Skip to content

Shay Gallo Home Construction

Menu
  • Sample Page
  • Site Map

Category: Apartment Decorating

How to Avoid Paying Taxes on Your Social Security

No Comments
| Apartment Decorating, Taxes

Social Security benefits can provide an additional income stream in retirement alongside withdrawals from a 401(k), individual retirement account or brokerage account. Part of shaping a retirement plan around Social Security income means planning ahead for taxes. Social Security benefits … Continue reading →

The post How to Avoid Paying Taxes on Your Social Security appeared first on SmartAsset Blog.

Read More »

What’s the Difference Between a Traditional and Roth 401(k)?

No Comments
| Apartment Decorating

If you work for a company that offers a retirement plan, such as a 401(k) or 403(b), you probably have the option of making "traditional" or "Roth" contributions to your account. While having more investment options is a good thing, it might leave you feeling overwhelmed or confused about the benefits of each. 

Today, I'll review critical points about the differences between a traditional and Roth retirement plan at work. You'll learn who qualifies to participate, how much you can contribute, and how they affect your retirement and taxes.

What is a 401(k) retirement plan?

Only employers can offer a traditional or Roth 401(k) or 403(b) to eligible workers. You may have to reach a certain age, such as 21, or be employed for a period, such as one or six months, to qualify. 

Employers can customize certain features of their retirement plans; however, they must comply with the Employee Retirement Income Security Act of 1974 (ERISA). It's a federal law that sets minimum standards for most workplace retirement plans, which protects participants. Your employer should provide a Summary Plan Description every year, which explains your retirement plan's features and your rights.

There aren't many ways to save for retirement that guarantee a 100% return before you even factor in investment returns!

When you enroll in a 401(k), you authorize your employer to automatically deduct elected contributions from your paycheck and send them to your retirement account. If your company offers matching funds, they contribute additional money for free. 

An example of a typical 401(k) match is 2% or 3% of your compensation. For instance, if your salary is $40,000 a year, 2% is $800. If you contribute that much, so will your employer, giving you a total contribution of $1,600 ($800 from your paycheck plus $800 from your company). And if you can only contribute $500, your employer contributes $500, for a total contribution of $1,000 for the year. There aren't many ways to save for retirement that guarantee a 100% return before you even factor in investment returns! So always be sure to participate in a workplace plan and max out matching funds when offered.

Some retirement plans come with a vesting schedule. It's a period you must remain employed to fully own your matching contributions or other employer-provided funds, such as profit sharing. However, your contributions are always 100% vested. You never forfeit your own money that you put in a retirement account (unless your chosen investments lose money).

The annual 401(k) and 403(b) contribution limits have been slowly increasing every few years, based on IRS rules. For 2021, you can contribute up to $19,500, or $26,000 if you're over age 50. The high contribution limits, automatic payroll deductions, and free matching make workplace retirement plans popular and useful for growing wealth to spend in retirement.

Differences between traditional and Roth retirement accounts

Now that you understand retirement account basics let's cover the differences between traditional and Roth accounts.

A traditional retirement account permits pre-tax contributions, which gives you a tax benefit in the year you make them. You don't pay any income tax on the money you invest. Instead, you pay income tax on your contributions and their investment earnings when you take withdrawals in retirement. 

A Roth retirement account requires you to make after-tax contributions, which don't give you an upfront tax benefit. However, the massive upside is that you take withdrawals of both contributions and earnings that are entirely tax-free in retirement (as long as you've owned the account for at least five years).

The downside of any retirement account is that you get penalized for tapping amounts that weren't previously taxed before reaching the official retirement age of 59.5.

So, the main difference between traditional and Roth accounts is when you pay taxes. A traditional retirement account helps cut your current income tax bill. And a Roth allows you to avoid income tax when you tap the account in the future.

With a Roth, you're allowed to withdraw your contributions at any time. That's because you already paid tax on them. However, if you take out earnings before age 59.5, you must pay a 10% penalty, plus income tax, on the untaxed portion.

The downside of any retirement account is that you get penalized for tapping amounts that weren't previously taxed before reaching the official retirement age of 59.5.

5 ways a workplace Roth is different from a Roth IRA

Many people mistakenly assume that a Roth is a Roth. It's important to understand five main differences between a Roth 401(k) and a Roth IRA.

1.  Limits on annual income apply to a Roth IRA but not a Roth at work. When your income exceeds yearly limits, you can't make new contributions to a Roth IRA. For 2021, single taxpayers with income exceeding $140,000 and joint filers with household income over $208,000 get locked out. However, with a Roth 401(k) or 403(b), you can contribute no matter how much you earn.   

