Mapping Retirement | Alpha Wealth Funds


April means it’s Tax and IRA Season: don’t pay the government when you can pay yourself.

It’s April 1st and that means a few things.  First, spring has begun, the days are getting longer and the temperature is getting warmer.  Second, but on the higher stress side, the tax deadline is only a few days away and you’re running out of time.  With that comes the end of contributing to your 2018 retirement plans.  It could also mean the mandatory contribution to a plan, so you don’t owe Uncle Sam.

In this post I will go over the different IRA’s and what I like to call the 400 something plans (401(k)-403(b)-457).  I’ll focus on the Usual Suspects, which I consider the Traditional IRA, Roth IRA and 401(k) in this post.  My next post will be dedicated to the Unusual Suspects, which I consider the SEP IRA, SIMPLE IRA, 403(b) and 457b).

Before we go over the different ways you can save your money, I need to make one thing unequivocally clear.  This is not tax advice, nor am I a tax professional, which is anything similar to a CPA, tax attorney, tax consultant or tax specialist.  If you have any questions regarding your taxes, please consult a professional and reference the IRS website  If you don’t have a tax professional, feel free to contact me, my job is to answer your questions and reduce your stress.  I can go over a list or professionals that we trust from personal use, or that come recommended from our clients.

How do I owe Money?  This situation may sound familiar from a family member or personal experience.  A week or so ago my brother gave me a call to pick my brain.  Essentially, he did his taxes and was told that he had two options.  One was to file his taxes and pay the government instead of getting a refund; or two, put a few thousand dollars in an IRA or 401(k).  Since his employer didn’t offer a 401(k), his option became very simple, he opened an IRA (Individual Retirement Plan).

There any many types of retirement plans, and I’ve listed them below.  Each of these is very specific, and regulated plans to save for life after work.  They are not all created equal, and your personal situation should dictate which is the best for you.  One last thing is, you will not have all of them offered to you.  By working through what’s available to you, what your income is and what your future plans are, you can get a solid understanding of what fits you the best.

Types of Retirement Plans

·       Traditional IRA ·       Roth IRA
·       401(k) ·       403(b)
·       SEP Plans (Simplified Employee Pension) ·       SIMPLE IRA Plans (Savings Incentive Match Plans for Employees)
·       Payroll Deduction IRA ·       SARSEP Plans (Salary Reduction Simplified Employee Reduction)
·       Profit-Sharing Plans ·       Defined Benefit Plans
·       Money Purchase Plans ·       ESOPs (Employee Stock Ownership Plans)
·       457 Plans ·       Governmental Plans


The Usual Suspects

IRA = Individual Retirement Account

Traditional vs. Roth is always something people look at.  It’s usually the first retirement account someone opens or at least it was for me.  The big differences are that you can’t deduct contributions to a Roth IRA (you can for a traditional), you have to qualify for a Roth IRA (traditional doesn’t have the requirements you have to meet), you can contribute to a Roth IRA after age 70.5 (traditional stops at that point) and you can leave assets in your Roth IRA as long as you’re alive (traditional has Required Minimum Distributions = RMD’s).

The biggest difference here, and what my brother ran into, is the tax deduction aspect.  Traditional IRA, SEP IRA and HSA accounts are all tax deductible.  This means that you can deduct them from your personal income on your tax return.  It’s a great way to change your situation from owing the IRS money to getting a tax refund.  I’m a simple guy and I have to hear things a few times to imprint them in my head, so I apologize if I get repetitive.

You can contribute to your 2018 IRA (traditional or Roth) through April 15th, 2019.  This gives you the chance to maximize the contribution limits.  The contribution limits change yearly so it’s very important that you, your tax professional or Financial Planner are up to date with changes.  If you accidentally contribute over the maximum amount you will pay a 6% penalty tax ever year it remains in the account.  Since the IRS is so nice, they allow you to pull that out up to the day your return is due. This also includes extensions.

The golden age for IRAs is 70.5.  This is when (some) of then stop allowing contributions and the dreaded Required Minimum Distributions (RMD) begin.  First, the bad news, if you do not withdrawal your RMD by the deadline, you’ll face a 50% tax on that.  It’s imperative to keep track of those yourself or ensure that your tax or investment professional are on top of it.  They will not be understanding if you forget or don’t take out the correct amount.  They’ve earned their reputation for a reason, they’ll enforce the law, which means they take your money.

Below is a simplified chart that explains how they’re similar and different.  This was taken directly from the IRS’s website which leaves things to zero debate.  They are the ones that will enforce the law and audit you, so it’s best to play by their rules.

Features Traditional IRA Roth IRA
Who can contribute? You can contribute if you (or your spouse if filing jointly) have taxable compensation but not after you are age 70½ or older. You can contribute at any age if you (or your spouse if filing jointly) have