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RETIREMENT PLANS 101: 401(k)s, 403(b)s, SIMPLE IRAs, SEP IRAs, Traditional IRAs, & Roth IRAs - YouTube
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i'm kyle with fundamentals of finance and today聽
i'll be teaching you the ins and outs of 401k聽聽
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plans including what they are how much to聽
contribute and how they compare to other聽聽
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retirement plans like 403bs set by arrays simple聽
iras traditional iras and roth iras in the next聽聽
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video i will cover how to select investments聽
in your 401k or whatever retirement plan that聽聽
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you have admittedly that video will be a lot聽
more juicy than this one but we can't put the聽聽
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cart before the horse keep in mind this is not聽
financial advice and is my opinion only so let's聽聽
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start with the basics 401ks 403bs iras set by聽
arrays simple iras and the many different types聽聽
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of pension plans are all just vehicles to help聽
you save for retirement more tax efficiently聽聽
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they are not investments themselves they are聽
types of accounts you can put your investments in聽聽
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all are geared toward retirement and all give聽
you tax advantages but each works a little bit聽聽
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differently if that sounds like options overload聽
don't worry it's highly unlikely you have access聽聽
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to all of these so in reality you'll likely聽
only have one or two options to choose from聽聽
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in the first part of this video i'll go through聽
how to think about the right amount to invest then聽聽
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i'll go through how each type of plan works to聽
help you decide which one or two are right for you聽聽
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and in the next video i'll finally give you some聽
tips on how to choose investments in your plan聽聽
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of course i can't give personalized advice to聽
this channel but after seeing literally thousands聽聽
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of these plans and helping many people in many聽
situations make these decisions i'm confident聽聽
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that by the end of these two videos you'll have聽
what you need to feel good about making decisions聽聽
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about your own investments in your own plan聽
and don't forget you can use the chapters below聽聽
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to skip ahead to the plan that you're most聽
interested in i think a good place to start聽聽
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will be with pension plans since there's not much聽
i can say on those these might be called a pension聽聽
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which is a general term or something more specific聽
like a cash balance plan or money purchase plan聽聽
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the distinguishing feature is that the company聽
typically makes the investment decisions and the聽聽
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contributions so nothing for you to do which聽
is why i won't spend more time on those here聽聽
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for the others you will have some decisions to聽
make first and foremost there's only one thing聽聽
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you take away from this video i hope that it's聽
if your company matches your contributions in聽聽
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any of these plans you should at least contribute聽
enough to maximize their contributions it's free聽聽
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money unless you desperately need every penny for聽
an emergency or for basic survival it's usually a聽聽
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no-brainer to contribute at least that much not聽
every company matches and the amount will vary聽聽
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from company to company but you can think of it聽
this way if your company has a dollar for dollar聽聽
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match or 100 match up to three percent it means聽
that when you put three percent of your income聽聽
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into your retirement plan the company puts another聽
three percent in there so you've only put in聽聽
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three percent but now you have six percent or in聽
dollar terms if you put in three thousand dollars聽聽
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you now have six thousand dollars essentially a聽
one hundred percent return right off the bat a聽聽
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general rule of thumb for how much you contribute聽
to a retirement plan is fifteen percent of your聽聽
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income coming up with a personalized figure is聽
extremely complicated so much so that it's often聽聽
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a major topic on the level 3 cfa or chartered聽
financial analyst exam i'll cover how to do聽聽
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that in the advanced course i'm creating but for聽
now here are a few factors that might influence聽聽
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that 15 figure up or down you should consider聽
contributing more than that if you've been working聽聽
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for a while but haven't started contributing to聽
a retirement plan yet you want to retire early聽聽
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you can afford to do it or you want to invest more聽
conservatively than a typical person of your age聽聽
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which i generally think is a bad idea but聽
we'll get to that in a few minutes you should聽聽
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also consider contributing less than that if you聽
might need the money for an emergency or to pay聽聽
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basic living expenses like your rent it's awesome聽
to have a huge 401k and set yourself up for the聽聽
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future but needless to say it's probably not worth聽
it if it means being homeless today okay so let's聽聽
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dive into the different types of retirement plans聽
you can participate in 401ks 403bs set by arrays聽聽
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and simple iras are all types of retirement聽
plans that you access through your employer聽聽
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meaning that unless you have multiple jobs you聽
most likely don't have a choice between these聽聽
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you have what your company offers you 401ks聽
are by far the most common if you work for聽聽
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a large or medium-sized company this is probably聽
what you have four through b's have some nuanced聽聽
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differences but overall they're very similar聽
to 401ks with the same tax benefits the same聽聽
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contribution limits and the same retirement age聽
59 and a half the key difference is that fourth聽聽
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or b's are offered in non-profit and government聽
workers like teachers instead of people who work聽聽
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at for-profit companies if you work for a small聽
business your employer might offer a set by array聽聽
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or a simple ira these should not be confused聽
with iras which are a little bit different聽聽
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we'll get to those next the key difference between聽
a sep and a simple ira is that in a simple ira you聽聽
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and your employer can make contributions whereas聽
in a set by array only your employer can while you聽聽
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can contribute to your simple iras your employer聽
can't contribute as much for you as they could聽聽
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in a set they can either offer you up to a three聽
percent match similar to our example earlier or聽聽
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they can contribute two percent to every employee聽
regardless of whether they contribute or not聽聽
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that means you probably won't be getting much more聽
than a few thousand dollars from your company in聽聽
