ROTH IRA Contributions Limits

A Roth IRA is an individual retirement account that allows you to set aside a specified amount of after-tax income each year.

Over time, you earn interest on it and, after you turn 59 1/2, you can withdraw your savings and earnings tax-free. The amount you can contribute is updated each year, along with other specifications of the account.

As for who can contribute, “Anyone can open a Roth IRA provided they have earned income for the year, and their earnings are under the IRS-imposed phaseout limits,” explains Ryan Repko, MBA, Financial Advisor at Ruedi Wealth Management, Inc.

“Thankfully, the Roth IRA phaseout limits are relatively high,” he adds, “so the vast majority of Americans can contribute to a Roth IRA.”

But the big question is, how much money can you put into a Roth IRA each year? Here’s everything you need to know about Roth IRA contribution limits straight from financial experts across the U.S.

Roth IRA contribution limits for 2018

Repko says, “According to IRS Notice 2017-64, the Roth IRA contribution limits for 2018 remain unchanged from 2017. If you are less than 50 years old, you can contribute up to $5,500 per year and, if you’re 50 or older, you can contribute $6,500 per year.”

Here’s a look at how the contribution and income limits have changed over the past four years:

What happens if you put too much in Roth IRA? You may be subjected to additional fees and unwanted attention from the IRS.

What are the contribution limits?

The limits are stated in the chart above. Repko explains, “If you are married and filing jointly on your tax return, and your modified adjusted gross income (MAGI) is less than $189,000, then you can contribute the full amount ($5,500 per year for those under 50, and $6,500 per year for those who are 50 or older).

But this contribution amount is phased out over the next $10,000 of MAGI. If your MAGI is above $199,000, you cannot contribute to a Roth IRA at all. If your income lies somewhere in between, you can contribute to a Roth IRA, but not the full amount.”

He adds, “If you file a single tax return, and your MAGI is less than $120,000, then you can contribute the full amount ($5,500 per year for those under 50 years old, and $6,500 per year for those 50 and older), but you are phased out from making a contribution at $135,000.”

Since 2017, the limits have increased by $3,000 for those who are married filing jointly and $2,000 for single filers.

2018 contribution limits for a Roth IRA and traditional IRA combined

You may be wondering how much you can contribute to a Roth IRA and traditional IRA combined.

Repko explains, “The contribution limits are the same for a traditional and a Roth IRA, and any combination of contributions to both accounts is subject to the same limits.

For example, if a person under the age of 50 contributes $3,500 to their traditional IRA, they can only contribute $2,000 to their Roth IRA for that tax year, because their combined contributions cannot exceed $5,500.”

Traditional IRA income limits

There are no income limits on traditional IRA accounts. However, your MAGI will determine if your contributions are tax-deductible.

See the chart below for the 2018 limits:

When is the Roth IRA contribution deadline?

“You can contribute to a Roth IRA any time throughout the year and have it count for that year. Also, you have until tax day to make a contribution to a Roth IRA and still have it count for the previous year. For example, you have until April 17, 2018, to make your Roth IRA contribution and still have it count for 2017,” says Repko.

Discover 10 Tax-Saving Tips You Need to Know in 2018

How to work around the Roth IRA income limit

Can you still reap the benefits of a Roth IRA account if your income is higher than the Roth IRA limits? Yes, you can.

According to Matthew Stewart — CFP®, ChFC®, President and wealth advisor at Forestview Financial Partners — there is a workaround.

“High-income earners can indirectly contribute by using what’s come to be known as the Backdoor Roth IRA contribution. First, you make a ‘non-deductible’ contribution to a traditional IRA,” says Stuart, “and then immediately convert it to a Roth IRA (since there isn’t an income limit on traditional IRAs or conversions).”

“The conversion makes the most sense when all of your IRA money is considered after-tax contributions. That way, none of the money is taxed,” adds James Robert Schramm, financial advisor at Schramm Financial Group.

You may be wondering, is this legal?

Stewart explains, “Before the passage of the new tax reform law, tax professionals and advisors worried that, at some point, the IRS would disallow or ‘unwind’ these transactions,” Stuart explains, “arguing that this two-step process violates what’s known as the ‘step transaction doctrine.’

However, Congress included four footnotes in the Conference Committee Report explanation of the Tax Cuts and Jobs Act, which essentially blesses these transactions.”

There are several important details about this conversion such as the deadlines and tax implications, so it is best to discuss it with a financial expert.

Have a 401(k)? Here’s how to roll it over into an IRA.

A change to IRA conversion reversals in 2018

For those who are interested in converting traditional IRA funds into a Roth IRA, the rules have changed this year.

Henry Stimpson, APR at Stimpson Communications says, “You no longer have the option of waiting until October of the following year to decide whether to reverse IRA conversions. As of 2018, any conversion is irrevocable.”

Stewart explains, “The Tax Cuts and Jobs Act repealed the ability for a taxpayer to ‘recharacterize’ a previously converted Roth IRA, whereby taxpayers were able to undo a previous Roth conversion if they changed their minds.

Taxpayers are no longer allowed to undo these. Once they decide on a conversion, they are stuck with it.”

Stimpson adds, “Because of this, it’s important to make sure you understand the tax consequences of a conversion and are comfortable with them. For many people, it will make sense to wait until year-end to decide whether to convert IRA assets.

There was much more flexibility before, making conversions more of a win-win proposition. Now, if you convert and the value of your investments drop, or the conversion pushes you into a higher tax bracket, there’s nothing you can do about it.”

10 Tax Tips for Small Business Owners You Can’t Afford to Ignore

Are there liquidity constraints on the money in your Roth IRA account?

Yes and no.

Stephen C. Bene, financial advisor and co-founder of Beneficial Wealth, explains, “The one little-known fact is that the IRS does allow you to access whatever you’ve put into your Roth IRA without penalty.

But to access the growth on your contributions tax-free and penalty-free, your Roth IRA must have been open for at least five years, and you must be at least 59 ½.”

He adds, “The ability to access what you’ve contributed to a Roth IRA is one of the major differences between a Roth IRA and a traditional IRA. With a traditional IRA, you cannot take out what you contributed before you turn 59 ½, without a penalty and taxes due.

However, once money has been withdrawn from a Roth IRA, it cannot be paid back. You will have effectively forfeited your ability to grow the money you distributed on a tax-free basis for the rest of your life.”

Should you invest in a Roth IRA account?

Roth IRA accounts offer many benefits and can be a nice boost to your retirement.

Stimpson advises, “Roth IRA contributions should be invested aggressively. Because assets in the account are tax-free, you’re better off holding conservative investments in other types of accounts.

By investing aggressively, your Roth IRA can grow for the long-term, which will boost your retirement and also possibly leave more for your heirs.”

To learn more about Roth IRA accounts and other investment options, review and compare the top wealth management firms today.

how to invest stock market 8 basic concepts

Investing in the stock market can feel like trying to play a game of chess without being taught the rules. You know the general goal of the game, but you need someone to explain the position and legal movements of the pieces. Then you can learn how to combine them into a coherent strategy.

If you are set on learning the art of investing in the stock market, prepare yourself for some serious research and a steep learning curve. Making a profit by consistently timing the market is tough. However, there is no lack of training materials and research tools. Large brokerage firms, such as TD Ameritrade, USAA, and TradeKing, provide free training materials and the chance to practice your skills using simulators and virtual money.

If you are not interested in having a hands-on approach to your investment, you can allow professionals to design an investment portfolio that aims to yield the highest return for the lowest amount of risk. Investment companies, such as Betterment, Personal Capital, and EverBank, use the Modern Portfolio Theory proposed by 1990 Nobel Prize winner, Harry Markowitz, to create a personalized portfolio that reflects your goals and risk tolerance. Many of these companies use algorithms called robo-advisors to automatically create and manage your portfolio.

