FinaticTips - Learn about IRAs
If you're self-employed or a small business owner, any type of IRA is a great way to save money toward your retirement and get a tax break. There are several types of IRAs but the most commonly used are: Traditional, Roth & Rollover.
The traditional IRA gets you an immediate tax break, meaning the amount you put in is deducted from your gross taxable earnings for the year. You'll only owe taxes after you retire and begin taking the money out.
The Roth IRA doesn't get you an immediate tax break. You pay the income taxes on that money that year. But the entire balance will be tax-free when you start taking it out after retiring
A rollover Individual Retirement Account (IRA) is an account that allows for the transfer of assets from an old employer-sponsored retirement account to a traditional IRA. The purpose of a rollover IRA is to maintain the tax-deferred status of those assets.
1 - Dollar-Cost Averaging
Dollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset's price and at regular intervals. Many people contribute to their IRAs when they file their taxes, typically on April 15 of the following year. When you wait, you deny your contribution the chance to grow for up to 15 months. You also risk making the entire investment at a high point in the market. Making your contribution at the start of the tax year allows it to compound for a longer period. Alternately, making small monthly contributions is easier on your budget and still gets you to the right place.
If you hold stocks in your IRA, it's a good idea to make equal monthly contributions throughout the tax year.
2 - Name a Beneficiary
A common misconception is that your IRA plan ends and does not hold any value after your death. However, naming a beneficiary for your IRA can allow it to keep growing even after your death. If you don't name a beneficiary, the proceeds of your retirement account could be subject to probate fees and vulnerable to any creditors you have. Also, its tax-deferred compounding will be cut short. Adding a beneficiary not only avoids these problems but if the beneficiary is a spouse, someone permanently disabled, someone chronically ill, or someone not more than 10 years younger than the account owner, it can allow the heir to stretch out the tax deferral by taking distributions over their lifetime rather than a lump-sum payment. An individual beneficiary or nonperson entity that inherits the IRA must cash out the full amount within 10 years, as per the new SECURE Act.
A spouse can opt to rollover your IRA into a new account and won’t have to begin taking distributions until they reach age 72. Then, your spouse can leave the account to another beneficiary, which recalibrates the distribution requirement. If you want to name more than one beneficiary, simply divide your IRA into separate accounts, one for each person.
3 - Invest in Individual Stocks
Mutual funds are the most popular IRA investments because they're easy and offer diversification. Still, they track specific benchmarks and often do little better than the averages. There may be a way to get higher returns on your retirement investments if you have the expertise and time to pick individual stocks. Investing in individual stocks takes more research, but it can yield higher returns for your portfolio. In general, individual stocks can give you more control, lower management fees, and greater tax efficiency.
FinaticTrends - Financial Trends
1 - 2022 - What lies ahead?
It might be surprising because of the recent surge in omicron cases across the world but economic do believe that brighter days lie ahead of us in 2022. A host of issues stemming from the pandemic — including labor shortages, supply chain disruptions and rising inflation — hampered economic growth in 2021, and economists do admit that continued uncertainty around Covid-19, and variants like delta and omicron, could always throw the country’s economy off course yet again. The positive signs and the reason behind this forecast is the surge in consumer spending for the holiday season, even with shoppers and businesses concerned about the effects of rising inflation and supply chain issues. Even with its inflation battle looming, the Fed on Wednesday also raised its projections for U.S. gross domestic product growth in 2022, from 3.8% to 4%. And major financial institutions like JPMorgan and Goldman Sachs expect the stock market to continue rallying well into 2022. More workers are expected to return to the workforce in 2022 as consumer spending continues to tick upward, which would help address the ongoing labor shortage. That’s good news for business owners, many of whom plan to hire more workers in 2022 — a factor of increased optimism, especially among small business owners, for the year ahead.
2 - Boost in Homebuilder Confidence
Surprisingly strong housing demand, even in the usually slower season for housing, has homebuilders feeling increasingly confident. The increase comes despite concerns over inflation, supply-chain disruptions and an ongoing labor shortage. Prices for wallboard, steel, aluminum and plastic construction products rose sharply in November, according to the producer price index. Builders continue to benefit from the incredibly lean supply of existing homes for sale. They’re also seeing high demand from investors, as the build-for-rent sector continues to gain steam. The number of single-family built-for-rent construction starts reached its highest quarterly volume on record during the third quarter of 2021. There are hurdles ahead, especially given how high prices have jumped recently. The cost of a newly built home jumped 17.5% year over year in October, according to the U.S. Census. Mortgage rates are also expected to rise markedly as the Federal Reserve eases its support for mortgage-backed bonds to contend with surging inflation.
Financial Guidance
“The most difficult thing is the decision to act, the rest is merely tenacity.” - Amelia Earhart
This quotation by the world’s most famous female aviator isn’t about finances, but it’s certainly applicable. Amelia Earhart addresses one of the hardest parts about improving your finances or building credit—just getting started. After that, she suggests, it’s merely a matter of sticking with it.
Ms. Earhart’s advice mirrors another sage quote about the importance of just getting started by China’s Lao Tzu, the father of Taoism: “The journey of a thousand miles begins with a single step.”
Money Fact
The ink used for money is high tech—very high tech. It has trackable, magnetic, and birefringent (color changing) properties.