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a simple ira regardless of how much money you make聽
employer contribution limits are lower and simpler聽聽
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arrays than any of the other employee options聽
we'll discuss here contributions you can make聽聽
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are also lower in a simple ira than they are in a聽
401k or 403b the numbers generally go up annually聽聽
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but for 2022 the contributions are most people can聽
make are capped at 14 000 in a simple ra versus 20聽聽
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500 in a 401k or 403b perhaps it's no surprise聽
then that the total contributions mean the ones聽聽
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you make plus the ones your employer makes are聽
also lowest in the simple ira at 14 000 plus their聽聽
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match which i mentioned was kept pretty low versus聽
seps 401ks and 403bs at 61 000 for 2022. last but聽聽
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not least let's talk about iras this is where聽
some of you may have a second option even if you聽聽
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don't have two jobs anyone who has eligible income聽
can contribute to an ira but if you make too much聽聽
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money there will be some key limitations we'll get聽
to those in a minute there are two types of iras聽聽
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traditional and roth 401ks and 403bs also have聽
these same options and they work the same ways聽聽
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except for the compensation limits which work聽
differently in iras than everything else where聽聽
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you see the 305 thousand dollar figure for the sep聽
401k and 403 b options it just means that employer聽聽
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contributions can only consider your income up聽
to that level not that you can't participate or聽聽
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get all the tax benefits if you make more than聽
that so for example if your employer matches聽聽
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your contributions dollar for dollar and you聽
contribute one percent of your 400 000 income聽聽
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or four thousand dollars they won't be able to聽
fully match your four thousand dollars they can聽聽
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only match your one percent contribution for the聽
first three hundred five thousand dollars you make聽聽
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so you just get three thousand fifty dollars聽
in employer contributions with iras there is聽聽
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no employer involved it's just you so anyone can聽
participate as long as they have eligible income聽聽
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but the compensation limits here are really聽
important to consider all the traditional options聽聽
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whether ira 401k 403b make your contributions聽
tax deductible that means that if you make 70聽聽
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dollars in a year and contribute five thousand聽
dollars to one of these plans you only have to pay聽聽
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taxes on sixty five thousand of your income the聽
five thousand dollars you contributed is deducted聽聽
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from the amount you owe taxes on for that year if聽
you're on a w-2 and have taxes automatically taken聽聽
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out of your paycheck that means you'll probably聽
pay too much during the year and then get back the聽聽
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difference as a refund when you file your taxes聽
like i said anyone can contribute to a traditional聽聽
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ira but not anyone can take advantage of the聽
tax deductions on their contributions if you're聽聽
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single and make over 68 000 or married filing聽
jointly and make over a combined 109 000 with聽聽
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your spouse you start losing the tax deduction聽
benefit if you make over 78 000 or 129 000聽聽
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respectively none of your contributions will be聽
deductible your money still grows tax deferred聽聽
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which is still a tax benefit but you lose the聽
main one a roth ira roth 401k or roth 403 b聽聽
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sort of works the opposite from a tax perspective聽
instead of contributions being deductible or you聽聽
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don't pay them now but you do pay them when you聽
take the money out roth contributions come out of聽聽
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your regular taxable income today but are tax-free聽
when you withdraw the money for roth iras only聽聽
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not 401k or 403bs you cannot contribute if you're聽
single and make more than 144 thousand dollars聽聽
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are married filing jointly and make more than 214聽
thousand dollars eligibility is also phased out a聽聽
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bit before that there are lots of other little聽
nuances with these plans that you can find on聽聽
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the irs website but i won't bore you with them聽
here let's focus on what's important and this聽聽
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is a big one generally the way to decide between聽
the traditional and romped option is that if you聽聽
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think your tax bracket will be higher down the聽
road go with roth and pay the taxes now if you聽聽
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think your taxes will be lower in the future go聽
with traditional and pay the taxes later i can't聽聽
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predict what future governments will do to the tax聽
rates my educated guess is higher but either way聽聽
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most people will be in the same or a higher tax聽
bracket when they're retired than when they're聽聽
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working because think about it once people聽
suddenly have a bunch of free time to travel聽聽
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golf or whatever else they're into they don't聽
want to take a huge pay cut and be stuck at home聽聽
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watching qvc gary let's talk about the fabric聽
but also the way that you did this and guys聽聽
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that's really the moral of the story all this聽
detail about retirement playing nuances and聽聽
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what i'm really trying to say is just make聽
sure you contribute and contribute early聽聽
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otherwise you'll be destined to retirement of聽
qvc before we get into the next video on how to聽聽
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choose investments in your plan there's one more聽
concept i'll briefly touch on and that's vesting聽聽
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this applies to retirement plans and essentially聽
means that you have to stay with your company for聽聽
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a certain period of time before you get to keep聽
the employer contributions to retirement plan聽聽
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anything you contributed is yours immediately聽
for a simple example a company i used to work聽聽
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for had a very generous retirement plan but had聽
a six-year vesting schedule so after six years聽聽
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all the contributions they've made up to that聽
point and thereafter stay with the employee聽聽
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when they leave the company but if they left聽
after three years for example they would have聽聽
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only gotten to keep forty percent of them after聽
five years they would have kept eighty percent聽聽
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in the next video guys i will cover how to聽
actually select investments in your 401k so make聽聽
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sure you're subscribed and click the bell so you聽
don't miss it if you want to learn how to invest聽聽
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like a professional check out my free webinar聽
below the link is in the description called聽聽
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the nine habits of successful investors thank you聽
for watching and i will see you in the next video
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