Retirement Plan: Quick Facts About Roth IRA Accounts

Becoming financially independent, growing a high-quality retirement, and coordinating a successful future is in the books for many, but the proper tools and guidance we utilize are far and few. I wanted to take a moment to share a couple of quick facts about Roth IRA accounts, since they are a well-known option for making YOUR MONEY WORK FOR YOU instead of for the banks! Meaning, instead of collecting a very small amount of return on your savings account (close to 0.05%) , why not put your money to WORK in a Roth IRA or 401(k) account and let it collect some return/profit? Out of the Roth and 401(k), we are going to take a quick glance at a Roth IRA account. I currently invest in a low risk, long-term package that shares approx 8-15% rate of return, depending on the market.

Below, you will find some simple yet informative facts about Roth IRA accounts and why we should all invest in some form of similar retirement plan:

  • There is NOT an age cap for depositing your contribution (adjusted gross income must be below a designated amount). You can contribute throughout your entire lifetime (even after 70 ½). Most of us should begin our account around 21-25 years of age. If you are opening you account after then, try to max-out your account to hit your retirement goals in a proper timeline.
  • You CAN contribute to your Roth IRA, as well as your 401(k) retirement plan. You can even max-out or cap-off both of them. (I would recommend seeing if your employer provides a 401(k). If so, see if they match any designated amount. Then consider contributing to that as well to at least meet the requirement for the matched amount.)
  • When it comes to deducting when filing taxes, you can NOT deduct your contributions, as they are an already taxed form of income. Understand that this is already taxed money. But, you will not be taxed on the back-end when you acquire your “profit” from your returns.
  • You DON’T have to pay any penalties, taxes, or fees when pulling from your Roth IRA account contributions early (must be the contributions, not profit from rate of return).

There is an annual contribution limit depending on your filed income from the previous year.

(View amount you could file for tax year 2020).


Questions to ask employers about their 401 (k) plan

When interviewing for a job or searching for your next retirement investment, 401 (k) plans are always a standard option for most individuals. When it comes to a plan provided by a potential or current employer, here are some questions you may want to ask:

Do you have a 401 (k) plan?

Always make a point to directly ask the potential employer if they carry a 401 (k) plan for employees. Note: Many companies require you to be a full time employee to receive 401 (k), health insurance, and other employment benefits.

Does your 401 (k) plan match after a specific amount? How much?

Ask if the company matches a designated amount. If so, ask how much that amount is. For example, this means a company might match your first $75k. This says the company will also provide $75k once you begin to “cash out.” So your initial target is a minimum of $75k investment to get it matched. Then, either consider to invest in other options or continue to invest in that retirement plan.

How long until the 401 (k) plan matches the designated amount?

Consider asking the employer if there is a timeline/time frame in which you have to complete the 401 (k) plan. Most retirement plans have a time frame or age restriction on “cashing out.”

How were the 401 (k) plan package options chosen or selected?

Ask the employer if an individual, committee, or affiliated party selected the retirement plan. Also ask how they came to this conclusion and how it compares to other options. What is the rate of return, level of risk, and influences on stocks/shares. Then begin to ask yourself, is this the best option for my retirement goals.

Is there a conflict of interest between the company, affiliated parties, and the chosen 401 (k) plan?

While asking how the package plan was selected, begin to investigate if it was only chosen to benefit select parties. If this plan was only selected because it is the lowest form of benefit provided by the company, but is just enough to encourage/entice employment, then maybe you should consider other options.

Who dictates the addition/removal of investments choices or packages?

Understand how packages/investment options are manipulated. Be aware of who changes them, adds options, or eliminates previous choices. Also ask how these decisions are made and why?

How much are my monthly contributions?

For the sake of budget, does the employer have minimum monthly contributions. Sometimes, a payment plan can be set up to pull x amount from your payroll to dedicate toward the retirement plan. Age will also be a huge factor if there is a time frame toward retirement and how much must be contributed each month.

Do I have administration fees? If so, how much are they monthly?

Ask if the employer requires fees to handle your 401 (k) plan, transaction fees, admin fees, etc. How much is the company charging you on the back end to monitor and perform transactions?

Should you invest in a Roth IRA Brokerage account instead?

There are differences between a 401 (k) and Roth IRA that we can explore in another article. For the sake of this one, understand that if a company doesn’t match a set amount of your investment, you might consider a Roth IRA account that won’t tax you on your pay-out. Meaning when you cash out for retirement, you won’t be taxed like an income.

Hope these questions assist you in finding a retirement plan that works for you, or at least provide you with questions you can ask to determine which plans may NOT be for you.

If you have any questions or concerns, feel free to contact us via contact form.