- The Finance Gourmet

Smart to Use Roth IRA for College

December 12, 2022October 4, 2022 by Finance Gourmet

Should I use my Roth IRA for college? As a former financial planner, I would often get these questions from clients who read something somewhere. Much like patients asking doctors about drugs they heard about on TV, such questions rarely ended up being a good idea. When it comes to using a Roth IRA to save for college, it actually is a good idea. Can You Use Roth IRA to Pay for College First, you probably know that a Roth IRA is designed for retirement savings. The corresponding vehicle for parents saving for college is a 529 college savings plan. In general, the best way to save for college is in a 529 plan versus a Roth IRA. However, if you are planning to seek need-based financial aid, a Roth IRA might be the better solution for your family. Can I Use Roth IRA to Pay for College? Let’s start with CAN you use a Roth IRA to pay for college. We’ll look at SHOULD you use a Roth IRA for college next. As you may know, a Roth IRA offers tax-advantaged growth for investments within the account. This creates two kinds of money inside of a Roth IRA. The first …

Why Are Roth IRA Better for Young Adults

May 18, 2022 by Finance Gourmet

There are several different retirement account types, so why is Roth IRA better for young adults? What makes Roth IRA best for certain people? Can older people still benefit from Roth IRA? Why Are Roth IRA Good? A Roth IRA is one of several tax-advantaged retirement accounts. Like the traditional IRA, all money deposited in a Roth IRA grows tax-free. There are no capital gains taxes on a Roth IRA and no taxes on dividends or interest earned inside a Roth IRA. Why Is a Roth IRA Better Than a 401k for Younger People? What makes a Roth IRA so good is that unlike both traditional IRAs and employer sponsored retirement plans like 401(k)s is that withdrawals from Roth IRA are tax-free. With traditional IRAs or 401k plans, withdrawals are taxable even if you are over 59 1/2. However, you cannot deduct your contributions to a Roth IRA. Why Do a Roth IRA? So, what makes a Roth IRA better for younger people? As a younger person, the money you put into a Roth IRA will have much more time to grow. So, all things being equal, a younger person will end up with a higher amount of earnings in …

Colorado Secure Savings Program

March 6, 2023November 29, 2021 by Finance Gourmet

Colorado is set to join a handful of other states in creating an automatic retirement savings program for Colorado workers. The idea is that while many Coloradoans have access to a retirement plan like a 401k or 457 plan through their employer, a lot of Coloradoans don’t. Unfortunately, those who do not have an employer sponsored retirement plan often do not start saving for retirement until much later than those who do. And, when it comes to retirement savings, time is lots of money. What Is the Colorado Secure Savings Program? The final Colorado Secure Savings Program won’t launch until at least 2023, but the rough idea is that each Coloradoan who works for an employer without a retirement plan will be automatically enrolled in the CSSP. The CSSP is actually nothing more than an IRA, or Roth IRA. What the program does differently is automatically create the retirement plan account and set the employee’s contribution to a specific minimum which will come from payroll deductions like a 401k plan. People who don’t want to participate can opt out. This plan could be a big retirement driver for Colorado workers over the long term. When I was a financial planner, …

Retirement Tax Triangle for Better Retirement Planning

November 15, 2021 by Finance Gourmet

Financial advisors make their bread and butter from retirement planning. Unless you’re wealthy (or young), chances are that most of your money is in your retirement savings and home equity. That makes your retirement accounts the main interest of most financial advisors, so it’s in their best interest to make it sound complicated. Unfortunately, they are right. There are a bunch of little tricks to good retirement planning. Fortunately, most of them are easy to straighten out, like the tax triangle. Retirement Taxes Welcome to Retirement. Oh, while you’re here, we need to tax those 401(k) withdrawals. All too many new retirees find themselves surprised that withdrawals from their 401k accounts are fully taxable. It’s an easy mistake to make. After all, when you contributed money to your 401k it was tax-free (technically, pre-tax, but same difference). And, while all of that money sat in your 401k earning interest and dividends, it was tax-free. So, why wouldn’t it keep being tax-free? Unfortunately, that’s the deal you make with the IRS. A 401k plan is actually a tax-deferred account. As the name implies, the IRS allows you to defer, or wait, to pay the taxes. It is a huge advantage and …