Regardless of what investment route you choose, there are some basic concepts you need to understand. Here are 8 basic concepts to get you started:

Buying stock in a company is buying a piece of that company

It may seem obvious, but it helps to remember you are buying into real companies when researching what trades to make. At times it may feel like it, but buying stock is not gambling. If you own 5% of the shares in a company, you own 5% of the enterprise. Buying into a company is a bet on the future success of the company. For companies not yet making a profit, investing in them expresses confidence they will eventually become profitable.

Internal and external forces determine the value of a stock

Multiple factors determine the price of a company’s stock. The company’s performance and the ability of its management team are important. Yet, there are many other variables that businesses have little or not control over. For instance, the media, political unrest, and natural disasters are all factors that are out of the hands of CEOs, but that can make a company’s stock price go up or down.

Stocks perform best as long-term investments

Predicting the long-term performance of the stock market is extremely difficult. Predicting the short-term performance of individual stocks is nearly impossible. Investors who try to make a profit by buying and selling shares in the short term rarely succeed. On the other hand, they are a great cash cow for the brokerage charging transaction fees. A smarter strategy is to buy and hold shares in well-managed companies with long-term potential that have a clear advantage over their competitors.

Diversification is your friend

Diversification is an investment technique that reduces risk by spreading assets over various financial instruments, sectors, and even countries. The idea is to maximize the return on your investment by investing in companies and industries that will react differently to the same event. Although diversification is not a guarantee against loss, it is an effective way to hedge your losses and improve long-term returns.

Bear Market Vs. Bull Market

Even if you’ve never bought a share in your life, you have probably heard these terms used to describe the mood of the stock market. But do you know they mean? The stock market is a bull market when stock market indexes, such as the S&P 500 or the Dow Jones Industrial Average, rise by 20% or more from a recent low. Conversely, a bear market is a stock market when key stock indexes have dropped by 20% or more from a recent high-point. In a bear market, the general trend is for stock prices to drop, while in a bull market prices tend to rise.

Growth Stock vs. Value Stock

One of the most important decisions you have to make as an investor is to decide what your risk tolerance is. The terms growth stock and value stock provide a framework with which to categorize stocks by their potential for risk (and profit). Growth stocks are volatile when compared to broad market indexes and they are tied to the health of U.S. economy as a whole. These companies are more likely to reinvest their profits in the company rather than focusing on providing dividends to shareholders. Growth stocks carry the most risk of losing value but they are also the stocks with the greatest potential for profit. New businesses in the technology, alternative energy, and biotechnology sectors are classic examples of growth stocks.

Value stocks, on the other hand, are much more stable. Instead of boundless potential, these companies offer steady growth prospects and focus on providing shareholders with generous dividends. Classic value stocks include McDonalds, IBM, Microsoft, and AT&T. Of course, nothing is set in stone in the stock market and value stocks can quickly become value trap stocks.

The stop-loss order

A stop-loss order sets an automatic sell order once a share reaches a particular dollar value. For instance, if you buy a stock for $20 and set a stop-loss order at $18, your broker will automatically sell the share when its market price hits $18. The advantage of using stop-loss orders is you don’t have to monitor stocks daily. The tradeoff is there are no hard and fast rules when it comes to stock fluctuations. A stop-loss could cause you to miss out on future gains.

Set a specific goal for the investment

Is it a college fund for the kids? If your children are still toddlers, you have plenty of time and can afford to take some risks. If you’re going to need the money in a couple of years, keep it away from high-risk investments. Saving for your retirement? The same principle applies. Young investors can afford to throw caution to the wind. Older investors may want to stick to Treasury bonds and value stocks. Figuring out what your investment goals are is a top priority when deciding how much to invest and what methods to use.

Playing the stock market is not for the faint of heart. There are no “participation trophies.” You either win or lose. But there is a wealth of information and professional services available to help make it a profitable (and even fun) experience.


How To Start Investing with $1,000 or Less!

If you feel like investing is a game that is rigged to favor the wealthy, you’re right. Some of the most lucrative investments opportunities, such as hedge funds and private equity funds, are only open to people who already have a $1 million in liquid assets or an annual income of more than $200,000. In other words, those who are already rich.

Related article: How much money does it take to be considered “rich” in the US?

Many online brokers set minimum deposits of $1,000 or more before they will open an investment account. Even mutual funds, one of the simplest investment vehicles available, impose similar minimums.

So you may reasonably wonder if you can really get big returns on the small amount of cash you have available for investing. The good news is that you don’t have to be the next Warren Buffett to make money from investments. With a bit of patience and a good strategy in place, you can get big returns even from investing modest amounts, such as $1,000 or less.

Max-Out the Free Money from Your 401(k)’s Employer Contribution

Some employers offer 401(k) plans with matching employer contributions as a perk to their employees. These plans take money directly from your paycheck and invest it in a tax-deferred retirement fund. Most 401(k)s also allow employees to make additional deposits when they have cash to spare. The tax savings and matching contributions are like free money: a guaranteed return on your investment. You know better than to say no to free money. If your employer offers matching contributions, go ahead and max them out before investing anywhere else. It doesn’t get better than receiving free money on a tax-deferred investment fund. Of course, the overall investment fund could still go south but as long as the 401(k) is properly diversified this is as close as it gets to guaranteed returns when investing in the stock market.

The Return on Investment: ~7% + Free Money

A $1,000 investment in a 401(k) that has an average return of 7% will generate $7,612 over 30 years. If your employer kicks in a 50% match, your return will be $11,418. The actual ROI will obviously depend on the performance of your 401(k)’s fund and your employer’s matching contribution policy

High-Yield Checking Account

High-yield checking accounts offer interest rates that range from 1% to 5% APY. Spectacular returns when you compare it to the average savings account interest in 2016: 0.06% APY. Particularly when you consider high-yield checking  accounts are insured up to $250,000.

Related article: Top 9 High-Interest Checking Accounts for 2016

High-yield checking accounts are a great option for investors who still don’t have enough to make the minimum investment in a regular mutual fund. It’s also a great place to deposit your emergency fund, regardless of how much money you have to invest. The catch is you have to meet certain requirements, such as setting up a monthly direct deposit, 10 debit card transactions, and opting for electronic monthly statements. This article looks into 9 of the best high-yield checking accounts of 2016.

The Return on Investment: Up to 5%

$1,000 invested in a high-yield checking account will generate up to 5% APY. That is $50 a year or $4,322 after 30 years if you reinvest the money your make. It may not sound like much, but it is 100 times better than the average rate for a standard interest checking account in 2016 (0.04%).

Invest Like Warren Buffett: Think Index-Funds

Well, to be more precise, invest like Warren Buffett wants his wife to invest once the Oracle of Omaha is no longer around to do his magic. Yes, putting 90% of her assets in a low-cost S&P 500 index fund and 10% in short-term government bonds are the instructions Warren Buffet has left the trustee who will manage his estate once he is gone.

Return on Investment: ~10%*

(*) Although volatile in the short term, the S&P 500 index, an index that includes the 500 largest companies listed on the New York Stock Exchange, has provided an average return of 10% over its history. Assuming an ROI of 10%, a $1,000 investment would generate $100 a year. Of course, past performance doesn’t mean anything, but that applies to practically any investment. Don’t have enough savings to meet the minimum amount required to invest in an index fund? The next tip may help.

Use a Robo-Advisor

A robo-advisor is an algorithm that automatically applies an investment strategy to an investment portfolio. Robo-advisors can diversify a portfolio, follow any investment strategy you want, and even re-balance a portfolio in response to market performance as a regular financial advisor would. There is one huge advantage. Unlike their human counterparts, robo-advisors don’t have mortgages to pay or kids to put through college, so they work for free. Combine a robo-advisor with a selection of well-selected low-cost funds and you have a winning recipe for a successful investment strategy. Online robo-advisors, such as Betterment, don’t have a minimum investment and charge an annual fee of 0.35% for its services.The fee drops to 0.15% for accounts with larger amounts.

