Investing: Difference between revisions

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# Checking account

* 1-3 will be tax-advantaged (either tax-free or tax-deferred)

* 1-3 will be tax-advantaged (either tax-free or tax-deferred) since they are retirement accounts

* 4-6 will not be tax-advantaged

==401(k)/403(b)==

A 401(k) or 403(b) is an employer-sponsored retirement plan.

That means, it is managed by a company cooperating with your employer.

If you work for a for-profit company, you will have a 401k.

If you work for a public school or non-profit company, you get a 403b.

If you work for the federal government, you will have a thrift savings plan.

For the most part, 401k and 403b rules are identical.

* Employees can contribute up to $19,500 for 2020 ($19,000 in 2019) [https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits]

** These are called "elective deferrals" which are tax-deferred. You may also contribute after-tax deferrals subject to the total maximum contribution below.

* In total, you can add up to $57,000 to your 401k each year, or up to 100% of your income, whichever is lower. This includes both your contributions and your employer's contributions

==Individual Retirement Account (IRA)==

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===Traditional IRA===

In a traditional IRA, you deposit pre-tax money.

In a traditional IRA, you deposit pre-tax money (see notes).

Thus, your deposit counts as a tax-deduction.

You pay taxes when you withdraw your money.

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* You must start taking required minimum distributions (RMDs) at age 72

* No more contributions after age 70.5

* While there are no income limits to contributing to a traditional IRA, there are income limits to deducting from your taxes

** See [https://www.irs.gov/retirement-plans/ira-deduction-limits IRA Deduction Limits]

** To avoid being double taxed on your Traditional IRA contributions, be sure to complete [https://www.irs.gov/forms-pubs/about-form-8606 IRS Form 8606]

===Roth IRA===

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===Backdoor Roth IRA===

===Mega Backdoor Roth IRA

If you are a high-earner and believe you will earn more money in retirement,

you may want to do a backdoor Roth IRA to grow your retirement account tax-free rather than tax-deferred.

;Basic Idea

* Contribute to a traditional IRA

* Convert the traditional IRA into a Roth IRA

;Notes

* To avoid tax complications, you should eliminate all other pre-tax IRAs beforehand by rolling them over to a 401k. Otherwise, you will be subject to the pro-rata rule.

===Mega Backdoor Roth===

Requirements: Your 401k allows after-tax contributions and non-hardship withdrawals.

;Basic Idea:

* Max out after-tax contributions to your 401k

* Rollover or withdraw the after-tax portion to a Roth IRA or Roth 401K

==ETFs==

Exchange-traded ~~funds. Typically these will have a fee called an expense ratio.~~

~~However, since they are not usually actively managed, their fees are often lower than mutual funds.~~

~~The expense ratio is measured in basis points.~~

~~25 basis points is an annual fee of 0.25%.~~

~~===Stocks===~~

* <code>SPY</code>

* <code>VOO</code>

~~==Brokers==~~

Exchange-traded funds. Typically these will have a fee called an expense ratio.

However, since they are not usually actively managed, their fees are often lower than mutual funds.

~~===Vanguard===~~

The expense ratio is measured in basis points.

~~===Robinhood===~~

25 basis points is an annual fee of 0.25%.

The following classifications are stolen from Wealthfront and Acorns

==Robo-Investors==

~~===Acorns===~~

~~{{ main | Acorns (company) }}~~

~~You can select between 5 different portfolios of ETFs based on your risk level.~~

~~====Later====~~

~~Acorns later is an IRA account. ~~

~~They offer a traditional IRA, Roth IRA, and SEP IRA. ~~

~~You can signup and deposit money but you have no other choices. ~~

~~Your portfolio is selected by Acorns based on your age.~~

===Wealthfront===

; [https://www.wealthfront.com/c/affiliates/invited/AFFA-BMT8-AIJ3-FS7E Referral]

;~~Benefits~~

* Tax-Loss Harvesting

; Cash Account

~~====~~Cash Account~~====~~

Wealthfront offers a cash account.

Wealthfront offers a cash ~~(i.e. savings)~~ account.

This account is distributed between up to several banks so it is FDIC Insured up to $3 million <ref name="wealthfrontfdic" />.

