I love the way you teach! All of this is so intimidating as a beginner but your gentle, straight to the point approach makes it easy to follow and put into action.
Making a Jan 1st through April 15th contribution can make sense if a person's income is typically right around the phaseout threshold. Waiting until February or March of the succeeding year can give the taxpayer time to check their income and make sure they're not over the phaseout limits.
I always waited, until last year... and surprise! We had to withdraw our Roth contributions and then convert them with some tax consequences on the gains to get them back into our Roth IRAs. Just doing backdoor Roth contributions at the beginning of the year now.
love your videos. In Canada we call it tax free savings account. it's fairly new for us. only started 2009 when you turn 18. so far ive max out mine but only have a limit of 6k a year. so 75k total contribution.
Congrats on your contributions!!!! (I'm surprised it's so new to Canada! Honestly, I don't really know anything about the Canadian financial system..although I do follow a Canadian RUclipsr - his channel is called Next Level Life and I think his content is absolutely phenomenal!!! - at least I think 🤔 his is Canadian.) I will link his channel here in case you are interested. ruclips.net/user/NextLevelLife he has absolutely no idea who I am, like I said, I just love his content!
Great video! I knew contributing the max early in the year was better than monthly, but didn’t realize how much more of a return you got back on your money.
I use a formula to what to contribute to my ROTH. I time my buys with market fluxes. Sort of in a way combining "Dollar Cost Averaging" with "Buying the Dip". Once I make a contribution it stays in there. C = RD/RW * RM C = Contribution RD = Remaining Dollars - ($6,000 - $0 for ROTH year) RW = Remaining Weeks in the Year (1 - 52) RM = Remaining Months in the Year (1 - 12) On the final week, have to contribute the remaining ROTH dollars if any are left. This is the first year of me doing this formula, so will be a few before I see what happens.
In essence, the earlier it is in the year, the higher percentage contributed due to a high RM (because time in the market) and the later in the year it gets the higher it gets due to a shrinking RW. Basically it's try buying early year dips, or those toward the end of the year before you lose the contribution. The middle of the year any dip buys will be minimal.
I have found it best to Max my contributions to Roth IRA in January, then max out my 401k & HSA contributions by dollar cost averaging every paycheck. Putting away $48,000 towards retirement every year.
We have to go the backdoor Roth route. We're just pleased there is a way for us to benefit from that tax free growth. We stretch our investments across 6 different accounts, so we prefer DCA across all. I could stop my 401(k) for the first two months and fully fund the IRA. I like the simplicity of DCA 😀
Love the backdoor Roth (not a fan the name... I always feel like it makes it 'dirty' so to speak where it is totally legal and everyone should totally do it if they are in those upper income brackets!!)
First time opening a ROTH IRA, could you please advice me if I should put the whole $6.5k at once or spread it a little bit? Probably doesn’t make much of a difference since it’s the first time opening? Thank you!
I'd say 1. Matching 401k funds first. Then max out your Roth IRA. If you are can do all that then open a standard brokerage account. The sooner the better. I've been thinking about Dollar Cost Averaging. After a lot of consideration, I have concluded that this is a bad idea. I can think of no time it would be wise to use. Any thought?
1. Roth 401K up to the match 2. Max Roth IRA 3. Max Roth 401K 4. Brokerage account If someone can do that, all of their income from retirement accounts will be tax free, plus social security benefits will be tax free, plus your low income reduces your Medicare Part whatever cost.
Great video but I wonder why everyone always leave out “Head of Household” filing status because every one isn’t just “single” or “married” regarding their tax status. I’ve yet to hear anyone who talk about a filing status including Head of Household
@@ErinTalksMoney canada. For 2021 max is 75500 max. That's only if your 18 on 2009. We call it tfsa or tax free savings account. Other than that our 401k is called rrsp. For registered retirement savings account. I think most ppl misunderstand them as just being accounts you put money in not knowing you can invest that money and have a tax sheltered investment.