The Return on Investment: 11% (?)

As always, there are no guarantees when it comes to investing in the stock market, however, robo-advisors, such as Betterment, claim they can improve the return on investment of the average do-it-yourself investor by 4% or more. On a $1,000 investment, that could mean an additional $3,243 over 30 years.

Invest in Peer to Peer Lending

Diversify your portfolio beyond traditional stocks and bonds by investing in personal loans. The growth of peer-to-peer lending platforms, such as Prosper and LendingClub has made it easy to invest in personal loans. The beauty of P2P platforms is you can spread your bets over many borrowers and limit your default risk to as little as $25 per borrower. P2P platforms allow you to set automatic guidelines on the percentage of loans you want from each risk grade. Borrowers are categorized by their credit score, income, and other factors that determine their likelihood of repaying the loan. The higher the risk the better the return.

The Return on Investment: 7% to 25%

The ROI depends on how much you are willing to risk. Prosper’s platform categorizes borrowers as grade A (7.34%) to G (25.54%). The actual return to investors is a little less because you have to calculate the P2P platform’s fees and there is always the risk of defaults.

Like many people, I gave P2P lending a try just to see how it works. I started with a small investment of $500 and spread it over a mix of borrower categories. Up to now, my annualized net return is over 10%, which is 10 times better than the performance of my ETFs last year. Assuming a 10% return is typical, that would be $100 a year on a $1,000 investment, or $17,500 after 30 years if you reinvest the profits.

Brokerages Vs Wealth Management Funds

If you want to build your own investment portfolio, online brokerages, such as TD Ameritrade, ETrade, and TradeKing can provide you with the tools you need to buy and sell stocks or even invest in more complex investment vehicles, such as stock futures or stock options.

Another option is to invest in wealth management firms, such as Betterment, Personal Capital, or EverBank. These online wealth management firms build personalized investment portfolios based on the risk tolerance and financial goals of investors.

Choose a Strategy and Stick with It

You may not have Warren Buffett’s money, but his value-oriented strategy is one of the best tried and true methods of consistently staying ahead on investments. Mr Buffett tells his friends and relatives to distrust the advice of financial advisors whose income depends on the number of transactions or financial products you buy. The frictional costs alone of repeatedly buying and selling stocks, for instance, can easily eat up your profits. Instead, ignore the chatter, find a low-cost investment that fits your risk tolerance and stick with it.

Once upon a time, the word ‘retire’ was associated with becoming inactive and getting old. Today, retiring no longer carries those connotations. Instead, having the drive and discipline to save enough to retire early is seen as a sign of success. We explored the lives of 10 people who were retired before 40 and are neither inactive or old.

Jeremy Jacobson (38) — Saved 50% to 70% of their monthly income for a decade

jeremy and winnie jacobson

MP Dunleavey wrote about the early retirement of 39-year-old Jeremy Jacobson on “Jacobson was in his mid-20s and working as an engineer at Microsoft when he decided that total, long-term financial independence was his goal. He and his wife saved between 50% and 70% of their income for a decade. They lived modest lives on good incomes choosing to minimize the three expenses that are dominant for most Americans: housing, food, transportation. Jacobson also did a lot of research. One guiding principle that emerged from his self-education was the 4% rule, he said, referring to a common rule-of-thumb for ‘safe’ asset decumulation, especially for retirees. But in order to live on a 4% drawdown from a relatively modest stash like $1 million or $2 million, you have to be smart about your tax strategy and your lifestyle. Those were the next considerations in Jacobson’s plan. As U.S. citizens and residents of Washington State (although they’re traveling in Mexico now), Jacobson and his wife Winnie Tseng pay federal but not state taxes. ‘Our lifestyle requires about $850,000 invested,’ Jacobson says. Currently, his financial plan requires that they live on 4% of that, a bit less than $36,000.”

Billy and Akaisha Kaderli (38) — Worked hard and made bold budgeting choices

billy and akaisha kaderili early retirement

Billy and Akaisha Kaderli retired at age 38. They have since become recognized retirement experts and internationally published authors on topics of finance and world travel. On his website, Kaderli states, “In late 1979, we purchased LUTHER’S, a 43 seat restaurant in the seaside community of Santa Cruz, California, near the yacht harbor. For 10 years, we owned and operated this restaurant, bringing it to local fame. For the first 5 years, we worked as a team; Billy, the Chef, and Akaisha, the CEO.” Dean Witter took a keen interest in Billy, recruiting him for their brokerage firm. Eventually, Billy became Vice President of investments, and branch manager of the Aptos office. Meanwhile, Akaisha continued to operate the restaurant on all levels, which was open 365 days a year, breakfast, lunch and dinner. Kaderli continued, “In 1989, we assessed our lives, our dreams, and our bank balance. Making some bold choices, we decided to get on track to becoming early retirees. In January of 1991, at the age of 38, we retired and moved to Nevis, a 36 square mile dot in the West Indies. From there our perpetual gypsy schedule began, traveling through the West Indies, Venezuela, US, Canada, Mexico, Central America and many nations in Asia.”

Paul and Vicki Terhorst (35) — Choose a good life over a good career

paul-vicki early retirement

In 1988 Richard Eisenberg wrote an article for money magazine on early retiree Paul Terhorst and recently updated the story 30 years later. “Last week, I caught up with Paul, now 65, to find out how the past 30 years have gone for him and his wife, Vicki (also 35 when she retired) — and to learn his plans for, what could be, another 30 years. ‘It excites us very much,’ Paul said, calling from their $450-a-month rental in Chiang Mai, Thailand, one of the seven best places to retire around the world, according to the new 2014 Retire Overseas Index. ‘Three of our four parents are alive in their 90s. We’re very excited and fully hope we can live and have vital, exciting lives for the next 30 years.’ When they first retired, says Paul, the couple determined that ‘we wanted to have a good life, rather than just a good job, so we decided to retire and never look back.’ And they haven’t.”

Todd Tresidder (35) — Lived frugally and saved a high percentage of his income


Kandice Bridges reported on several early retirees on One such retiree is Todd Tresidder. “Todd Tresidder retired at age 35, after working 12 years as a hedge fund investment manager running a $20 million-plus portfolio. He says anyone driven to retire early may not find a leisurely lifestyle a satisfying way to live. He pursues his passion for coaching others on how to retire early through his website, Tresidder says to build assets faster, you must live frugally and save a high percentage of your income. This helps you in two ways: You save a lot, and you live a lower-cost lifestyle, which requires fewer assets to maintain.

Chris Tucker (26) — Diversified his sources of income

chris-tucker early retirement covered the story of Chris Tucker who became financially independent at 26. “He started with less than $300 in the bank and created wealth largely through real estate in less than three years. He buys and holds single-family homes and apartment buildings that generate rental income in excess of the mortgage payments. The stock market crash in 2008 prompted him to learn how to amass wealth using methods other than traditional equity investing. Besides building a portfolio of real estate, he lends money to people who are unable to secure funds through traditional means due to bad credit. ‘With microlending, I invest via a LendingClub in individuals who need personal loans,’ Tucker says. ‘My investments in these avenues give me a return better than what I could achieve in the stock market.’”