This account is distributed between 4 banks so it is FDIC Insured up to $1 million

==References==

{{reflist|refs=

<ref name="wealthfrontfdic">https://www.wealthfront.com/blog/wealthfront-fdic-insurance/</ref>

}}

@@ Line 8: / Line 8: @@
 # Checking account
-* 1-3 will be tax-advantaged (either tax-free or tax-deferred)
+* 1-3 will be tax-advantaged (either tax-free or tax-deferred) since they are retirement accounts
 * 4-6 will not be tax-advantaged
+==401(k)/403(b)==
+A 401(k) or 403(b) is an employer-sponsored retirement plan.<br>
+That means, it is managed by a company cooperating with your employer.<br>
+If you work for a for-profit company, you will have a 401k.
+If you work for a public school or non-profit company, you get a 403b.<br>
+If you work for the federal government, you will have a thrift savings plan.<br>
+For the most part, 401k and 403b rules are identical.
+* Employees can contribute up to $19,500 for 2020 ($19,000 in 2019) [https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits]
+** These are called "elective deferrals" which are tax-deferred. You may also contribute after-tax deferrals subject to the total maximum contribution below.
+* In total, you can add up to $57,000 to your 401k each year, or up to 100% of your income, whichever is lower. This includes both your contributions and your employer's contributions
 ==Individual Retirement Account (IRA)==
@@ Line 19: / Line 31: @@
 ===Traditional IRA===
-In a traditional IRA, you deposit pre-tax money.
+In a traditional IRA, you deposit pre-tax money (see notes).
 Thus, your deposit counts as a tax-deduction.
 You pay taxes when you withdraw your money.
@@ Line 27: / Line 39: @@
 * You must start taking required minimum distributions (RMDs) at age 72
 * No more contributions after age 70.5
+* While there are no income limits to contributing to a traditional IRA, there are income limits to deducting from your taxes
+** See [https://www.irs.gov/retirement-plans/ira-deduction-limits IRA Deduction Limits]
+** To avoid being double taxed on your Traditional IRA contributions, be sure to complete [https://www.irs.gov/forms-pubs/about-form-8606 IRS Form 8606]
 ===Roth IRA===
@@ Line 42: / Line 56: @@
 ===Backdoor Roth IRA===
-===Mega Backdoor Roth IRA
+If you are a high-earner and believe you will earn more money in retirement,
+you may want to do a backdoor Roth IRA to grow your retirement account tax-free rather than tax-deferred.
+;Basic Idea
+* Contribute to a traditional IRA
+* Convert the traditional IRA into a Roth IRA
+;Notes
+* To avoid tax complications, you should eliminate all other pre-tax IRAs beforehand by rolling them over to a 401k. Otherwise, you will be subject to the pro-rata rule.
+===Mega Backdoor Roth===
+Requirements: Your 401k allows after-tax contributions and non-hardship withdrawals.
+;Basic Idea:
+* Max out after-tax contributions to your 401k
+* Rollover or withdraw the after-tax portion to a Roth IRA or Roth 401K
 ==ETFs==
-Exchange-traded funds. Typically these will have a fee called an expense ratio.
+{{main | Exchange-traded fund}}
-However, since they are not usually actively managed, their fees are often lower than mutual funds.
-The expense ratio is measured in basis points.
-basis points is an annual fee of 0.25%.
-===Stocks===
-* <code>SPY</code>
-* <code>VOO</code>
-==Brokers==
+Exchange-traded funds. Typically these will have a fee called an expense ratio.<br>
+However, since they are not usually actively managed, their fees are often lower than mutual funds.<br>
-===Vanguard===
+The expense ratio is measured in basis points.<br>
-===Robinhood===
+basis points is an annual fee of 0.25%.<br>
+The following classifications are stolen from Wealthfront and Acorns<br>
 ==Robo-Investors==
-===Acorns===
-{{ main | Acorns (company) }}
-You can select between 5 different portfolios of ETFs based on your risk level.
-====Later====
-Acorns later is an IRA account.<br>
-They offer a traditional IRA, Roth IRA, and SEP IRA.<br>
-You can signup and deposit money but you have no other choices.<br>
-Your portfolio is selected by Acorns based on your age.
 ===Wealthfront===
 {{main | Wealthfront }}
 ; [https://www.wealthfront.com/c/affiliates/invited/AFFA-BMT8-AIJ3-FS7E Referral]<br>
-;Benefits
-* Tax-Loss Harvesting
+; Cash Account
-====Cash Account====
+Wealthfront offers a cash account.
-Wealthfront offers a cash (i.e. savings) account.
+This account is distributed between up to several banks so it is FDIC Insured up to $3 million <ref name="wealthfrontfdic" />.
-This account is distributed between 4 banks so it is FDIC Insured up to $1 million
+==References==
+{{reflist|refs=
+<ref name="wealthfrontfdic">https://www.wealthfront.com/blog/wealthfront-fdic-insurance/</ref>
+}}