TAX TIME!!!

“A penny saved is worth two pennies earned . . . after taxes. ”

-Randy Thurman

Another year has passed and it is time to get your paperwork in order so you can file your tax return. It can be an exciting event for those of you who expect to get a refund, or an incredibly stressful one if you are worried about how much you might owe. This year, with the new tax laws in place, a lot of people seem to be feeling more hesitant than anything else, since it can be a bit hard to sort out if the new laws fall in your favor or not.

Talking with your trusted tax consultant will be the best way to sort out those concerns… And, while you are there, make sure that you ask her about the W-4 form you currently have on file with your Human Resources department at work. While many of the new tax laws took effect in the last year (2018), they were not all in full force until now, and some of those changes could have a bigger effect than you might expect. The IRS (anticipating the confusion that these changes would bring) has created an online calculator to help sort out what your new withholding number should be. The webpage where you can find a link to this calculator is https://www.irs.gov/individuals/irs-withholding-calculator . Be sure to read through the page instead of skipping right to the calculator, and then be prepared to set aside about 20-30 minutes for this task.

It seems that, if you do not have dependents, things may not have changed much… but if you do still hear the pitter-patter of little feet running through your home, the new numbers will now look sort of bizarre…. as in, “15 allowances for a single mother of three who files as Head of Household” kind of bizarre….! Because you want to have the right allowance number, having a helping hand from your tax professional will certainly be important. If you think about it, when you send too much money to the IRS every paycheck (by having the wrong number of the allowances selected on that W-4 form you have filed with H/R), you are giving the government an interest-free loan for up to, or more than, an entire year… Just imagine how many people do this year after year, and how many earned American dollars are “loaned” to the government in this way! Would the government be willing to give you a loan with the same 0% interest terms? I doubt it.

It seems irrational, then, to be excited about a large tax return. In some (rare) situations*, it may be beneficial for you to let the government take your money and hold it until you ask for it back in your tax refund. In every other case, it is better to NOT give the government your money…. but instead, to get every penny of your hard-earned cash in your paycheck and, at your own discretion, work it into your budget or save it in a bank account. Most banks have savings accounts specifically for Holiday Funds, Vacation Funds, and the like. Then, you can control when and for what it is used. At the very least, put it into a CD or a Series I Bond (where the government pays you interest to borrow your money from you) for a year instead… Or, an even better idea could be to invest it in a mutual Bond Fund or (if you’re more daring) a Total Stock Market mutual fund and let it grow.

It may be less exciting next tax-season when you only get a small tax return or owe a tiny bit of money at the end of the year, but it is important to get this part right. You are perfectly capable of managing your household, and having access to ALL of your money is paramount when you sort out your budget. It is a good lesson in controlling your own destiny, and it will be empowering to know that you are saving on your own terms, and earning interest, for the rest of your life.

*This rare situation may be that you will use the extra earned money each month to ruin your life…. Perhaps by digging yourself further into debt because of a gambling problem or by using the funds to purchase illegal substances… Ask yourself “If I have some spare money, will it get me into a lot of trouble?” If the answer is YES, then, by all means, let the government keep your money! Really, though, short of these unlikely circumstances (readers of this blog are very dependable people!) there is no reason to let the government hold your money for free!

The IRS notes the following:

IMPORTANT NOTE: This Withholding Calculator works for most taxpayers. People with more complex tax situations should use the instructions in Publication 505, Tax Withholding and Estimated Tax. This includes taxpayers who owe self-employment tax, alternative minimum tax, the tax on unearned income of dependents or certain other taxes, people with long-term capital gains or qualified dividends, and taxpayers who have taxable social security benefits.  (The calculator won’t determine the taxable portion of your social security benefits, but if you estimate the taxable amount (e.g., using the worksheet in the Form 1040 instructions), you can enter that into the calculator as other nonwage income so that the calculator can take it into account.).

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Emergency Fund – What should you do with it????

Too many people spend money they earned..to buy things they don’t want..to impress people that they don’t like.

-Will Rogers
Photo by Fabian Blank on Unsplash

You know that the world often throws you curve balls, so you have worked hard to sock some money away for those inevitable “emergencies.”   Maybe you diligently save a bit out of each paycheck, or maybe you sold some of your extra “stuff” to fund the account.  No matter how you got here, you have created a wonderful cushion to soften any landings you might have in the future. GOOD WORK!!  