Doug Brown and Lisa Zandt (<40) — Sold everything and embraced simplicity

Doug Brown and Lisa Zandt early retirement writer Kandice Bridges also told the story of Doug Brown and Lisa Zandt. “They fully embraced the notion of a nontraditional retirement path. They were sales and marketing managers at a large Fortune 500 company and then retired to sail full time for nine years. The couple sold everything — house, cars, almost all of their possessions — and bought a sailboat. They lived all around the Caribbean and South America. ‘Living on a boat outside of the U.S. was much less expensive than living in the U.S.,’ she says. After nine years of embracing simplicity, they decided to come back to the United States and start their own business. They now run a CareMinders Home Care franchise in Tucson, Arizona.”

 Mr. Money Mustache (30) — He stashed his cash

kelly johnson mrmoney mustache

Most commonly known as Mister Money Mustache. Kelly Johnson provided a report on this retiree on Ultimately, the name was derived from a term ‘must stash your cash’. To retire at 30, he told Johnson “I just maintained this desire not to waste anything. Our bread-and-butter living expenses are paid for by a single rental house we own, which generates about $25,000 per year after expenses. We also have stock index funds and 401(k) plans, which could boost that by about 50 percent without depleting principal if we ever needed it, but, so far, we can’t seem to spend more than $25,000 no matter how much we let loose. So the dividends just keep reinvesting.”

Joe Udo (38) — Tracked cash flow and saved one of their incomes

joe udo retire early

Joe Udo writes about his retirement at age 38 on his own website “I had been a computer engineer at Intel since 1996, but the job wasn’t the right fit for me anymore. My physical and mental health deteriorated and I knew I had to get out. I started Retireby40 to keep tab of my early retirement journey. Eventually, I gave my notice and left the corporate world forever in July 2012. We tracked our cash flow and saved all my income since 2010. Those 2 years gave us a chance to see if we could really survive with just one paycheck, our passive income, and my online income. Yes, Mrs. RB40 is still working. She likes working, which is great for our situation. I’m ridiculously busy as a stay at home dad/blogger, but I wouldn’t have it any other way. Notice that I didn’t say ‘quit working’ in the first paragraph. You don’t have to quit working when you retire. It’s not good for your mental health to stop working completely while you’re still productive.

Randy Gilbert (40) — Stretched his budget to breaking point and invested the rest

randy gilbert retire early

The stories of early retirees are quite diverse. Randy Gilbert tells his own story on his website “I retired to my ‘Shangri-La’ when I was only 40 years old (after serving 22 years in the military). I began my retirement planning 15 years earlier when I was just a young Lieutenant. I didn’t even know it at the time, but it happened the moment I decided to buy some ‘Mountain Property’ in the Shenandoah Valley. I bought as much as I could afford and it stretched our budget near to the breaking point, but it was the best financial decision I ever made.” Once the property was paid off, he used the land as a down payment for building a home, and he now sells lots on the website and lives off the income.

Sam Dogen (40) — Planned his own layoff and made a living off blogging

sam dogen retire early

CPA Eric Gati started a blog The Daily Interview and wrote about Sam Dogen who retired at age 32 after starting his own blog Financial Samurai. “I love a great entrepreneurial story, but I especially love when it involves leaving behind a very successful career to pursue a genuine passion. In Sam’s case, he worked on Wall Street for 13 years before his passion for blogging pushed him to want to leave his job. Here’s where things got interesting: He didn’t quit. He engineered a layoff that basically allowed him to get paid a six-figure sum in the form of a severance package.” Dogen told Gati “My journey began in 1999 when I joined Goldman Sachs in the Equities department in NYC. It was a dream come true given I got hooked on trading stocks my junior year of college. I always wanted to work until age 40 (2017), but I didn’t anticipate how fun blogging would be. Financial Samurai started in 2009 during the middle of the financial crisis to help me make sense of everything. It turns out a ton of people felt quite troubled by the downturn and a robust community of readers was born. By 2011, I started burning out from work after 12 years of doing the same thing. It took a year of planning, but in the spring of 2012, I finally engineered my layoff. Thankfully, things have worked out fine since.”

Would you also like to retire early? Or like 56% of Americans, do you have less than $10,000 in retirement savings?

Regardless of your financial position, low-cost wealth management companies lie Personal Capital and Betterment can help you save more and learn how to diversify your investments without wasting your money on hefty commissions and fees.



How To Save For Retirement

Saving for retirement is like exercising, healthy eating, and not smoking. Noble goals we don’t always get round to. This article will give you 9 ways you can start saving for your retirement today (or the next business day). We will also see how low-cost wealth management companies and brokerages can help you diversify your portfolio without the large fees of traditional investment advisers. Let’s start with a brief (I promise) pep talk on the virtue of starting to save for retirement early.

When it comes to retirement planning, the earlier you start saving, the better. Because of the compounding effects of interest, the longer money is set aside in a retirement account, the longer it has to earn interest on the principle, thus creating amplified growth on the original amount invested. So someone who starts saving at age 25 will end up with a larger account balance at retirement than someone who started saving at age 35 or 45, even if they contribute the same amount (or even more) to their retirement fund. Consider this. If you start saving $405 a month by age 25, you’ll earn a million dollars by the time you turn 65, assuming an average annual return of 7%. Assuming the same growth, someone who starts at age 30 will have to save $585 a month, $51,300 more, to achieve the same goal. You see? Time is money, literally.

How much money will you need in retirement and how do you know if you are on pace to save enough? Here are some benchmarks you can use as a guideline:

  • By age 35, you should have saved an amount equivalent to your annual salary.

  • By age 45, you should have saved three times your annual salary.

  • By age 55, you should have saved five times your salary.

  • By age 67, at retirement, you should have eight times your annual pay.

How do you measure up? Not quite there yet? Here are 9 ways to speed up retirement savings:

Maximize Your Employer-Sponsored 401(k) or 403(b)

For most people, this is the most convenient way to start investing for retirement. 401(k)s are made up pre-tax funds and employers often provide matching contributions, which makes 401(k)s a fast and tax efficient method to save for retirement. The money is automatically withheld as a payroll deduction, which makes it easy to start and forget about. A useful feature when it comes to saving. As of 2016, employees can contribute an additional $18,000 ($24,000 if you are 50 or over) toward their 401(k). If you leave your job, you can roll the account balance over into a new employer’s 401(k) or your own Traditional IRA (there would be tax implications to consider if you converted it to a Roth IRA). A 401(k) is usually offered by for-profit companies. Public education workers, employees of nonprofits, and self-employed ministers, on the other hand, generally get a 403(b).

As of 2016, employees can contribute an additional $18,000 ($24,000 if you are 50 or over) toward their 401(k). If you leave your job, you can roll the account balance over into a new employer’s 401(k) or your own Traditional IRA (there would be tax implications to consider if you converted it to a Roth IRA). A 401(k) is usually offered by for-profit companies. Public education workers, employees of nonprofits, and self-employed ministers, on the other hand, generally get a 403(b).

Self Employed? Create An SEP/Simple IRA

These types of retirement plans are predominantly used by self-employed individuals or small business owners. In 2016, small business owners can contribute up to 25 percent of a worker’s income or $53,000, whichever is less, to an SEP. If a business with an SEP has more than one employee, it must contribute to the accounts  for all who meet the company’s policy requirements. With a Simple IRA, employers must make some type of contribution to the employees’ accounts while employees can make additional contributions. In 2016, employees can contribute up to $12,500, with an extra $3,000 allowed for those over 50 years old. These plans allow small businesses to set up IRAs with less paperwork than a 401(k).

Get A Tax Deduction With A Traditional IRA

Anyone can contribute up to $5,500 a year to an IRA, $6,500 if they are 50 or order. The benefit of contributing to a Traditional IRA is that you get a tax deduction in the year you contribute. Because you get the up-front tax deduction, you do have to pay taxes when you withdraw money from your account in retirement. Assuming that during your working years, you are in a higher tax bracket than you will be in upon retirement, this will give you an overall tax saving.

