I expect to make over $100,000 a year for the rest of my life. I'm putting 8% of my income into my 401(a) with a 3% match. It would be more, but I'm maxing out my IRAs every year. I am a single father with a 9-year-old daughter and do not have plans to marry. I expect the house to be paid off when I stop working. I plan to retire at 67.
I'm wondering if I should move my income to pretax dollars since I expect to be in a lower tax brackets once I retire. Or leave it at the other side of the world. I want to know what the most prudent option is to maximize retirement dollars.
I want to retire at 50, but I don't know how. I don't know what to do.
Dear person.
Should I invest in a traditional account or a rg? Traditional accounts are invested with pretax dollars and the money is taxed in retirement. If investors follow the rules as far as how and when to take the money, such as after the account has been opened for five years and the investor is 59 12 years old or older, there will be no tax on the money.
The rule of thumb is to choose between a traditional account and a traditional account with taxes in mind. If you're in a lower tax brackets, advisers will usually suggest opting for a Roth as you'll be paying taxes at a lower rate now than later. If you are in your peak earning years, you may be better off if you drop a tax brackets at the time of withdrawal.
Knowing tax brackets is one of the biggest challenges. You don't know if you'll be in a lower one now. We don't know what tax rates will be when you retire. When the tax brackets from the Tax Cuts and Jobs Act are due to expire, the current tax rates are expected to increase. It's possible that Congress will do something before that.
You can get actionable advice for your own retirement savings journey from MarketWatch.
It doesn't hurt to have some of your money in a traditional account if you think you'll be in a lower tax brackets. It can work in your favor if you have taxdiversification. You will be able to choose which accounts you withdraw from and how to save money on taxes when you retire. The more choices the better.
If you want to retire, you should make a plan to crunch the numbers every year until then. There is a calculator that can help.
I'm sure we've all seen how inflation can affect personal finances in the last year. There are other things you can do. If you create an account with the Social Security Administration, you'll be able to see what you can expect to get in Social Security benefits. Add in any other income, like a pension.
You can figure out what your withdrawal needs will be after you calculate what you're going to spend in your golden years. Traditional account investments do not increase your income when you take them out.
If you don't withdraw money from the account by the mandatory age, you won't be subject to minimum distributions, which is a great advantage. Traditional employer-sponsored plans are subject to an annual Required Minimum Distribution. The Secure Act 2.0, which Congress passed at the end of 2022, eliminates the Required Minimum Distribution (RMD) for workplace plans sponsored by theRoth employer. The age for RMDs was increased to 73 this year and to 75 in 2034.
We want to retire in a few years and have a million dollars saved. Should I use my money to pay off my mortgage while I am at it or should I use it for something else?
There's more to retirement planning than traditional and rg accounts. If you are interested in working with a financial planner, you need to ask yourself a number of questions. How are your investments allocated and what rates of return do you anticipate? Will that change in retirement and affect your taxes? Have you thought about life insurance? Do you have a will, healthcare proxy, and disability insurance when you're a single father?
It will all be worth it when you take into account the calculations and estimates for years and years to come. Don't feel obligated to stick with whatever you choose until you retire if you work with a qualified financialplanner or talk to someone at the firm that houses your investments. Retirement plans can change as you do.
Do you have a question about your finances? We'd love to hear from you at HelpMeRetire@marketwatch.
Do you have any ideas for this reader? Don't forget to add them in the comments.
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