Depending on the amount you have, and on your plans for what will happen next, you have some options on how to hold on to that money.

  • Cash:  While it may seem like cash is not risky, there are risks to holding money.  If you physically keep the money on your property, there is the risk of fire or burglary.  If you keep the money in a checking account at a local bank, you are mostly safe from theft and fire, but you are still at risk of bank fees corroding your funds, and, over a longer term, losing the value of your money due to inflation. (If inflation rises 3%, and your funds have only earned a measly 0.25% in a bank savings account, you have suffered a loss in value of your money because you do not have the buying power you had when you deposited the funds.)
  • High-yield savings account:  If you are pleased with your accumulation and know that you can keep your account full to this level, but you are not prepared to continue saving for any other mid- or long-term goals at this point, you will probably get the most security, and a tiny bit of monthly interest, by parking your funds in an online High-Yield savings account. (try SallieMae Bank and do some research to see who has the best current rates.)  Right now, interest rates are on the rise, so it is worth doing a bit of research to see where you can get the best rates. You are probably going to keep inflation losses at bay for the most part with this type of account.
  • Invest:  If you are fortunate enough to now have the “saving bug” in your ear, encouraging you to keep building that savings account up with every spare penny you can find, then you may want to take some of the funds you are accumulating and try to get a bit of more substantial growth out of it.  Let’s say you initially set out to accumulate $1,000 in an emergency fund. After three months or so, you realize that it wasn’t all that difficult to build up the funds and you decided to add another $1,000 in the next few months.   As you keep growing this fund, you may decide that letting it earn 3% interest in the High-Yield account just doesn’t seem like enough. Surely, you don’t want to lose your emergency fund in the stock market, but at some point, as you keep growing these funds, you may exceed what you think is a reasonable amount of emergency money for your lifestyle.

 This is the tipping point where you could choose to invest in the stock market in a conservative way, like by investing in a good mutual fund that tracks a large part of the market (try Vanguard VTSAX or Schwab SWPPX*).  You want to make sure that you are protecting yourself from taxes on your earnings, so make sure you put your money in a tax-sheltered Roth IRA account if you qualify to open one.  This type of account allows you to invest some of that “extra” emergency money and will not penalize you for taking the money back out if you need to use it for something that comes up. With the tax shelter of a Roth IRA, any earnings that you make in the stock market on these funds have to remain in the account until retirement age or other qualifying factor, so that you don’t get penalized for using them early.  It is a great way to dip your toe into investing.  Stay away from stock picking.  If you have so much “extra money” lying around that you want to try risky trading or stock picking, you will have to look elsewhere for advice… this author has never experienced “extra money” and has never been willing to lose even a penny on a risky bet…

*There is a lot to learn about investing! But these two companies have low/no fees and are a low risk way of getting started… Vanguard has a higher minimum ($3,000 for most funds at the time of this article) while Schwab allows you to open an account with just $1. Read as much as you can about investing as you start this journey! Some excellent sources are MMM and Bogleheads sites.

Where to begin…

“The journey of a thousand miles begins with one step.”

-Lao Tzu
Photo by Vlad Bagacian on Unsplash

We have been immersed in conditioned reactions, responses, and ways of thinking for a lifetime. There is a very powerful momentum within all of us to remain on our current trajectory, to maintain the status quo. Can this change simply because we decide one day that it is a good idea to do something different?  How can we reprogram ourselves when we find that what we were taught about money is not leading us down the path towards our goals? Most of us learned all we know about money from our parents.  At some point, usually in our teens, we all realized that our parents weren’t all-knowing beings, but just humans who tried to do their best with what they had.  The lessons they taught us about money management could be fundamentally flawed, and it is worth taking a fresh look at the subject.  In order to keep from stagnation, we have to be willing to constantly learn and grow, and reviewing topics like money can be a great project with instant rewards.