Prepay Your Taxes With A Roth IRA

The biggest benefit that you get with a Roth is tax-free growth. Although Roth funds are made up of after-tax dollars, your investment grows tax-free, and you pay no tax on withdrawals after you reach age 59 1/2. Also, there is no mandatory withdrawal at age 70 as with other retirement funds. You can even withdraw the amount you contributed — just not the interest — with no penalty because you have already paid taxes on your contributions. If your income is higher than $131,000, for an individual, or $193,000, for a couple filing jointly, your allowed contribution is reduced.

Consider Contributing To A Health Savings Account

Health Savings Accounts are typically used by people with high-deductible health insurance plans so they can save money tax-free. You can contribute up to $3,350 a year for an individual or $6,650 for a family. If you’re 55 or older, you can contribute $1,000 more. The funds may be withdrawn to pay allowable medical expenses. If you don’t spend the money, it rolls over indefinitely. Once you’re 65, you can withdraw money for any reason without penalty, but there will be income taxes to pay on the money you withdraw. Alternatively, you can continue to use it tax-free for medical expenses during retirement.

* This is not the same as a flex spending account that can be used to pay for health expenses during a particular year. A flex spending account is set up on a use-it-or-lose-it basis; the money in a flex spending account does not roll over from year to year.

Get A Return of Premium Life Insurance Policy

Return of Premium Life Insurance Policies works as a term life insurance. The insurance policy coverage period is only for a set amount of time, maybe 20 or 30 years. If the policy expires and you are still alive and well, you receive the amount paid in premiums back. This type of life insurance acts as a savings account as well as a life insurance. The premiums are higher than a simple term life insurance policy, but it guarantees you will get something back from your policy.

Combine Savings And Insurance With A Whole Life Insurance Policy

Whole life insurance policies have higher premiums than standard term insurance policies.  However, they also accumulate a cash value policyholders can access during their lifetime. This product combines an insurance policy and a savings account. The insurance is payable upon death, and the cash value is available to the policyholder to withdraw or borrow against. This product is similar to a return of premium life insurance policy with the exception that the cash value is not restricted to the premiums paid. The cash value can be higher or lower than the premiums paid depending on market performance.

Make A 529 Plan Part Of Your Retirement Planning

Yes, having the foresight to save for your children’s college education can be a helpful retirement tool. For many families, sending children away to college comes relatively close to retirement. Even if retirement is still 20 years away, taking on such a big expense, and possibly neglecting to set money aside for retirement, can have devastating financial consequences for your retirement years. You don’t want to be in the position that you have to choose one over the other. Setting up a 529 Plan can also serve as a useful place for grandparents to deposit gifts over the years.

Hedge Your Bets With Annuities

Although annuities have notoriously high fees, they can be a useful addition to a well-diversified retirement portfolio. Their main advantage is the security they provide investors. While other investment vehicles can grow or shrink depending on their market performance, an annuity has a guaranteed payout.

As you can see, there are many options when it comes to retirement investments. Would you like to build the best portfolio for your personal goals and risk tolerance? Low-cost wealth management companies, such as Betterment and Personal Capital, offer an inexpensive way to diversify your retirement investments without wasting your money on unnecessary fees.

How Does Your 401(k) Plan Measure Up?

Providing a relatively painless way to save for retirement, employer sponsored 401(k) plans continue to be one of the most popular ways to stash cash for our later years in life. According to the Investment Company Institute’s 2014 annual report, as of last June, 401(k) plans held an estimated $4.4 trillion in assets.

HowImportantAre401k-infographic-1100x7522-1024x700If you have a 401(k) through your employer, you may assume that since you have an account and contribute regularly that you’re all set to eventually enjoy a comfortable retirement. Not necessarily. All plans aren’t created equal. Some are better equipped to grow your money than others. Knowing where your plan stands helps you determine if contributing to this investment vehicle fits with your overall financial goals.

You can use the following criteria for determining if your 401(k) is worthy of your hard earned dollars.

When Can You Begin Contributing?

Does your plan offer immediate or timely eligibility once you start working? Ideally, you should be able to begin contributing to your company’s 401(k) plan within the first three months of commencing work.

4According to research conducted by the investment management company Vanguard, which was published in their report on 2012 defined contribution plan data, 54 percent of 401(k) plans offered immediate eligibility for employee contributions. If your plan requires more than three to six months of employment prior to eligibility, it may be inferior.

Does Your Plan Offer a Match?

The main reason for taking advantage of a 401(k) plan rather than an IRA, is the company match that is commonly offered by the employer. According to the Vanguard report, 91 percent of employers offer a company match contribution, which is essentially free money.

retirement planningA nonexistent match is a sure sign you have an inferior 401(k). You may be better off with an IRA where the costs are probably lower and the investment choices are most likely wider.

Ideally, your employer will offer matching contributions as soon as you open the account, but that doesn’t always occur. Twenty-eight percent of plans require a year of service before matching occurs, according to the Vanguard report. The longer you have to wait for this benefit, the less lucrative the plan.

What’s Your Plan’s Match Rate, and Can You Take Full Advantage?

Another important question to ask is what your plan’s employer match rate is. With most 401(k) plans, you’ll find a matching rate of 50 cents for each dollar contributed, up to a maximum 6 percent of your pay. Your company’s 401(k) may not be a good one if it offers a lower percentage for the matching rate.

401kAlso of consideration is whether you can take full advantage of the match. Generally, plans require that you contribute a certain percentage in order to get the maximum match amount. Some plans require that you contribute 6 percent of your pay to the plan, while others call for less and some more. How much of your pay you can afford to contribute will depend on your budget.

Are Fees Reasonable?

Due to realities like compliance issues and administration, transaction and investment fees, 401(k) plans are expensive undertakings. Some fees are absorbed by employers, while other costs get passed on to plan participants. The fees you pay can add up to substantial amounts of money over time.

401k feesGenerally you will find that the larger the plan, the lower the fees. Many large company plans feature 1 percent fees for your contributions, whereas smaller companies often cost up to 1.5 percent in fees.

Take a good look at the fees you’re paying with your 401(k) to ensure that the costs aren’t eating into your savings. The U.S. Department of Labor requires that all plans must give investors information that explains the fees associated with each investment option in the plan. You’ll find fees charged to your account on your statements.

You can also check your plan’s fees and overall quality against other plans on or

Does Your Plan Include Affordable Investment Options?

Low-cost investment options are the hallmark of a good 401(k) plan. Low-expense funds (such as index funds), are an important ingredient of most retirement portfolios, because by having such funds as a foundation, the amount of money you save in fees adds up to more over time than if you were to invest in an actively managed fund that features higher fees. Most good 401(k) plans offer at least six fund options, including index funds. If your funds are in a single investment or your options are significantly limited, beware.

401kDoes Your Plan offer Immediate Vesting?

Vesting is required in 401(k) plans prior to being able to collect employer contributions from the fund. A good plan allows for immediate vesting or vesting on a short timeline. This means, for instance, if your plan is fully vested at six months, that even if you quit in the seventh month, in addition to your own contributions, you receive all of your employer’s contributions.

9 Signs of a Bad Plan

Occasionally, the Department of Labor discovers fraudulent 401(k) plans. Here are 9 warning signs that your plan may fall into that category:

  1. Your account statements are late or inconsistent.
  2. Your account balance looks incorrect or has dropped significantly for no apparent reason.
  3. Your employer fails to make contributions of your money to the plan in a timely manner or your contributions don’t appear to make it into your account.
  4. A significant drop in account balance that cannot be explained by normal market ups and downs.
  5. Unauthorized investments appear on your statements.
  6. You see unusual transactions on your statements, like loans that you didn’t take out.
  7. Former employees are having trouble getting their money.
  8. The investment manager has changed several times.
  9. Your employer appears to be experiencing financial difficulty.

