Tag: IRA

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2018 Taxes Due

Whether you have a CPA or prepare your tax return yourself, here are few words of wisdom.

If you expect a refund, hurry up and file. No sense in the government holding on to your money. Better to put it to good use paying down debt or investing.

If you expect to pay, let Uncle Sam wait for your money. Just make sure you submit by the tax filing deadline. Remember, even if you file an extension, you must pay taxes due by the original deadline.

Also, take a look at your return last year and compare to this year. Does income look similar? How about deductions?

Once you file your 2018 taxes, start the tax planning process for 2019. Take a look at the 2019 tax tables on this site and make adjustments as needed. For example, the limit for IRAs raised to $6,000 for 2019.

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IRA | Roth IRA

An IRA is an account set up at a financial institution (think Fidelity or Chase) that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis. The 3 main types of IRAs each have different advantages:


Traditional IRA – You make contributions generally deductible on your tax return, and any earnings grow tax-deferred until you withdraw them in retirement. Best if you expect to be in a lower tax bracket when you retire.

Roth IRA – You make contributions with money you’ve already paid taxes on (after-tax), and your money may potentially grow tax-free, with tax-free withdrawals in retirement, provided that certain conditions are met.

Rollover IRA – You contribute money “rolled over” from a qualified retirement plan into this traditional IRA. Rollovers involve moving eligible assets from an employer-sponsored plan, such as a 401(k) into an IRA.

Why invest in an IRA?

As mentioned in my 401(k) section, IRAs are a great option if you don’t have access to a 401(k) or if your employer does not offer a match and you expect to contribute less than $6,000 per year.

Additionally, if you max your 401(k) and want to accumulate more savings, you can contribute to both a 401(k) and an IRA. However, if you max your 401(k) already, you are likely in a higher tax bracket that may preclude you from either getting the tax deduction of a traditional IRA or ability to contribute to a Roth. In these cases, do your homework. There are still ways to get around this with strategies such as a “backdoor IRA.” More to come on this topic…

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401k Plans

Keep it simple. If your employer offers a 401k Plan, even if there is not a company match, you should join the plan and contribute. Don’t worry about IRAs, stocks or mutual funds. Join your company 401k Plan now!

Contribution Limits

Start with 5% of your salary. If you can afford more, do it. If you can’t afford 5%, start with $50 or $100 per month. Whatever you can. This year the IRS has increased the maximum employee 401(k) contribution limit to $19,000 per year. The maximum contribution for 2018 was $18,500.Additional contributions can be made if you are age 50 or older. For 2019, that number remains at $6,000, which is also the same as the catch-up contributions in 2018 and 2017.

Traditional vs Roth

The biggest difference between a Roth and a traditional IRA is how and when you get a tax break: The tax advantage of a traditional IRA is that your contributions are tax-deductible in the year are made. The tax advantage of a Roth IRA is that your withdrawals in retirement are not taxed.

Tough call. If you are just starting your career, go with a Roth. Otherwise, select a Traditional or mix it up.

Fund Choices

There are several choices ranging from small cap to large cap, domestic vs international and low fee options.

Unless you are plan to monitor your investments daily, your best option is a target fund. I personally invest in the Vanguard target funds through my employer 401k Plan. What is a target fund? A target date fund is designed to provide a simple investment solution through a portfolio whose asset allocation mix becomes more conservative as the target date approaches. As an example, if you pick a Target 2045 fund, the portfolio will be more heavily weighted towards stocks, gradually allocating to more conservative investments (e.g. bonds) are your target date approaches.