November 23, 2020

401k Maximum Contribution 2020

401k Maximum Contribution 2020 everybody Dwight's skull here I want to welcome you back to my channel today I'm gonna talk to you about retirement and the new twenty20 rules for how much money you can put away in. IRA IRAs and 401ks so the US government, wants everybody to basically put money away for their own retirement and they do this by giving us tax vehicles to do it with what does that mean well if your. Company allows you to have a 401k then you can, put up to 19 thousand dollars a year per every adult in your household that has access to a 401k so if you and your spouse work in two different sort of companies are in the. Same company and that company offers a, 401k then you can each invest in your own 401k for up to 19 thousand. Dollars a piece and there's a tremendous amount of money that many people never max out but it is an. Option for you and then if you have a traditional or Roth IRA traditional IRA is a pre-tax IRA kind of like your 401k they take the money out and you, don't get taxed on it or if you have a Roth IRA this is what you would pay into after you've been paid by your company then that, limit is $6,000 per year so if you want to know more about kind of the basics, of retirement stuff there's, gonna be a card writer but my head that will kind of take you to my whole playlist on. Retirements but what I want to do is kind of a do a deep dive on these 401k limits and these IRA limits so also one other thing if you're over the age of 50. You can invest up to $7,000 a year into your traditional pre-tax IRA or your Roth post-tax IRA now know the Roth and the. And the traditional IRA is each have kind of a spending limit and also another. Limit to if you don't make any money whatsoever like. If you don't have a job you can't invest in an IRA you have to be able to put earned income into that also if. You're maybe a spouse there's a spousal IRA so if you're a stay-at-home parent your spouse can put money into. An IRA for you with a very specific spousal IRA but you guys can't invest in IRA if you're married filing jointly if you make over ninety a, hundred and ninety six thousand dollars a year so if you make over, one hundred and ninety six thousand dollars a year you, can't invest in an IRA so most of the most of the planet-like most of the Americans in the country can invest in an IRA. And then if you're single and you're or you're married and filing separately you can't make more than a. Hundred and twenty four thousand dollars in order to invest in IRA so those are kind of the rules and regulations around it there's probably a, little bit more that may or may not affect you you can always contact a CPA or a financial advisor to see how all that works and I'm, neither one. Of those things I'm just you know a guy hoping you get some pretty quick information that might help you to invest a little bit of your money in but chances are, if you're making you know one hundred and fifteen hundred and eighteen one hundred and twenty thousand dollars or less you are fine you, can invest in an IRA that said what does it take to max out an, IRA well six thousand dollars a year is actually not, too much it's only about five thousand sorry five hundred dollars a month or if you get paid twice a month like most people do it's only two hundred fifty dollars. A paycheck now some of your like Dwight I'm right on the cusp that's a lot of money and, it probably is but you can do these investments pre-tax and so most people pay taxes somewhere between like 25 and 40 percent depending on what, state and city you live in so some states are nice they.

Don't have income tax other states not so much and then cities of course might tax on top of that I work in a city that charges, me a specific dollar amount every month for me to have the privilege of working in the, city itself so here's all the sort so weird little taxes that you could be paying without. Even really realizing it but that said that's two hundred and fifty dollars a paycheck and if you did it pre-tax it's maybe thirty percent less. Of that right so you get so basically they would pay you and. The first thing would come out would be your taxes and then your social security and your any of that stuff and then the next thing that come out, would be your 401k and your IRA amounts if you did it pre-tax and then from there you know then you pay. That after that it would start everything else it becomes this post-tax thing so $250 a paycheck isn't too, bad especially if it's 30% less than that so maybe 180, dollars if you're not investing anything at all investing anything. At all is better than not invest in anything and so let's just quickly talk about why you would want to pre-tax account versus a post tax account so if you do pre-tax you. Will pay taxes on it just the question is when there's very few things in fact only there's anything you can do in the. United States of America that you're not going to get taxed on if you're making money.

And so therefore the question is when do you get taxed so if, you do a 401 K which is pre-tax money then you do a traditional. IRA which is pre-tax money when you go to take that money out at 60 65 70 whatever the numbers are you will begin to pay taxes on that amount and so the tax rate will apply. To you based on how much money you pull out every year. So some people think well I'm gonna be paying less taxes as I get, older because I'm going to be making a lot less money or some people look at it like well I'd rather pay then the post tax now so then I. Can kind of play around with a little bit later on and, so that's what good financial advisors will suggest that you have a mix of pre and post tax accounts and the simple reason is this if you're, taking out a bunch of money in your pre-tax and you realize that you're coming up on a line where you're gonna pay, a lot.

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