Bob O'Brien
Head Instructor
bobrien@mywealth.com
Let’s face it most people go through life never really getting investing down, never mind taxes and investing. You really have to make certain that you can put them together and it can really be a little confusing at first, but once you get it down you will find that it is the ultimate key to financial success. I want to try to help you make sense of this here and then once you are in our Investing 101 course you will be able to ask as many questions as you have in regards to this topic.
Remember when you are in our Investing 101 course do your best to ask as many questions as you have because speaking from fifteen years of experience, one thing that I know for certain is that the people that are great with their money ask questions all the time. In fact, we can easily tell the level of investing expertise someone has by their questions. So the sooner you start asking them the more quickly you will climb the wealth building learning curve.
*****Question of the Week! *****
(Take a shot!!….Chance to Win a FREE Currency Course Bundle (VALUE: $1300.00!!) by Emailing Us your answer no later than Friday 9AM EST and 3 Names will be randomly picked and named as Winners!! (Must be a blog subscriber) Just as the S&P 500 and the Dow Jones tracks the US Stock market, the US Dollar Index tracks the value of the US Dollar. There are many currencies that make up the US Dollar Index and the Euro is the largest at 57%, which is the second largest? a) CAD Canadian Dollar b) JPY Japanese c) GBP British Pound d) CHF Swiss Franc
First of all we have saving for college and remember the government likes to give out tax advantages in order to influence certain behaviors. They want people to go to college and take control of their retirement so there are plenty of choices for these goals. Different choices are a good thing, but it can also make things a little more complicated as well.
The main ways to save for college are a 529 and Coverdell ESA. They are very similar, but the biggest differences would be the contributions limits and the investment selections. The 529 will allow you to contribute more, but the investments are limited to the state plan that you choose. There may also be a flexibility issue, in terms of moving money around and many state plans are limited to one transfer per quarter.
Coverdell ESA’s contributions are capped at $2000.00 per year, but you have a lot more flexibility in the investment choices, in which you can invest in stocks, bonds, ETF’s and Mutual Funds with a brokerage house.
Your contributions are after tax, and then your interest and growth on the money is tax free assuming you use the money as planned for college education. Some states, like Illinois allow you to take a deduction for contributions on your state tax return, so make certain you know how your state taxes.
Retirement planning also offers you many choices as well, and depending on whether you own a business or are self-employed your choices can really vary. Traditional IRA’s and 401k’s are very similar, in the fact they allow you to shelter your money from taxes today and then pay the tax man later. Most people do not take advantage of these programs as much as they should, and there are others that may be building up too much in tax deferral and may have a real tax problem later in life.
You are limited to your employer’s investment options with a 401k and with a Traditional IRA you can really choose from anything though a broker just like the Coverdell ESA mentioned earlier.
A Roth IRA is something that is a great idea, in fact splitting contributions between a 401k and Roth IRA is something that should be considered by most people. It will diversify the tax consequences of your savings. Getting started with Roth and even using is as an emergency fund is a worth considering, and then looking to get that money fully invested later since there will no tax liability on the growth.
The Roth is really the opposite of the 401k and Traditional IRA in the sense that there is no tax savings when you contribute, but there is when you withdraw. The Roth is tax-free when withdrawn in retirement, generally age 59 ½.
Make certain that you are doing your best to understand these plans, and then keeping an eye on the location of your assets. Some assets are a better fit in various plans, like fixed (bonds) in tax-deferred and more growth oriented invested in a Roth IRA. Be careful of limitations, of course the more money you make the harder it is to find tax savings due to phase-outs.
Definitely take our Investing 101 course and you will be amazed at how your level of understanding will jump, and how far you can come so fast when it comes your understanding of investing.