2. Annual contribution limits for a Roth IRA are much lower than a workplace Roth. For 2021, you can contribute up to $6,000, or $7,000 if you're over age 50, to all your IRAs. As I previously mentioned, you can contribute a total of up to $19,500, or $26,000 if you're over 50, to your workplace retirement accounts.

3. Required minimum distributions (RMDs) don't apply to a Roth IRA. You can keep money in the account indefinitely and pass it along to your heirs. But you must take RMDs from a Roth at work no later than age 72 (unless you're still employed there). As long as you've owned the account for five years, your distributions will be tax-free.

4. Early withdrawals of Roth IRA contributions can be made at any time without triggering income taxes or a penalty. However, taking withdrawals from a Roth at work typically come with conditions, such as experiencing a financial hardship like unpaid medical bills or funeral expenses.

5. Loans are typically permitted for a Roth at work. You must pay your account back with interest on a five-year schedule. However, taking a loan from a Roth IRA isn't allowed.

So, you can see that a Roth 401(k) and a Roth IRA have similar advantages and have differences in how participants can use them.

RELATED: What Is a Backdoor Roth IRA?

Should you choose a traditional or Roth retirement account?

A significant factor in choosing a traditional or a Roth retirement account is the income tax rates in the future and how much you'll make during retirement. None of us can predict the future, so we have to guess what will be best.

If you prefer a "bird in the hand" to cut taxes sooner rather than later, then a traditional account may appeal to you. But if you don't mind paying taxes in the current year, then a Roth has more long-term advantages.

If you prefer a "bird in the hand" to cut taxes sooner rather than later, then a traditional account may appeal to you. But if you don't mind paying taxes in the current year, then a Roth has more long-term advantages. 

When you're not sure which type to choose, or you want benefits of both types of accounts, you can split contributions between both a Roth and a traditional 401(k) or 403(b) in the same year. You can choose any proportion, such as 50/50 or 20/80, as long as your total doesn't exceed the allowable annual limit set by the IRS.

If your income is too high for a Roth IRA, having a Roth at work is a terrific benefit. As I mentioned, there are no income limits on a workplace Roth. That means high earners can use one and enjoy tax-free withdrawals in the future.

Having both taxable and non-taxable income in retirement is a good idea. So, instead of deliberating between a traditional or a Roth at work, consider the benefits of using both. If you have employer matching, those contributions are always traditional or pre-tax. So, choosing a Roth 401(k) or 403(b) is an excellent way to diversify your future income and choices.

Read More »

What You Need to Know Before Exiting Mortgage Forbearance

No Comments
| Apartment Decorating, Mortgage

Millions of people are struggling with their mortgage payments. It’s true that the total number of loans in forbearance did decrease in December to 5.48%, but that doesn’t mean that people are out of the woods yet. According to the MBA, there are 2.7 million people in active forbearance, who will soon reach their six-month […]

The post What You Need to Know Before Exiting Mortgage Forbearance appeared first on The Simple Dollar.

Read More »

Does My Homeowners Insurance Go up After a Claim?

No Comments
| Apartment Decorating, Home

All that recent snowfall might have been beautiful in the moment, but it might be taking a toll on your home’s roof. If the weight of snow and ice has caused your roof to collapse, forcing you to file a claim with your homeowners insurance provider, you’re not alone. According to the Insurance Information Institute, […]

The post Does My Homeowners Insurance Go up After a Claim? appeared first on The Simple Dollar.

Read More »

Best Installment Loans of 2021

No Comments
| Apartment Decorating, Personal Loans

Installment loans are a great financial tool for people who want to make a large purchase and don’t have the cash to do it. Unlike credit cards, which you might use to borrow revolving amounts and pay them back as you go, installment loans involve borrowing one single sum and repaying it over time in […]

The post Best Installment Loans of 2021 appeared first on The Simple Dollar.

Read More »

The Best Renters Insurance in Chicago, Illinois

No Comments
| Apartment Decorating, Home

The best renters insurance companies in Chicago, Illinois Best for Low Premiums: Lemonade Best Customer Service: State Farm Best for Add-On Coverage Options: Nationwide Best for Local Agent Network: Erie Insurance Best Coverage for High-Value Items: Country Financial Choosing your provider  When choosing the best renters insurance in Chicago, it’s best to compare policies and […]

The post The Best Renters Insurance in Chicago, Illinois appeared first on The Simple Dollar.

Read More »

The Best Personal Lines of Credit of 2021

No Comments
| Apartment Decorating, Personal Loans

A personal line of credit allows you to pull out funds when needed, up to your credit limit, which is different from a personal loan, which you borrow and pay back once.

