08/18/2020
Afternoon Lesson: Do not put all your eggs in 1 basket 🧺
Each of these investment vehicles are options that you could invest today! They differ in tax strategies so let’s take a look below.
Roth IRA allows your money to be taxed before it is withdrawn. Contributions up to 6K can be made. For those who are >50 it is 7K. When funds are withdrawn the total amount is not taxed.
IE) You invest $6k throughout the year. You make 10 deposits of $500. The $500 is taxed going into your account. So when you are ready to withdraw funds which would be $6K at the end of the year. You are able to withdraw the entire amount TAX FREE and will receive the ENTIRE 6K.
401 K is an investment vehicle that allows you to contribute up to $19.5K if you are under 50 and 26K if you are older. Once you have contributed however your FULL contribution is taxed once it is taken out. That means $19.5K will be taxed as a whole lump sum. This works for some but not everyone.
Traditional IRA
These work exactly the same as a Roth and have the same contribution limits. However, are taxed when you withdraw funds.
IE) $6k in yearly contribution. 10 deposits of $500. Once you withdraw the $6K, the ENTIRE $6K is taxed instead of the $500 contribution.
