One sure-fire way to live a good, no make that great retirement is to utilize all the savings tools at your disposal today. The past two blogs discussed the 401-K Plans, both the Traditional and the ROTH. Let us look at two additional retirement tools, the Individual Retirement Account (IRA) and the ROTH IRA. Even if you have access to a 401-K, an IRA is a GREAT investment tool. Think of it as stacking the odds in your favor by having multiple accounts to provide income when you retire.
As you advance in your business or career your income will increase. While funding $18,500 annually may seem like a big number today, in the future you will be capable of adding even more to your retirement funds. This is where your IRA account comes into the picture.

INDIVIDUAL RETIREMENT ACCOUNT (IRA)
An IRA was designed to help us prepare for retirement in a world where traditional pensions are slowly disappearing. Both IRA accounts, the Traditional and ROTH have the same contribution limits, currently $5,500 per year (or $6,500 if you’re over 50) with the main difference being WHEN you pay taxes. Ben Franklin said, “In this world, nothing can be said to be certain, except death and taxes.”

Just as you can split your money between the Traditional and ROTH 401, you can do the same with the Traditional and ROTH IRA. Either type of IRA account grows tax-free until you withdraw money. You have to wait until age 59.5 to withdraw your investment returns without facing an early-withdrawal penalty. There are some exceptions, such as the ability to withdraw up to $10,000 toward a down payment on your first home.

TRADITIONAL IRA- SAVE NOW AND PAY TAXES LATER
With a Traditional IRA, you contribute with money you may be able to deduct on your tax return, depending on your income level. If you or your spouse participate in a work retirement plan, such as a 401(k) or a pension program, your traditional IRA contribution is fully deductible up to your contribution limit, which is based on your income. If you are single, the maximum tax-deductible contribution phases out once your adjusted income exceeds $60,000. You become ineligible for a tax deduction when your income reaches $70,000. If you are married filing jointly, the maximum tax deductible contribution phases out once your income exceeds $181,000 and you become ineligible for a tax deduction when your income reaches $191,000. You are allowed to contribute to an IRA, at any income level. You simply lose the tax deduction when your income exceeds above allowable limits {$70,000 – single or $191,000 – married}. However, because all earnings grow tax-deferred until you begin to make withdrawals in retirement, even without a tax deduction, this can be a great savings vehicle.

Withdrawals are taxed as ordinary income. A traditional IRA does not allow you to withdraw your principal without penalty before retirement.

EXCEPTION: If neither you nor your spouse are covered by a retirement plan (pension and 401-K Plan) at work, your deduction is allowed in full.

ROTH IRA – IF YOU QUALIFY
In order to be eligible to make a full contribution to a Roth IRA, you need to earn less than $114,000 per year ($181,000 for married couples), and eligibility phases out entirely for incomes higher than $129,000 ($191,000 for married couples). If you are under the income cap, you can make a full contribution to a Roth account, whether or not you participate in a retirement plan at work.

There are ways around the above income limits. Anyone, regardless of income level, can contribute to a traditional IRA, then convert the account to a Roth IRA, so long as they pay taxes on any pretax funds contributed to the original traditional account.

If you believe tax rates will go higher in the long term (by the time you retire), you can eliminate unpleasant surprises by paying taxes up-front, via the ROTH IRA. Then, the money in your retirement savings is 100% yours to keep!

A Roth IRA basically allows you to contribute money that you’ve already paid taxes on; it then allows that money to grow tax-free until retirement. When you’ve reached retirement age, you can withdraw the money tax-free, which could save you thousands of dollars in potential tax liability down the road.

A second positive feature of a Roth IRA is that it does not necessarily tie up your money until retirement. You are allowed to withdraw your contributions (but not any gains) penalty-free at any time. Finally, a Roth IRA does not require you to take distributions by a certain age, whereas traditional IRA rules mandate distributions by age 70-1/2, or the IRS can assess a penalty.

WHAT IS RIGHT FOR YOU- TRADITIONAL VERSUS ROTH IRA
Use this calculator and input your income, current tax rate, assumed retirement tax rate and contributions to help you determine which IRA is best for you. Play around with your assumptions on your future tax rates.

https://www.bankrate.com/calculators/retirement/roth-traditional-ira-calculator.aspx

The primary decision point between the traditional and ROTH IRA, is the tax rate you assume/guess you will pay in retirement. Above example assumes you remain at a steady tax rate of 20%. The ROTH IRA is your better choice in above scenario.

CONCLUSION
I read investment and financial articles every day. (IT’S CALLED BEING A GEEK!). An alarming theme I see almost daily is how poorly prepared Americans are for retirement. I believe one of the reasons is putting wants ahead of needs. I have WANTED a Mercedes S Class car for years!! {In case you are looking to buy me a birthday present!}

However, what I NEED is a secure, healthy and fun retirement. By the way, I drive a 2002 E Class Mercedes, I purchased used.
To achieve my retirement needs, I have contributed money; I did not spend on wants, into the Traditional and ROTH 401-K plans and the Traditional and ROTH IRAs. You must live your entire live, not just today. Save enough for that long and healthy life. Live Long and Prosperous.

A WARREN BUFFETT LIFE LESSON- STAY THE COURSE
Berkshire Hathaway conducted its 2018 shareholders meeting March 5, 2018. Buffett shared with attendees the story of his first stock pick. “In March 1942, after watching the price of Cities Service preferred stock drop from $84 per share to less than $40 per share, he asked his dad to buy him three shares with all of his savings at the time. His father bought Buffett three shares when the market opened the next day at a price of $38.25 per share.
Cities Service preferred stock eventually traded up to over $200 per share, so Warren Buffett clearly had a knack for buying value stocks early on, however, the world was mired in World War II, and a constant stream of negative headlines caused Cities Service preferred share price to continue falling. At one point, Buffett was staring at a loss of over $10 per share.
Holding onto that investment long term would’ve more than quadrupled his money, but he conceded to attendees that, sadly, this wasn’t what happened. Having witnessed big losses on his investment early on, he happily sold his shares in July 1942 when they rebounded to about $40 per share, netting him just a $5.25 gain.
The lesson Buffett was reinforcing to his shareholders with this story was a simple one: THE BEST WAY TO MAKE MONEY OVER AN INVESTING LIFETIME IS TO STAY THE COURSE.” Warren Buffett drives his lesson home. To reinforce this point, Buffett asked people at the conference to consider how much money they thought they’d have today if, at the time Buffett had bought his first shares, MARCH 1942, their parents or grandparents bought $10,000 worth of the S&P 500 stock index and held onto it until now. The answer: a staggering $51 MILLION!
He then asked investors how much money they thought they’d have today if they’d bought gold — arguably the best proxy for an investment type that people who are worried about political or economic woes buy — instead of stocks with that same $10,000. The answer: about $400,000.
The 100 times plus outperformance of stocks versus gold was made possible by the fact that companies continually reinvest their profit to produce inventions that result in greater growth in the future.”