@@jorrellelim6697 Thanks for sharing!! I really hope more people start to realize that you can invest that money!!! That's when you really put it to work!!!
Erin, could you go over hoe your contribution budget might look over a year if you max out right away? Love it if you'd use the figures for a 40k gross person.
I contribute equally each month to my IRA to max it. What is the main difference from doing a lump sum of 6k at the beginning of the year and divided amounts over each month?
"For Roth so loved the world, he gave his only begotten Capital Gains. That whoseover investeth in him should not rely on Social Security, but have everlasting self-directed gains." - Buffet 3:16 Keep spreading the good word, Erin.
after you retire but before you start taking social security....keep your withdrawals low enough to stay under the medicare limit so you arent charged extra for that...wait til 70 to take social security...
Hello I have a 403b and Roth 403b from my employer. Today i just open my own ROTH IRA Account. After linking my banking account. I have an option to Contribute to 2020? is that the meaning of catch up contribution from 2020? is it worth it to put $6000? do i get any gains from 2020? if not can i just start fresh for 2021? sorry I'm new thank you
Hey there! So until April 15th you will be able to put money into your Roth under the year 2020 (up to $6,000). The benefit of putting those contributions in the 2020 category is that you can still put an additional $6k in the year 2021. All the money you put into the Roth is able to grow tax free...so the more you can put in there, the more money you have in a tax advantaged account. So if you can put $6k for 2020 and $6k 2021 - do it, because that's phenomenal. If you aren't going to max out both years you can certainly start fresh funding 2021. Or for instance say you can put $9k in this year, well than put $3k into your 2020, and $6k into your 2021. Basically the only advantage of being able to put money in 2020 for the Roth still is that it will allow you to put more in that fund. The bigger you can grow that nest egg, the more it can grow through market returns. 😊
@@ErinTalksMoney Erin, it was a question about which age did you mean to state. At 2:45 you stated that the earnings were tax-free if withdrawn at full retirement age. Based on Social Security defining it as 67, that would be incorrect. You can begin to withdraw from a Roth IRA at 59 1/2. Sorry my initial comment was not clearer. Hope this small clarification helps. Keep up the good work!
You are absolutely correct, 59 1/2 is when you can withdrawal from retirement accounts and should have been started clearly in the video! Thanks for clarifying that!
Great video. Make sense to max out your Roth in the beginning part of the year but what if the market goes down in that time frame and goes back up towards the end of the year? Do you lose more? Thanks
If it is going down and you buy in, you are going to be able to buy more shares and then make more money as the market rebounds. If you buy in and then it goes down, yes, you will lose money at first until the market turns around. If you are concerned about market downturns, I did recently make a video titled The Worst Time to Invest. That video goes into greater detail. And the end of the day, I believe that time in the market is far more important than trying to time the market. If you are able to invest at the beginning of every year rather than the very end, inevitably you will have more time in the market! 😊
Depends on what your goals are. If you go with a company like Vanguard or Fidelity, they will have target date retirement funds that you can utilize in your Roth. Those funds will be more stock heavy (aka more aggressive) when you are younger, and will gradually become more conservative as you get older without you having to do anything. Or you can DIY the whole approach and chose to invest how you wish within your Roth. I am a huge fan of index funds, but everyone has their own preference as to what works best for them.
I love ROTHS however my financial guy says if the current administration raises taxes you may need to reduce the amount going into after tax accounts and put the money in tax deferred accounts at least temporarily what do you think. I haven't made any changes just yet.
Honestly I think this is a really hard debate. If you foresee yourself retiring into a higher tax bracket than you presently are in, going with traditional accounts is the better option. If you think you are in a lower tax bracket now than you will be in when you retire, going with the Roth variety is the better option. As far as this admin goes, I do not think they have any plans to reduce taxes in anyway. There are lots of proposals for tax increases that's for sure. Which ones will pass, idk 😐 And will they remain in place with subsequent admin's, again idk Also, I have many years before I retire, so I honestly have no idea what tax rates will look like when I retire. So I bite the bullet now, assuming taxes are only going up in the future. Is the that right choice, I really can't say with 100% certainty...but it's what I am choosing to do. I do know people who split their money 50/50 between roth and traditional accounts. I don't do that...but who know's maybe that is a decent strategy.
