Consider that in 2016 the average monthly benefit for a retired couple who both receive Social Security benefits was $2,212, according to the Social Security Administration. And Social Security - the closest thing to financial aid for retirement - may not cover all your expenses. Retirees can't get loans or scholarships to cover rising health care costs and any emergency expenses that arise. The kids can get scholarships, loans or work their way through school. Therefore, in the " save for retirement versus save for my child's college tuition" standoff, your needs come first. ![]() Perhaps you're thinking, "With this kind of money we can pay cash for the kids' educations so they can graduate without any student loan debt!"īefore you go down that road, consider this: In the Maslow's hierarchy of needs for finances, "pay yourself first" forms the foundation of the triangle. It's $30,500 for those age 50 and older when you add in the catch-up contributions (an extra $6,000 in a 401(k) and $1,000 for an IRA).Įven after maxing out your workplace plan and IRA, you've still got roughly $70,000 of that $100,000 to work with. If you're under age 50, that comes to $23,500 a year ($18,000 for the 401(k) and up to $5,500 for an IRA). And with $100,000 at your disposal, you can afford to max out both a 401(k) and an IRA if you're eligible. There are legal ways to dodge the IRS, at least for a while, and one of the best is to stuff as much of that $100,000 as possible into tax-favored retirement savings accounts.Įmployer-sponsored retirement plans, like a 401(k) or 403(b), and individual retirement accounts, like Roth or traditional IRAs, can help shield tens of thousands of your dollars from taxes. Put as much money as possible where the IRS can't get to itĭon't even think about the Cayman Islands. The rules about what beneficiaries can and cannot do and how much time they have to do it without incurring penalties or triggering extra taxes depends on your relationship to the deceased (surviving spouses have different options than other beneficiaries), whether or not the former owner had started taking distributions before they died, and what type of IRA it is (Roth or traditional).Ģ. Inheriting an IRA: You may also have to take action on a tight deadline if you've inherited an IRA.Otherwise you'll trigger a pretty hefty tax bill consisting of income taxes (the IRS treats the money as earned income for the year) and a 10% early withdrawal penalty if you're not yet eligible to tap your retirement savings. Liquidating a 401(k) when leaving a job: You have just 60 days after an employer cuts you a check for money saved in a workplace retirement account to get that money into another retirement account, either a Roth IRA or a traditional IRA.But there are a few situations that may require immediate action in order to avoid unwanted attention from the IRS: In most instances we'd say that you shouldn't rush into a decision with the money. Now, let's get to work on getting that $100,000 invested.ġ. Learn the fundamentals, how best to reach your goals, as well as plans for investing certain sums, from small to large.įor the purposes of this article, we'll assume you're already standing on solid financial ground: You have no revolving high-interest (credit card) debt, you've got an adequate cash cushion to cover any emergency expenses, you're able to easily cover your monthly expenses and have any money you need for nearer-term expenses (home improvements, tuition, family cruises) set aside and not invested in the stock market. If you want to make your money grow, you need to invest it.
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