Two Cents Tuesday (episode 6)

Two Cents Tuesday is back bloggies!!! Today we need to discuss Roths …and 401ks….
As per usual,, these are the nuggets I have learned…. so feel free to share your nuggets!:)

401ks, or 403b if your a teacher,,,, is an awesome way to pull money out of your earning PRE-tax… Which means it makes your total income lower,,,, which helps you to keep the amount of income you are taxed on being lower…hence refund or lower taxes. Pretax also means that what you put in goes in 100% as your not losing a percentage on tax.
This same bonus helps you to grow more in interest. BUT BUT BUT!!! This interest also is something that will not be forgotten. If and when you take the money out, you are then taxed on it. Ideally the tax rate (or bracket your in or something) will make the percentage something its okay to pay up on later. But if you take the money out before your ‘of age’ 59.5…you pay a 10% penalty fee… Because,, you guessed it ‘THIS IS A RETIREMENT account… so you need to be old enough to retire people!

So one of the other most awesome thing about 401k/403….. is the matchy matchiness.

Many companies offer a match. This is huge… HU- GE!!!! (sorry Buffalo folks I had to).. Basically this is free money. Sometimes they match whatever you put in,,, (you put in 100, they put in 100)…. sometimes they match a percentage.. (you put in 100,, they put in 5% or 5.00), sometimes they match up to a certain amount (doesnt matter if you put in 10-100 they’ll only go up to 50.00).  You NEED to check your company to see what their match is,, and get the MOST bang for your bucks people! ITS FREE MONEY, like your company is providing your own personal allowance like when you were little and got an allowance for brushing your teeth or something.

Okay now what about ROTH IRAs (Individual Retirement Account)..
This is a special version of IRAs that is relatively new and exciting. Roths are considered ‘the young persons’ IRA because its more flexible for us ‘crazy kids’. Same concept,, you put money into it.. but heres the big difference. You put the money in POST TAX,,, so your  money has been taxed already so all the interest is yours an the total put in ,,, YOURS. Sounds awesome so far right? OF course there are a few catches but let me tell you one last good thing.

With a ROTH you can withdraw YOUR contributions whenever you want. But you cannot withdraw the interest. And frankly you should not be withdrawing either! (that defeats the purpose entirely). So if you put in 1000 and in the next year it grows to 1300, you could withdraw the 1000 but not the 300. Honestly you can take the 300 too but your going to get hit with those fees and taxes that nobody wants or likes!

There is a limit to the Roth,,, a limit based on how much you make (if your rolling in it , they set you up to continue using Traditional IRAs and not the Roth,,),, and a limit based on how much you can put in for a year based on your age! So you have to make sure you make the most of your contributions and get the most savings in now.

Why is retirement such a big deal you may ask? Because at some point you won’t want to, or cannot work… but that will not mean that life is going to get less expensive ,,, in fact likely the contrary, with the meds you’ll probably need to survive it will be Significantly more expensive (that’s a sort of joke). No one will pay for your loans or your bills or your future except for you,,, so the same goes for retirement.

Save now,,, save later….. and worry less!:)

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