Erin, thanks for the reply I agree I currently do a 80% Roth and 20% traditional but I am only 8 years from retirement unless I get hit by a truck or my health were to fails. If I were asked from someone who had 20 plus years to go I would definitely push them to the ROTH 100%. Have a great day I really enjoy your videos.
Why would you love a particular type of IRA? I want the best percentage wise of both Roth and traditional for my situation. The goal is to pay his least amount of taxes as possible. Do not let your emotions make your financial decision
Then max your Roth 401K or traditional 401K depending on your circumstances. After that focus on a brokerage account or any other type of investment that you like. Some people like real estate because even after they retire it gives them something to do in retirement.
What about where the $6k was before the contribution? If it was sitting in a savings account that is a drag. Most people get paid periodically, and contribute periodically.
You can still contribute as you get paid periodically - but instead of spreading out contributions over 12 mo, you could spread them out over say 6 mo for example.
@@ErinTalksMoney so a hypothetical person who has a steady income and expenses, and annually contributes $19500 to a Roth 401k and $6000 to a Roth IRA, with no other savings/contributions, should do what?
@@matthewharrigan3568 I usually get around $4,000 back when I file for my tax. I use the full amount to fund my Roth than cash flow the other $2,000 monthly.
@@minimumwagemoney3258 wouldn't adjusting your withholding to reduce you tax return and increase your monthly contributions be more optimal? More money in the market sooner
True true, but if you are always a year behind, you will forever be missing out on gains you could have had. And over time, it's gains on gains on gains. PS the market returned a whopping 26.46% in 2019!
Just found your channel. I love finding financial channels by women :-). Has anyone ever told you that you look like Caterina Scorsone? She plays Amelia Shepherd on Grey's Anatomy!
I love when women talk about money as well!!! It still seems like it is a little rare. And nope, I don't even know who she is! I googled her when you said it, but idk 🤷♀️ She's pretty, that's for sure! I just don't see it haha😂
Stocks are a long-term investment, if you're investing and looking at returns over the short term you will often be disappointed. If you're not invested for 10 years or more your money probably doesn't belong in the stock market
I love the way you teach! All of this is so intimidating as a beginner but your gentle, straight to the point approach makes it easy to follow and put into action.
Making a Jan 1st through April 15th contribution can make sense if a person's income is typically right around the phaseout threshold. Waiting until February or March of the succeeding year can give the taxpayer time to check their income and make sure they're not over the phaseout limits.
I always waited, until last year... and surprise! We had to withdraw our Roth contributions and then convert them with some tax consequences on the gains to get them back into our Roth IRAs. Just doing backdoor Roth contributions at the beginning of the year now.
I have gone back to viewing your older videos in the past. Great channel!
I miss your regular posts. So motivating.
I've had my Roth IRA through Fidelity for 23 years and maxed it out every January, except for 1 year, when I was deployed to Iraq.
Nice! (And thank you for your service!)
Hi Erin, very timely topic. Thanks. I’ve been watching your videos for a while and find them well reasoned and generally insightful.
Thank you for this video. This information is very helpful.
Glad it was helpful!
love your videos. In Canada we call it tax free savings account. it's fairly new for us. only started 2009 when you turn 18. so far ive max out mine but only have a limit of 6k a year. so 75k total contribution.
Congrats on your contributions!!!! (I'm surprised it's so new to Canada! Honestly, I don't really know anything about the Canadian financial system..although I do follow a Canadian RUclipsr - his channel is called Next Level Life and I think his content is absolutely phenomenal!!! - at least I think 🤔 his is Canadian.) I will link his channel here in case you are interested.
ruclips.net/user/NextLevelLife
he has absolutely no idea who I am, like I said, I just love his content!
Great video! I knew contributing the max early in the year was better than monthly, but didn’t realize how much more of a return you got back on your money.
very informative, thank you!
