This post 5 Steps To Retiring Rich (Step 4) appeared first on Daily Reckoning.
In case you’ve missed the last several issues, I’ve been going over different types of retirement accounts and some clever ways to use them for maximum wealth building.
So far we’ve covered the entire world of 401(k)s, including how to use the Rule of 55 … why a Solo 401(k) is my personal tax shelter of choice … and the number one mistake many people make with their employer-sponsored retirement accounts.
Along the way, I’ve also mentioned various types of Individual Retirement Accounts (IRAs) so today we’re going to give these accounts the full attention they deserve.
If 401(k)s are retirement chicken, then IRAs are pork — the other white meat.
Like 401(k)s, they were created by changes to Internal Revenue Code for the same basic purpose of encouraging Americans to save more for their golden years through various tax incentives.
The two most popular types mirror the two most popular types of 401(k) plans ..
Traditional IRAs take pre-tax contributions, saving you money in the short-term and then subjecting your account to Uncle Sam’s wrath later. Once you reach age 70 and a half, you have to stop contributing and must also begin taking required minimum distributions (RMDs).
In contrast, Roth IRAs take after-tax money but then give you the promise that the money — and any future earnings on it — will not be taxed again later. That’s as long as you are at least age 59 and a half when you begin withdrawing the money and it’s been held there for at least five years.
In addition, Roth IRAs do NOT impose required minimum distributions. In fact, you can continue making new contributions at any age as long as you have earned income.
Certain rules govern both types of accounts:
#1. You can invest in most things offered by regular brokerages (including selling options for extra income).
#2. You can fund them through “Tax Day” of the following year — meaning you can contribute money for 2017 through April 17, 2018.
#3. You can contribute as much as $5,500 across all your IRAs. If you’re 50 or over, you can put in another $1,000 in catch-up money. These limits apply for 2017 and 2018, but does not include money that is rolled over from 401(k)s or other accounts.
Please note that both types of IRA accounts have phaseouts depending on your Modified Adjusted Gross Income. In the case of traditional IRAs, your ability to deduct contributions is impacted. For Roth IRAs, the ability to make contributions at all is affected. Details on these limits and other related topics can be found here.
In addition to traditional IRAs and Roth IRAs, there are several other lesser-known varieties …
SEP IRAs and Simple IRAs are both designed for small business owners and other self-employed people. While there are some reasons to consider these accounts, I personally prefer the Solo 401(k) for my own money.
Meanwhile, self-directed IRAs allow you …read more
Source:: Daily Reckoning feed
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