributions in order to get the
[573]
maximum employer match and there is a
difference however the sum total between
[579]
your contribution your employers match
plus your employers profit sharing
[584]
cannot exceed a total of $57,000
dollars per year or $63,500
[590]
dollars per year if you are
50 years old or older. As an example if
[595]
you made $195,000 dollars a year and you put away ten
[599]
percent into your 401k that would be
$19,500 if your employer matched five
[606]
percent that will be $9,750 dollars so if you add
[610]
those two together that will be a grand
total of $29,250
[614]
dollars per year total
going into your 401. So in theory if you
[620]
had the financial means to contribute
more than $19,500
[625]
dollars into your 401k it would have to
be a post-tax contribution up to the
[631]
limits I described a moment ago. If you
find any value throughout this video hit
[635]
that like button! That one simple action
by you will help someone else make smart
[640]
educated decisions about their finances. What's a vesting schedule? You are always
[645]
100% vested in whatever you contribute
into the 401k. So really the vesting
[651]
schedule relates to whatever the
employer match or profit sharing is.
[655]
Every employer will have a different
vesting schedule some will have no
[660]
vesting schedule and you'll be 100% vested in whatever their match
[664]
or profit sharing is from day one
of entering the plan. Other employers
[669]
have a one-year, three-year, or five-year
vesting schedule or something in between
[673]
one or three years I would say quite
common. Meaning you have to stay with
[678]
that employer for three years in order
to be 100% vested in the retirement
[683]
match or profit-sharing. We're getting
into the weeds here so stick with me
[687]
take a look at the share classes offered
within the mutual funds within your 401k
[692]
or 403b plan hopefully you have some
good performing funds with low Operating
[697]
Expense ratios. Examples of share classes
that you might see in your employer
[702]
sponsored plan wiould be R-shares R1, R2, R4, R5, F1, F2, I-shares maybe A-shares...so
[711]
take a look because each share class
might have a different performance and
[715]
also might have a different ongoing
operating expense ratio fee. Side note
[720]
your employer should be reviewing your
plan every year.
[724]
Also, all employer-sponsored plans will
have some sort of financial advisor or
[728]
team or company helping to administer
the plan. Take a look at your statement
[733]
and call the number on the statement
just in case you have more questions or
[737]
if you want to learn more about what
your options are. There are literally
[740]
thousands of mutual funds out there that
you could select from. However inside of
[744]
an employer-sponsored plan you're
limited to only 17 or 20 different
[748]
options plus maybe some target date
funds...so that will be one of the
[751]
downsides. For example, my wife's 401k
does offer additional options beyond the
[757]
17 to 20, but when you look at them the
share class changes and that sometimes
[762]
makes them not as appealing. So make sure
that you are aware of what your options
[767]
are and do your own research. Growing in
popularity our Roth 401Ks and Roth 403Bs.
[773]
These are after-tax contributions
very similar to the Roth IRA described
[778]
earlier. If you make a Roth 401k or Roth
403b contribution, you are still
[783]
eligible to receive the employer match
or the employer profit sharing, but those
[788]
must go into the pre-tax accounts within
your 401k. There is a huge difference
[793]
though with Roth IRAs there are income
limitations. Currently right now for Roth
[799]
401Ks or Roth 403Bs there are no
[803]
income limitations and that is a huge
difference! 457 plans are commonly
[808]
referred to as deferred comp accounts
you'll usually find these accounts with
[812]
police officers or firefighters because
these are offered by state and local
[816]
governments as well as some nonprofit
organizations. These operate very
[821]
similarly to the pre-tax 401k described
a moment ago and have the same maximum
[825]
contribution for 2020 of $19,500 dollars
[829]
unlike the 401K, the 457 plan has a
really cool feature that allows you to
[834]
roll over any unused contributions to
the following year up to a maximum of $39,000
[840]
dollars. For example the annual
maximum is $19,500 of deferred comp if you only defer $12,000 dollars the
[849]
remaining unused $7,500 dollars can be rolled over to the
[854]
following year allowing you to
contribute more than $19,500. Pretty cool feature! Thanks for watching - appreciate your time.
[862]
If you want to watch part two of this video go
ahead and click this right here. If you
[866]
have any questions for me leave them in
the comments down below. Thanks go live
[870]
your best life!
Most Recent Videos:
You can go back to the homepage right here: Homepage