Excellent video!! Been looking for this answer a while ago! Thanks so much
Glad it was helpful!
I use a formula to what to contribute to my ROTH. I time my buys with market fluxes. Sort of in a way combining "Dollar Cost Averaging" with "Buying the Dip". Once I make a contribution it stays in there.
C = RD/RW * RM
C = Contribution
RD = Remaining Dollars - ($6,000 - $0 for ROTH year)
RW = Remaining Weeks in the Year (1 - 52)
RM = Remaining Months in the Year (1 - 12)
On the final week, have to contribute the remaining ROTH dollars if any are left.
This is the first year of me doing this formula, so will be a few before I see what happens.
In essence, the earlier it is in the year, the higher percentage contributed due to a high RM (because time in the market) and the later in the year it gets the higher it gets due to a shrinking RW. Basically it's try buying early year dips, or those toward the end of the year before you lose the contribution. The middle of the year any dip buys will be minimal.
I have found it best to Max my contributions to Roth IRA in January, then max out my 401k & HSA contributions by dollar cost averaging every paycheck. Putting away $48,000 towards retirement every year.
👏👏👏
absolutely awesome
Wow !thank you for that great information! I’m embarrassed to say now in my late 50’s this is all making sense 😮thanks
Actually I invest in Roth when filing the taxes, because sometimes I am not eligible and sometimes eligible.
Thank you for this tip about investing in the 1st half of the year..
Thanks for watching! 😊 Are you going to try and max yours out in the first half of next year?
@@ErinTalksMoney Hi, yes will try to do that 😊
Great breakdown! Got to love maxing that out!
Absolutely, always max out the Roth!!
Should I do brokerage once I max out th Roth IRA? Already contributing almost max to 457b too. Too much retirement. Rather have fun with some
We have to go the backdoor Roth route. We're just pleased there is a way for us to benefit from that tax free growth. We stretch our investments across 6 different accounts, so we prefer DCA across all. I could stop my 401(k) for the first two months and fully fund the IRA. I like the simplicity of DCA 😀
Love the backdoor Roth (not a fan the name... I always feel like it makes it 'dirty' so to speak where it is totally legal and everyone should totally do it if they are in those upper income brackets!!)
Yup. Simply saying Roth conversion sounds better, but the slang term is all anyone uses. Great video with useful info!
@@ErinTalksMoneycan you please do an elaborate video on Backdoor roth conversion. And how to max out your contributions? Thanks!
Hahaha I'm allergic to cats, so cat videos are a no-go for me! Also I love this channel and educational videos...
First time opening a ROTH IRA, could you please advice me if I should put the whole $6.5k at once or spread it a little bit? Probably doesn’t make much of a difference since it’s the first time opening? Thank you!
I'd say 1. Matching 401k funds first. Then max out your Roth IRA. If you are can do all that then open a standard brokerage account. The sooner the better.
I've been thinking about Dollar Cost Averaging. After a lot of consideration, I have concluded that this is a bad idea. I can think of no time it would be wise to use. Any thought?
1. Roth 401K up to the match
2. Max Roth IRA
3. Max Roth 401K
4. Brokerage account
If someone can do that, all of their income from retirement accounts will be tax free, plus social security benefits will be tax free, plus your low income reduces your Medicare Part whatever cost.
Great video but I wonder why everyone always leave out “Head of Household” filing status because every one isn’t just “single” or “married” regarding their tax status. I’ve yet to hear anyone who talk about a filing status including Head of Household
Very informative 🎉
wish i can contribute as much as you guys in the states :D
Where are you from?? What are your contribution limits?? I'm so curious!
@@ErinTalksMoney canada. For 2021 max is 75500 max. That's only if your 18 on 2009. We call it tfsa or tax free savings account. Other than that our 401k is called rrsp. For registered retirement savings account. I think most ppl misunderstand them as just being accounts you put money in not knowing you can invest that money and have a tax sheltered investment.
@@awesomeatheist686 ?