A well-run 401(k) provides you with an ideal opportunity to save money for retirement and get rewarded for your efforts with an employer match and lower taxes taken from each paycheck. Now that you know the signs of a good fund, as well as some of the warning signs of a bad one, you can ensure that your company’s plan is up to the task of safeguarding and growing your savings.

Five Key Principles Of Smart Investing

Making smart investment choices is the key to achieving your financial goals. The trick is knowing what a smart investment looks like. There are so many books, magazines and television programs dedicated to the subject, it’s easy to get confused and overwhelmed by the information glut, especially when so called experts provide conflicting advice.

When not kept in check, information overload degenerates into financial info-besity: an unhealthy consumption of financial information that leads to inaction, financial insecurity and in some cases bankruptcy.

Having a basic but well-grounded understanding of a few key investment principles helps filter out the noise and focus on building a flexible framework on which to base financial decisions. It also creates a benchmark to evaluate future investment concepts and strategies.

This piece trims down the sea of advice available on how to invest to five key principles: goals, risk tolerance, balance, cost and discipline. Consider them your five a day portions of fruits and vegetables for healthy finances.


goalsSet clear and appropriate goals. For a goal to be useful, it must be specific, measurable, achievable, realistic and timely. For instance, having the goal of saving $1 million adjusted for inflation by the time you reach retirement age is a useful goal, while just having the objective of becoming rich, isn’t.

How to Set Effective Investment Goals?

Set goals you can describe using numbers, percentages, rates or a set frequency. Like saving 20 percent of your income, contributing $10,000 a year toward your retirement fund or making two mortgage payments a month. Be specific about the beginning and end date of your goal. Deadlines create commitment, urgency and accountability.

Why Do You Need Goals?

Investors without a plan or a goal are like a ship without a rudder who will blindly follow the investment fad of the moment. Without a specific objective to aim for, investors often build their investment portfolios bottom-up, focusing only on investments piecemeal rather than on the big picture. This can move investors to only consider the rate of return of an investment and forget how it fits in their risk profile and whether it is helping them achieve their final objective.

Risk Tolerance

riskAll investments involve some risk. There is no guarantee any particular asset allocation or investment strategy will meet your goals or provide a set level of income. However, not all investments have the same level of volatility or risk. Generally, assets with the highest risk also have the highest potential for profit. How you decide to invest your money will depend on your attitude toward risk, also known as risk tolerance. An investor’s risk tolerance is her ability to endure declines in the prices of investments while waiting for them to eventually increase in value.

How Can You Find Your Risk Tolerance?

Risk tolerance is based on two main factors: your personality and how soon you need to access your investment, also known as investment horizon. Financial advisers estimate the risk tolerance of investors by asking them a set of questions, such as “What would you prefer $50,000 right now or a 50% chance at $200,000?” or “If you owned a stock that lost about 31% in four months, would you sell all the remaining investment, sell a portion, hold on to it, or buy more of the investment.”

Age is often an important variable when setting investment horizons. For instance, if you are 64 and you need to tap into your investment by the time you turn 65, your risk tolerance is very low and you should stick to conservative investments.


balanceA solid investment strategy requires a suitable asset allocation for the portfolio’s goals. Your portfolio’s asset allocation must be in line with your risk profile; based on realistic expectations for rate of return; and should use diversified investments to avoid being exposed to unnecessary risks.

How Do You Design a Balanced Investment Portfolio?

Diversify your investments in stocks, bonds, cash and property according to your objectives and risk tolerance. Historically, stocks are much riskier than cash and bonds, but they also provide much higher returns. Simply avoiding risk is not a smart move with mid to long-term investments. Not including stocks in your portfolio puts you at risk of earning returns that are below inflation, which is tantamount to losing money.

Don’t invest into individual shares unless you’re a trained (and lucky) investor. Attempting to time the market is a fool’s errand for the vast majority of us. Index investing is a cheap and tax-efficient strategy which allows average-Joe passive investors to beat most active professional investors.

What Is an Index Fund?

An index fund is a mutual fund with a portfolio that is designed to track the components of a market index, such as the S&P 500 or the DJ Wilshire. It provides investors with a diversified market exposure, low operating expenses and low portfolio turnover. Do they work? Nothing is certain when it comes to the stock market. However, the S&P 500, an index that tracks 500 large companies with common stock in both the New York Stock Exchange (NYSE) and the NASDAQ stock market, has returned, on average, 9.45% every year 9.45% for the past 20 years. A track record that puts the vast majority of professional investors and active funds to shame.


costThe uncomfortable truth about markets is that they are unpredictable. However, investment costs are not. They are forever. You can’t control the market, but you can shop around for the lowest investment fees available. The lower your costs, the greater your share of an investment’s return. This may seem obvious, but it is one of the most ignored principles of smart investing.

Believe it or not, the best predictor of a fund’s long term profitability is how much it charges in fees. Lower-cost investments tend to outperform higher-cost investments.

How to Keep Investment Costs Down?

Build your portfolio using low-cost index funds, such as Vanguard 500 Index Fund Admiral Shares (VFIAX), Vanguard Mid-Cap Index Fund Admiral Shares (VIMAX) and Vanguard Short-Term Government Bond ETF (VGSH). Why do I only include Vanguard index funds? Vanguard was the investment company that started the index revolution and it has the lowest costs. Having said that, other outfits, such as Fidelity, iShares and Global X, also provide excellent low-cost index funds.


disciplineInvesting can trigger strong emotional responses, especially in times of market turmoil. In periods of high volatility investors may find they make impulsive decisions or become paralyzed by fear and fail to make necessary changes to their portfolio. Having discipline and perspective are valuable qualities for investors that can help them remain committed to their goals in times of uncertainty.

As mentioned above, asset allocation is one of the most important decisions an investor can make. However, it only works if the asset allocation is adhered to over the long run through good and bad market environments.

This doesn’t mean you should never re-balance your asset allocations. On the contrary, a disciplined investor will not allow her portfolio to drift aimlessly. It is a good practice to check the performance of your asset allocation every year or even twice a year. If your portfolio has deviated more than 5 percentage points from your objective, it may be time to make some changes.


By its very nature, investing is a risky business. This doesn’t mean you have to be reckless or rely on blind luck. There are countless investment strategies and techniques, but they are all based on just a few principles.

Set clear and realistic goals. Determine your risk tolerance. Create a well-diversified portfolio that is in line with your goals and risk profile. Keep costs as low as possible. Have the discipline to both stick to your investment strategy when it’s on track and the discipline to re-balance your asset allocation when it no longer meeting your goals. Stick to those basic principles and you will probably outperform most active professional investors and keep you financial fitness in tip-top shape.

10 Quick Financial Moves To Make Today

If you always work through lunch, maybe it’s time to rethink that strategy. You’ll benefit both mentally and physically from the break in your routine, which may make it easier to stay awake during late afternoon conference calls and meetings.
But if you hate feeling unproductive at all during the workday, any of the 10 quick financial moves listed below can give your personal bottom line a boost during your lunch break. For actions that involve submitting personal or financial information, play it smart and use your data plan or a virtual private network (VPN) to minimize the risk of unauthorized access.

1. Look Over Your Stock Portfolio

portfolioWhether you’re a DIY active investor or you trust your accounts to a broker, your lunch hour is an ideal time to check in. Many markets will still be open, but news and earnings announcements will already have been announced, making it possible to make a trade or two. If you work with a broker, a brief face-to-face chat can put your portfolio top of mind with him or her while allowing you to gain insight from a knowledgeable source.

