Posts Tagged 'funds'

Traditional vs. Roth IRAs: what’s the difference?

As the Motley Fool says, there are actually 11 different kinds of Individual Retirement Accounts (IRA), but we’ll stick with the most popular: Traditional and Roth IRAs.

The main difference we’ll focus on is tax-deferred versus tax-exempt savings.

A Traditional IRA means you pay taxes when you withdraw your funds at retirement, but you will qualify for a tax deduction on the money you contribute to the IRA. So say you make $30,000, and you contribute $2,000 each year to your Traditional IRA. Come tax time, you’ll pay taxes on $28,000. That’s tax-deferred savings.

Roth IRAs, on the other hand, let your savings grow tax-free. You pay taxes on contributions (In our $30,000 income case, you pay taxes on the full $30,000 even though you contributed $2,000 to your Roth IRA each year). But when you start withdrawing funds when you retire, you pay no taxes on them. That’s tax-exempt savings.

Got it? So with a Traditional IRA, you take the tax hit come retirement. With a Roth IRA, you take the tax hit now, but your retirement funds come out tax-free.

Now, you could opt to do both, but check with your tax advisor to see how things stack up.

There are a few other differences between a Traditional and Roth IRA. Investopedia has a good article on the contribution, income, and age limits that IRAs stipulate. The good news is you can start an IRA for just $50, and can contribute up to $5,000 annually ($1,000 more if you’re 50 years old or older – they call those “catch-up contributions”).

Young Money has an IRA calculator, where you can compare the tax rate situation.

As with any retirement decisions, be sure you talk either choice over with your financial advisor. American 1 provides both kinds of IRAs. You can stop in to any branch to find out more.


Why it’s good to have a backup plan



The collapse of Washington Mutual was called the “biggest bank failure of all time,” meaning that – in today’s times – no one is “too big to fail.”

So it’s good to have a backup plan. That’s what blogger Khoi Vinh recommends, especially when it comes to anything you have stored online.

This advice is applicable to most areas of our lives: fire escape plans, fire-proof lock boxes for valuables, generators for power outages, etc. Planning “just in case” can be a real lifesaver.

Just this week, I had an instance where I’m glad we made a backup plan. Our marketing department stores our files (ads, newsletters, web site graphics, etc.) on a network disk. That network disk has failed before, and the first time we had no backup plan. We lost all our files in an instant. Then we started to store our files on our work computers, and copy them to the network disk. But that didn’t always happen, so when our network drive went down again, Marketing had a big scare. Luckily, we were able to recover most (but still not all) of our files.

After that crash, we bought an external hard drive to backup all of our files. I do this personally every other day or so: move files from the network disk to the external disk. So when we lost our network drive again this week (thankfully, only briefly), I didn’t freak out. We had a backup plan.

Do you? If you store files online, like we do over at our Flickr account, do you have them stored somewhere physical? What about your money? Do you have a few dollars of spare cash hidden somewhere, just in case? Maybe a spare gas can for those “uh oh” moments?

Vinh’s bigger point is that, anymore, no one is “too big to fail”:

The size of a company is certainly not a reliable shield against failure, but being small doesn’t necessarily guarantee a company will be around in the long term, either. I just don’t think that it’s realistic to assume that all of the data we’re storing online is safe. So a friendly reminder: back up.

He makes the point about online items (Facebook profiles, e-mail messages, banking information), but the point can go further to life in general.

What about American 1? What’s our backup plan?

For one, American 1 prepares for tough times by setting aside extra funds for things like delinquent loans. A lot of financial institutions get in trouble by not saving enough for a rainy day. Not us. We like to make sure there are enough reserves set aside to cover ourselves during times like these.

You know, just in case.

You don’t have to be a paranoid person to realize that unexpected things happen. A wise person will set time aside to think about the “what ifs” life throws at us, and plan for them as much as possible. That’s what American 1 is doing. How about you?



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