@@jorrellelim6697 Thanks for sharing!! I really hope more people start to realize that you can invest that money!!! That's when you really put it to work!!!
Thank you!!
Thank you for watching!! 😊
Asap especially for IRA because one day you might make too much to do it. Good problem to have nonetheless
Erin, could you go over hoe your contribution budget might look over a year if you max out right away? Love it if you'd use the figures for a 40k gross person.
I contribute equally each month to my IRA to max it. What is the main difference from doing a lump sum of 6k at the beginning of the year and divided amounts over each month?
She discussed it lol. You get better returns over the years because your money is working sooner and is invested longer.
great advice
thanks!! 😊
"For Roth so loved the world, he gave his only begotten Capital Gains. That whoseover investeth in him should not rely on Social Security, but have everlasting self-directed gains." - Buffet 3:16
Keep spreading the good word, Erin.
after you retire but before you start taking social security....keep your withdrawals low enough to stay under the medicare limit so you arent charged extra for that...wait til 70 to take social security...
Hello I have a 403b and Roth 403b from my employer. Today i just open my own ROTH IRA Account. After linking my banking account. I have an option to Contribute to 2020? is that the meaning of catch up contribution from 2020? is it worth it to put $6000? do i get any gains from 2020?
if not can i just start fresh for 2021?
sorry I'm new thank you
Hey there! So until April 15th you will be able to put money into your Roth under the year 2020 (up to $6,000). The benefit of putting those contributions in the 2020 category is that you can still put an additional $6k in the year 2021. All the money you put into the Roth is able to grow tax free...so the more you can put in there, the more money you have in a tax advantaged account.
So if you can put $6k for 2020 and $6k 2021 - do it, because that's phenomenal. If you aren't going to max out both years you can certainly start fresh funding 2021. Or for instance say you can put $9k in this year, well than put $3k into your 2020, and $6k into your 2021.
Basically the only advantage of being able to put money in 2020 for the Roth still is that it will allow you to put more in that fund. The bigger you can grow that nest egg, the more it can grow through market returns. 😊
Is it tax free earnings if withdrawn at FRA (full retirement age), or 59 1/2?
yep 👍
@@ErinTalksMoney Erin, it was a question about which age did you mean to state. At 2:45 you stated that the earnings were tax-free if withdrawn at full retirement age. Based on Social Security defining it as 67, that would be incorrect. You can begin to withdraw from a Roth IRA at 59 1/2. Sorry my initial comment was not clearer. Hope this small clarification helps. Keep up the good work!
You are absolutely correct, 59 1/2 is when you can withdrawal from retirement accounts and should have been started clearly in the video! Thanks for clarifying that!
Great video. Make sense to max out your Roth in the beginning part of the year but what if the market goes down in that time frame and goes back up towards the end of the year? Do you lose more? Thanks
If it is going down and you buy in, you are going to be able to buy more shares and then make more money as the market rebounds. If you buy in and then it goes down, yes, you will lose money at first until the market turns around. If you are concerned about market downturns, I did recently make a video titled The Worst Time to Invest. That video goes into greater detail.
And the end of the day, I believe that time in the market is far more important than trying to time the market. If you are able to invest at the beginning of every year rather than the very end, inevitably you will have more time in the market! 😊
@@ErinTalksMoney thanks Erin!
Thank u
Whats inside a Roth ira? Do i pick stocks and bonds? Do I pick a retirement date ?
Depends on what your goals are. If you go with a company like Vanguard or Fidelity, they will have target date retirement funds that you can utilize in your Roth. Those funds will be more stock heavy (aka more aggressive) when you are younger, and will gradually become more conservative as you get older without you having to do anything. Or you can DIY the whole approach and chose to invest how you wish within your Roth. I am a huge fan of index funds, but everyone has their own preference as to what works best for them.
Every decade? Only 10k…did I hear that wrong ?
an extra 10k that is compounded which equals 100k + extra after decades.
I love myself a good Roth!
So if you want to do a traditional IRA to Roth conversation
Does this principle still apply
Or can you do multiple conversions ?