The post The Best Personal Lines of Credit of 2021 appeared first on The Simple Dollar.

Read More »

2019 Tax Tips for Understanding 2020 Income Tax Filing

No Comments
| Apartment Decorating, Loans, Taxes

Note: Due to the COVID-19 coronavirus pandemic, the IRS has extended the federal tax filing and payment deadline to July 15, 2020. The recent relief package passed by Congress may have additional tax implications. Please contact a tax adviser for information you may need to complete your taxes this year. Learn more. Note: The following… Read More

The post 2019 Tax Tips for Understanding 2020 Income Tax Filing appeared first on Credit.com.

Read More »

Best Mortgage Rates for January 2021

No Comments
| Apartment Decorating, Mortgage

Buying a home is typically a long term investment. When you buy a home, you generally have several decades to pay off the loan. In fact, while there are different loan terms to choose from, most home buyers opt for mortgage loans that have a standard 30-year repayment term. Given the time and financial investment […]

The post Best Mortgage Rates for January 2021 appeared first on The Simple Dollar.

Read More »

The 2020 Tax Deadline Is July 15—Here’s What You Need to Know

No Comments
| Apartment Decorating, Taxes

Still scrambling to get your taxes done? Don’t worry—this year’s tax season is a bit longer than usual. While the tax deadline has traditionally been April 15, the 2020 tax deadline has been extended to July 15 due to COVID-19.  What does that mean for you and your taxes? We’ve got information you need to know… Read More

The post The 2020 Tax Deadline Is July 15—Here’s What You Need to Know appeared first on Credit.com.

Read More »

Posts navigation

1 2 … 7 Next

Recent Posts

  • This Tool Helps Find the Perfect Real Estate Agent for You
  • What are money orders, and how do they work? – Lexington Law
  • Dealing with medical debt
  • Part 5 – Credit Scores Broken Down – New Credit – Credit Absolute, How Credit Scores Work
  • 7 reasons you might want the Amex Business Platinum instead of the Amex Platinum Card – The Points Guy

Archives

  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • October 2020

Categories

  • Account Management
  • Apartment Communities
  • Apartment Decorating
  • Apartment Hunting
  • Apartment Life
  • Apartment Safety
  • Auto
  • Auto Insurance
  • Auto Loans
  • Bank Accounts
  • Banking
  • Borrowing Money
  • Breaking News
  • Budgeting
  • Building Credit
  • Business
  • Car Insurance
  • Careers
  • Cash Back
  • Celebrity Homes
  • Checking Account
  • Cleaning And Maintenance
  • College
  • Commercial Real Estate
  • Credit 101
  • Credit Card Guide
  • Credit Card News
  • Credit Cards
  • Credit Repair
  • Debt
  • DIY
  • Early Career
  • Education
  • Estate Planning
  • Extra Income
  • Family Finance
  • Financial Advisor
  • Financial Clarity
  • Financial Freedom
  • Financial Planning
  • Financing A Home
  • Find An Apartment
  • Finishing Your Degree
  • First Time Home Buyers
  • Fix And Flip
  • Flood Insurance
  • Food Budgets
  • Frugal Living
  • Growing Wealth
  • Health Insurance
  • Home
  • Home Buying
  • Home Buying Tips
  • Home Decor
  • Home Design
  • Home Improvement
  • Home Loans
  • Home Loans Guide
  • Home Ownership
  • Home Repair
  • House Architecture
  • Identity Theft
  • Insurance
  • Investing
  • Investment Properties
  • Liefstyle
  • Life Hacks
  • Life Insurance
  • Loans
  • Luxury Homes
  • Making Money
  • Managing Debts
  • Market News
  • Minimalist LIfestyle
  • Money
  • Money Basics
  • Money Etiquette
  • Money Management
  • Money Tips
  • Mortgage
  • Mortgage News
  • Mortgage Rates
  • Mortgage Refinance
  • Mortgage Tips
  • Moving Guide
  • Paying Off Debts
  • Personal Finance
  • Personal Loans
  • Pets
  • Podcasts
  • Quick Cash
  • Real Estate
  • Real Estate News
  • Refinance
  • Renting
  • Retirement
  • Roommate Tips
  • Saving And Spending
  • Saving Energy
  • Savings Account
  • Side Gigs
  • Small Business
  • Spending Money Wisely
  • Starting A Business
  • Starting A Family
  • Student Finances
  • Student Loans
  • Taxes
  • Travel
  • Uncategorized
  • Unemployment
  • Unique Homes
  • VA Loans
  • Work From Home
shaygallohomeconstruction.com
Home | Contact | Site Map

Shay Gallo Home Construction 2021 . Powered by WordPress