2. Catch Up on Financial News

newsRead over financial publications like Financial Times online while you eat, or watch streaming video from channels like Bloomberg. If your office network doesn’t allow live streaming, use a few minutes of data and watch on your personal Smartphone or tablet. If you’re old school, you can buy a physical newspaper or magazine to read at your desk, or take a stroll to the library if a branch is located close to your office to read financial publications there.

3. Get Money Savvy

financial educationIf you have an online broker, check out free webinars like the Fidelity Learning Center that provide info on concepts like market forecasts. Some banks, including TCF Bank, offer free financial education programs to their customers or even the general public. Money Smart Week, an annual week of events created by the Federal Reserve Bank of Chicago in 2002, also maintains a year-round website filled with useful information on improving personal finances that is freely accessible to the public.

4. Take a Power Lunch

power lunchNetworking shouldn’t only take place when you’re job hunting. In fact, if you wait until you need a job to begin networking, you’ll encounter a lot of frustration. Instead, make your lunch do double duty by inviting a colleague or mentor to lunch. You don’t have to subject your lunch companion to an interrogation, but there’s nothing wrong with conducting a casual conversation about his or her work or your career prospects. At the very least, you should enjoy enjoyable conversation over a good meal.

5. Polish Your Resume or LinkedIn Profile

ResumeEven if you love your job and you can’t imagine working for a different company, it’s just smart strategy to keep your resume and LinkedIn profile updated. Unless you’re your own boss, you won’t want to do this on your company’s computer or even through your company’s network. It’s worth ducking out to an offsite location like your local library or utilizing your mobile data plan to execute the updates on your tablet or laptop. Otherwise you may find yourself involuntarily involved in an active – and urgent – job hunt.

6. Establish an Emergency Fund

emergency-fund-20142If you don’t already have an emergency fund, your lunch hour provides plenty of time to establish one. Many banks allow you to open accounts online if there are no branches located near your office. If your emergency fund is already well funded, consider setting money aside for big expenditures such as a foreign vacation or a hot tech gadget. For either option, a high yield CD allows you to earn more than a regular savings account while placing minimal limits on the liquidity of your funds.

7. Monitor Your Credit Report and Credit Score

credit-report-with-score-1With data breaches being reported on a nearly daily basis, it makes sense to monitor your credit report for signs of identity theft or other errors. allows individuals to obtain one free credit report annually from each of the three major credit reporting agencies: TransUnion, Experian and Equifax. Free credit scores from TransUnion and Equifax are available through CreditKarma. Don’t be fooled by websites that promise “free” credit scores but require your credit card number for confirmation.

8. Rent a Safe Deposit Box

safe-deposit-boxYou’ve heard that you should maintain copies of important papers like your will and your mortgage in a safe location, but have you ever done so? Your lunch hour provides an ideal opportunity to rent a safe deposit box from your bank. If you can’t get to your local branch in person, contact your bank by phone or consult your bank’s website to get the process underway. You can deposit your paperwork later.

9. Set Up Payment and Account Alerts

accountsOverdrafts and late payment fees are a drag, and almost always avoidable. Many banks and merchants allow customers to establish automatic payments via withdrawal from your bank account or credit card. If automatic payments don’t appeal to you, you can still take advantage of alerts of upcoming due dates for your cell phone bill, rent or other essential expenses. Alerts can be sent to your cell phone via text message or to your email inbox a few days in advance of the due dates of your bills to give you plenty of time to make an electronic payment or, if you prefer, mail in a paper check.

10. Request an Insurance Quote

get-a-quoteYou likely have health insurance already, but what about life insurance? Do you have enough? Are you paying more than you should for mortgage or auto insurance? If you rent an apartment, do you have renters’ insurance? Contact your insurance broker for an insurance checkup or check out websites like Esurance and Progressive during your lunch break to make side-by-side comparisons of premium costs for policies from different companies. You may uncover savings significant enough to help you afford that pricey gadget you’ve been coveting.

Putting Your Financial House in Order

financial-house-720x430As the suggestions above illustrate, making smart financial moves doesn’t always require spending long hours crunching numbers or executing headache inducing calculations. Many of these activities can take place while you eat your sandwich at your desk or work on your tablet outside on a nice day. You’ll be surprised how much you can accomplish in just an hour or so. In the meantime, you’ll be giving a much appreciated boost to your financial bottom line!

retirement changes

401(k) and IRA changes coming in 2015

With colder temperatures across the nation, and the holidays finally behind us, many financially savvy individuals and households have already began to turn their thoughts to taxes; specifically, the changes made by Congress and the IRS for 2015 that impact Individual Retirement Accounts and 401 (k) retirement plans. Several significant changes in store for this coming year will potentially save taxpayers money, but one change in particular could result in significant financial costs.The professionals at Optima Tax Relief can help assure that you are able to take the maximum advantage of all available tax breaks.

The myRA

iraFor many low and moderate income taxpayers, saving for retirement is difficult. Putting aside thousands of dollars in an IRA or 401(k) plan often simply doesn’t happen. The myRA plan, announced by President Obama in his 2014 State of the Union address, is designed to make saving for retirement easier for individuals who are employed but who don’t have access to workplace retirement plans.

Still under development, the myRA program is modeled after Roth IRAs. Both retirement plans share several features. Both Roth IRAs and myRAs are funded with after-tax dollars, which means that contributions are not tax deductible. But withdrawals of contributions are also tax-exempt. And, just as with Roth IRAs, withdrawals of earnings from myRA plans are also tax-exempt for taxpayers who are at least 59 ½ years old.

Individual taxpayers with annual incomes up to $129,000 are eligible to participate in the myRA program; taxpayers filing as married or head of household can have annual incomes up to $191,000. The minimum to open a myRA account is just $25, contributions can be as small as $5 per pay period. The myRA program limits contributions to $5,500 per year for taxpayers under age 50, and $6,500 per year for older taxpayers. Balances for myRA accounts are limited to $15,000; larger balances must be transferred into conventional Roth IRAs.

Higher IRA Income Limits

retirementThe IRS has also set higher maximum income limits for taxpayers who opt to participate in traditional and Roth IRA plans for 2015. Taxpayers with incomes above specified limits may contribute to a traditional IRA but cannot defer paying taxes on their contributions. Taxpayers whose incomes exceed specified limits cannot contribute to Roth IRAs at all, with very limited exceptions.Taxpayers who are eligible can contribute to both Roth and traditional IRAs as long as they adhere to annual contributions limits, which remained unchanged for 2015 federal income tax returns.

Individual taxpayers with modified adjusted gross incomes between $61,000 and $71,000 who have access to retirement plans at work are phased out of receiving tax breaks for traditional IRAs; couples with MAGIs between $98,000 and $118,000 are also phased out of tax breaks traditional IRAs for 2015. These limits represent increases of $1,000 for individual taxpayers and $2,000 for couples over 2014 limits. Married individuals who do not have access to workplace based retirement plans but whose spouses do have access to such plans are phased out of tax breaks for individual IRAs with a MAGI between $183,000 and $193,000.

The IRS has increased maximum income limits for Roth IRAs by $2,000 for 2015 for individual and married taxpayers. Individual taxpayers with MAGIs between $116,000 and $131,000 are phased out of eligibility for Roth IRAs. Married couples with MAGIs between $183,000 to $193,000 are phased out of eligibility for Roth IRAs.

The “Fresh Start” on IRA Rollovers

retirementThrough rollovers, individual taxpayers are allowed to withdraw funds from their traditional or Roth IRAs without generating tax penalties, as long as the funds were redeposited in the same type of IRA within 60 days. Previously, the IRS imposed a limit of one rollover per IRA every 12 months. This meant that taxpayers with a Roth and a traditional IRA could conceivably execute two rollovers annually without tax penalties.