There are no limits on the number of conversions to Roth.
I love ROTHS however my financial guy says if the current administration raises taxes you may need to reduce the amount going into after tax accounts and put the money in tax deferred accounts at least temporarily what do you think. I haven't made any changes just yet.
Honestly I think this is a really hard debate. If you foresee yourself retiring into a higher tax bracket than you presently are in, going with traditional accounts is the better option. If you think you are in a lower tax bracket now than you will be in when you retire, going with the Roth variety is the better option.
As far as this admin goes, I do not think they have any plans to reduce taxes in anyway. There are lots of proposals for tax increases that's for sure.
Which ones will pass, idk 😐 And will they remain in place with subsequent admin's, again idk
Also, I have many years before I retire, so I honestly have no idea what tax rates will look like when I retire. So I bite the bullet now, assuming taxes are only going up in the future. Is the that right choice, I really can't say with 100% certainty...but it's what I am choosing to do.
I do know people who split their money 50/50 between roth and traditional accounts. I don't do that...but who know's maybe that is a decent strategy.
Erin, thanks for the reply I agree I currently do a 80% Roth and 20% traditional but I am only 8 years from retirement unless I get hit by a truck or my health were to fails. If I were asked from someone who had 20 plus years to go I would definitely push them to the ROTH 100%. Have a great day I really enjoy your videos.
Why would you love a particular type of IRA?
I want the best percentage wise of both Roth and traditional for my situation. The goal is to pay his least amount of taxes as possible. Do not let your emotions make your financial decision
After I max it out what do I do next?
Then max your Roth 401K or traditional 401K depending on your circumstances. After that focus on a brokerage account or any other type of investment that you like.
Some people like real estate because even after they retire it gives them something to do in retirement.
A+
🙏🙏🙏
What about where the $6k was before the contribution? If it was sitting in a savings account that is a drag. Most people get paid periodically, and contribute periodically.
You can still contribute as you get paid periodically - but instead of spreading out contributions over 12 mo, you could spread them out over say 6 mo for example.
@@ErinTalksMoney so a hypothetical person who has a steady income and expenses, and annually contributes $19500 to a Roth 401k and $6000 to a Roth IRA, with no other savings/contributions, should do what?
Use emergency fund to front load the Roth IRA and then build it back over the year? That's seems a little risky
@@matthewharrigan3568 I usually get around $4,000 back when I file for my tax. I use the full amount to fund my Roth than cash flow the other $2,000 monthly.
@@minimumwagemoney3258 wouldn't adjusting your withholding to reduce you tax return and increase your monthly contributions be more optimal? More money in the market sooner
But if you put your money in late in 2009 don’t you get all the gains for 2010? The idea is to put your money in ASAP.
True true, but if you are always a year behind, you will forever be missing out on gains you could have had. And over time, it's gains on gains on gains. PS the market returned a whopping 26.46% in 2019!
Just found your channel. I love finding financial channels by women :-). Has anyone ever told you that you look like Caterina Scorsone? She plays Amelia Shepherd on Grey's Anatomy!
I love when women talk about money as well!!! It still seems like it is a little rare. And nope, I don't even know who she is! I googled her when you said it, but idk 🤷♀️ She's pretty, that's for sure! I just don't see it haha😂
asap why lose tax on gains?
I’m saving for a down payment for a house when I retire. So pulling out a large lump sum will be nice when tax free.
Where did she go?
I like both cat and ROTH IRA videos equally.
😂 😂 😂 😂
Good video 📹 but repetitive.
I lost money on purchasing stocks in Jan. and Feb. Then covid hit and I still haven't gain my money back yet.
Stocks are a long-term investment, if you're investing and looking at returns over the short term you will often be disappointed.
If you're not invested for 10 years or more your money probably doesn't belong in the stock market
Your spouse had to make less than 10k to qualify. And one spouse cannot contribute individually.
If in a new job and they don’t match the 401k should you just focus on your Roth- sorry all new this old women 😢