Roth IRA Income Limits 2022 and 2023

November 29, 2022October 9, 2020 by Finance Gourmet

The questions have started coming in regarding the 2022 and 2023 income limits for Roth IRA contributions. Planning ahead for taxes is always a good idea. However, sometimes, you can get out a little bit too far. The IRS publishes various numbers, tax brackets, and the like for the next tax year during the fall of the previous year, depending upon what the number is, and how it is to be calculated. Maximum salary limits for Roth IRA contributions in 2023, for example, were known well in advance because the number was set by the IRS in advance. However, the income limitations for Roth IRA contributions are indexed for inflation. In other words, the IRS must wait until it has the proper inflation index calculation according to its rules and regulations. Then, it must apply that inflation amount to the Roth IRA contribution limits for income and compute new Roth IRA income phase-out limits and the maximum salary allowed to make Roth contributions at all. Don’t forget, the law removing the salary cap for converting a traditional IRA to a Roth IRA has been made permanent, so you can convert your IRA to a Roth IRA regardless of how high …

Understanding How Beneficiaries Work

July 18, 2017July 18, 2017 by Finance Gourmet

As a financial advisor, I used to review client’s paperwork when they came in for an appointment. Among many other things, I always made sure to go over was to review beneficiaries of my client’s accounts. Or, more to the point, I TRIED to review the beneficiaries on my client’s accounts. All too often, they had no idea who the beneficiaries were, or how to find out. Even worse, they often just decided to assume that they knew the beneficiaries on their accounts. Out of date beneficiaries is one of the most common financial problems people have when they start financial planning. What Are Beneficiaries When someone dies, there are a series of laws that determine exactly how your assets get dispersed among the living. These laws are long and complex. They are collectively referred to as estate law, and it is complicated enough to be an entire specialty for attorneys. The primary instrument for distributing your assets as you see fit, rather than as how the law dictates, is your will. However, there are several kinds of accounts that do not fall under this process, unless you do not properly designate your beneficiaries. In this context, a beneficiary is the …

What Is a Roth IRA?

June 11, 2019October 3, 2016 by Finance Gourmet

What is a Roth IRA? Is a Roth IRA the best way to save for my retirement? Even the basics in financial planning aren’t always so basic. The basics of IRA plans, is one of those times. IRA stands for Individual Retirement Account. Tthat means it is an account for an individual to use to save for retirement. As an enticement to save for your own retirement, the government gives you tax advantages for using an IRA for retirement planning. As a way to keep you from pulling money out for things besides retirement, there is a penalty if you use IRA money for something else. Roth IRA versus Traditional IRA With a traditional IRA, or just IRA, you get a deduction from your taxes today, unless your income is too high. You also get tax deferred growth on the money in the account. When you start taking the money out, you owe taxes on both the contribution and the gains. If you earn too much money to take the tax deduction on your contributions, then you do not have to pay taxes on those funds again when you withdraw them. With a Roth IRA, you get no tax deduction …

myRA IRA Review – Safe and Legit

August 25, 2016 by Finance Gourmet

No matter how helpful the government could potentially be to its citizens, it typically won’t/can’t get involved in finance because there are huge lobbying dollars behind financial services companies. For example, it would be relatively trivial for the IRS to create a free, online, auto-filing system that would work for most taxpayers, increase tax collections, and be a win-win for everyone involved. Everyone, that is, except for TurboTax, who, obviously, spend millions of dollars each year keeping such a system away from its lucrative tax software business. This is why I was surprised to find out about myRA, a no-cost government Roth IRA program aimed at people who might otherwise have a hard time getting started saving for retirement. What Is myRA and Is It Safe and Legitimate? The myRA account is a government run Roth IRA. As such, it follows all of the same rules as a regular IRA. There is a maximum Roth IRA contribution amount allowed each year. This year, it’s $5500, with an additional $1,000 “catch-up” contribution allowed for people 50 or older. So, what’s the benefit of using the myRA program? The myRA IRA has no start up cost, no IRA annual fees, and just …

Basic Retirement Plan Simple

March 23, 2015 by Finance Gourmet

Retirement planning is actually incredibly simple and straightforward for most people. However, it can quickly sound complex because of all the edge cases, exceptions, and possibilities that really only affect a small number of people. If you eliminate all of that noise, however, there really isn’t much to the average American’s financial plan. Follow the following information and there really is no reason you can’t make your own simple retirement plan. Obviously, every situation is different. If you have unusual circumstances such as a coming inheritance, money in trusts, or other legal situations, this plan won’t work for you. If you have regular income, a family, and just need a plan, this is perfect for you. Do It Yourself Financial Plan One of the things that quickly complicates financial planning is the idea that you have to predict how much income you will need in retirement. This step is a waste of time for 90 percent of people. Why? Because, for most people retirement saving and investing is about how much they can save, not how much they will need. To put it another way, consider this. If I tell you that if you can save $10,000 per month, you …