However, the Tax Court recently reinterpreted the rule to limit each taxpayer to one rollover every 12 months. To minimize penalizing taxpayers who executed rollovers late in 2014, the IRS imposed a “fresh start” on enforcing the new interpretation of the rule.No rollovers initiated or completed during 2014 would be subject to the new rule. Nonetheless, this change could potentially generate millions for the IRS in penalties.

Higher Income Limits for Saver’s Credits

401kThe Saver’s Credits allows low and middle income taxpayers who participate in IRA or 401(k) plans to claim tax credits. Individual taxpayers can claim credits up to $1,000; married taxpayers and heads of household can claim credits of up to $2,000. Income limits for the saver’s credit program have been increased for 2015. AGI limits for individual taxpayers increased from $30,000 in 2014 to $30,500 in 2015. Maximum AGI for heads of household is 45, 750, increased from $45,000 in 2015. For married couples the maximum is $61,000, $1,000 higher than the limit for 2014.

Increases in 401(k) Contribution Limits

The IRS has also increased contribution limits for 401 (k) accounts. For 2015, taxpayers may contribute up to $18,000 to an individual 401 (k) account. This maximum represents an increase of $500 over the maximum 401 (k) contribution of $17,500 set for 2014. This increase also applies to the 403(b), 457 and Thrift Savings Plans.

Dollars and Cents

dollars and centsTrying to keep up with the intricacies of the tax code can give anyone a headache. If you’re confused about how changes in tax laws regarding retirement plans apply to you, there’s nothing wrong with seeking help. An accountant or attorney who specializes in tax law – like the professionals at Optima Tax Relief, can translate the legalese generated by Congress and the IRS into plain English, and help ensure that you are able to take full advantage of all the tax breaks to which you are entitled.

Retirement Planning Tips

Retirement planning.  It is typically not high up on the priority list of “stuff to do today.”  Between balancing a job, school, family, and a plethora of other activities, it is easy to push retirement planning aside.  With the strains on time, it is sometimes hard to plan out a schedule for the next week, let alone 30 years from now.

While it is easy to fall into a pattern of short-term financial planning, it is important not to push off the longer-term financial goals.  Here are 10 steps that you can take now that will help you put a strategy in place for retirement.

saving and retirement1. Map out your retirement.

Every good plan begins with a map.  When you go on vacation, you need a map to know where you are going and how to get there.  You also need a map, or general plan, for your retirement.  Have some benchmarks in mind, for example:

  • “I will start by contributing 1% of income to a 401k plan.”
  • “When my income reaches XXX amount, I will increase my contribution to 2%.”
  • “I will use my tax return each your to fund my children’s college savings.”

2. Write down your financial goals. 

What do you want to have accomplished by retirement?  How much longer will you have to pay on your mortgage, or will it be paid off? Do you need to think about saving for your children to go to college? What about a savings account or emergency fund – do you have one in place already? These are all important questions to answer when planning your financial goals. You should also consider:

  • How much money will you need to live comfortably during retirement
  • What your monthly household bills will add up to
  • Will you need a supplemental health insurance policy


Related: Check out the best personal wealth management apps here

3. Review your current financial situation.

In order to know how to get to where you want to go, you must first analyze where you are currently.  By putting together a monthly budget, you can easily see how much money you have coming in and what your current bills are.  This will help you budget for retirement savings.

4. Contribute to your employer’s 401k plan.

If your employer offers a 401k plan, enroll as soon as possible.  Most employers offer some sort of matching contribution, so if you contribute 2% of your salary, they will match that by also contributing 2%.  Even if you move or are no longer with that employer, you can always roll the savings from this into a 401k plan at a new employer or open an IRA with it. 

Roth IRA 401k5. Open a Roth or Traditional IRA.

If your employer doesn’t offer a 401k or if you are able to budget in for extra retirement savings, opening an IRA will not only set you up for a financially secure retirement, but also offers significant tax breaks.  A traditional IRA offers a tax deduction for your current year taxes — and who doesn’t want to be able to get as many tax breaks as possible?!

A Roth IRA, however, does not offer a current year tax break for your contribution, but it does offer tax-free growth.  This can mean a huge tax savings overall because when you draw the funds out at retirement, you won’t be taxed on any of the growth.

6. Get Insurance.

You may not realize that being fully insured — auto, life, and health — is actually a necessary part of a good retirement plan.  You may be young and healthy now, but the unexpected can happen at any time. Imagine what a car accident, a major surgery, or the death of a spouse would do to your finances. It can absolutely devastate your financial situation with mountains of debt that may follow you into retirement.  Having insurance to protect you and your family against any of these catastrophic events is crucial.

retirement-plan-17. Take out a Return of Premium Term Life Insurance Policy.

This type of life insurance policy is different than a regular term policy or even whole life, because it combines the two.  A typical term policy gives you coverage for a specific period of time and when that time is up, if your family has not had to use the death benefit, the money that you have paid in is a sunk cost—no cash value, and no more insurance coverage.

A whole life policy does build cash value, but can be pretty costly because it is set up to be an active policy until you pass away—no specific term.

A return of premium life insurance policy is nice because you have life insurance coverage for a specified period of time, but if you live beyond that term, then you get the value of the premiums that you have paid returned to you.  So at that point, you now have thousands of dollars set aside in a savings account which means extra savings for retirement!

8. Open a college savings account for your children.

So what does saving for your children’s college education have to do with retirement planning?  Well, potentially, a lot.  Parents (and Grandparents) help their children pay for college and this is a huge expense that can come relatively close to retirement.  Starting a college savings account for your child when he is young will help ease the shock of the increased expenses for your family at that time—and allow you to continue contributing to your retirement.

9. Pay Your Taxes

If you thought raiding retirement accounts was beneath the Internal Revenue Service, think again. If you don’t pay your taxes, the IRS can garnish your pension and retirement accounts. This is particularly likely if the IRS determines your conduct was “flagrant.” What is considered flagrant conduct? Saying you can’t afford to pay your taxes but continuing to pay into your retirement account. It’s a sobering thought. In most cases, even bankruptcy court won’t touch your retirement accounts. And in the few cases where it does, it will at least let you keep the first $1.28 million. If you are facing a large tax debt, find out what your tax relief options are. The IRS’s Fresh Start Program has recenly expanded tax relief programs for delinquent taxpayers. These options include an offer in compromise, release from tax liens, and installment agreements. Learn more about the Fresh start initiative.

Click here to get a free consultation with a tax relief professional and find out what programs you can apply for. When choosing a tax relief company, always choose firms that have tax attorneys on staff. Tax lawyers can help navigate the complex IRS procedures for levying retirement accounts.

Get Tax Consultation


advisor10. Get organized—create a “finance file.”

You can do this on the computer with digital copies, buy a binder to put papers in, or create a file in your desk drawer.  It doesn’t matter how you do it, but creating one centralized place that you have all of this information will help to keep you organized and on track.   Having a “finance file” also forces you to take the time to look at the statements as they come monthly or quarterly before you file them, and not just take a quick look and throw it out.  Keeping these things at the forefront of your finances will make it easier for you to notice if something needs to be changed or re-evaluated.  Your finance file should include:

  • 401k and/or IRA statements
  • insurance policy information: auto, home, life, health
  • savings/investing account statements


Putting a retirement plan in place can seem overwhelming and unmanageable to do on your own.  This is where a financial advisor comes in.  A financial advisor can go over your current financial situation, saving and investing goals, college planning, and retirement planning, and will periodically review your information with you to account for life changes and make sure that you are staying on track with the plan that you have implemented.

It is important to remember that planning for retirement is an exercise in patience.  You won’t get to enjoy the benefits of saving and planning for several decades.  The small steps that you take today, tomorrow, and for the next 30 years will ensure financial freedom for your golden years, and the peace of mind that comes with not having to worry about being on a fixed income and having to choose between buying medication or food.