Think of your current state of household finances.  If you are like many households, it’s a mess. You can only “shut the door” and ignore the issue for so long.  It can feel overwhelming at first, but it is absolutely pivotal in putting you in a direct path with your ultimate goals in life.  There are so many tricky ways that companies wiggle in on your income like leaches, slowly siphoning off your lifeblood little by little.  Looking at where your income is bleeding away and patching things up will be like earning an instant raise or a bonus at work!  Credit card fees, bank fees, cell phone plans, cable bills, even drafty windows in the winter, can all drain your income without you ever noticing. 

Opening up your heart to learning about personal finance is a lot like visiting the carnival as a kid for the first time… with all of the chaos, rides, lights, smells, and vendors calling you to their games of chance.  It’s an overwhelming feeling and it seems as if you could never be able to understand how it all works! But, as you grow up, it all begins to seem smaller and you come to realize how it all comes together.  It is time to grow up about your financial health and see money for what it really is… a tool for you to use to get where you want to be in your life.  Hopefully, the information in this site will give you clarity and perspective for your finances.  There may not be a “right” way to manage your money, necessarily, but there is likely a better way than what you are doing now.  A look at the fundamentals may offer you a new attitude about money and how to use it as a tool for improving your life, instead of as a source of stress and frustration.

Photo by rawpixel on Unsplash

Where are you in your ideas of money?  Are you a saver or a spender? Would you rather HAVE a million dollars, or SPEND a million dollars? Are you a credit card junkie? Regardless of how you FEEL about money, the structure still remains the same, but certain parts of the structure may make you a little uncomfortable. Knowing more about what makes you uncomfortable will improve your perspective.

At the core of being financially stable is always a budget.  Don’t run away screaming already!  This is a simple practice that you should try to make a habit of doing, and re-doing, a lot.   Maybe, once you have a handle on things, you can strive to work on your budget every month.  Some people need to look it over every week, every pay check, or less often.  It is a very simple math problem: Income – Expenses = Net Gain/Net Loss.  When you have a budget, written out and physically in front of you, you can see where your money goes and what you prioritize in your life. 

A quick Google search will find hundreds of different budget sheets.  Find one that you like and start filling it out right away.  Some are very detailed and some are simple. You need to see how much income you have, where your money is getting spent, and what you have left at the end of the month (or how far negative you are).   Start simple and see how it works for you.  (Excel spreadsheets will do the math for you in most cases.  This simplifies things so that you can try different numbers quickly to see how it effects your bottom line.) You can try this Microsoft template if it works for you.

List all of your normal expenses, but also make sure you list the ones that tend to hide themselves… Some habitual items that are often forgotten in your expense calculations could be:

  • Bank Overdraft fees
  • ATM Fees
  • Savings
  • Cigarettes
  • Alcohol
  • Entertainment
  • Tolls
  • Gifts
  • Convenience store purchases
  • Dinning out
  • Ice cream shop visits
  • Season ticket expenses
  • Car-wash costs
  • Normal auto repair/maintenance costs
  • Credit card late fees and interest (list cards individually)
  • Student loans
  • Books for classes
  • Participation fees (like craft shows or seminars)
  • Gym memberships
  • Magazine memberships

On the income side, remember to add any extras that come in to your household besides just your standard work income, for example:

  • Alimony
  • Child support
  • Monthly dividends
  • Side job income
  • Creative endeavors (like selling artwork or crafted items)

Once you have pulled together the bits of information and have them all in one place, you can begin to critique the way you are using your limited funds. Some say that your true focus in life can be seen by seeing where the money flows. If you see your funds are getting used for things that don’t better your life (like to credit card interest) and you can begin to work on funneling it towards things that are actually important to you.

Winning in the New Year

I don’t focus on what I’m up against. I focus on my goals and I try to ignore the rest.

– Venus Williams
Photo by Anton Darius | @theSollers on Unsplash

While New Year’s Resolutions are famous for being almost immediately broken, there are some simple things that you CAN stick with to get your financial world prepared and in order for the coming year.  Here is a quick checklist of three easy steps!  Set them up today so that you can get yourself on the path to your desired future!

  • Set up an automatic deposit to a High Yield savings account (try CapitalOne or SallieMae if you are looking for an online option, both offer decent interest rates and no minimum balances).  You can set it to automatically draw funds from your checking account on each payday so that your funds get transferred without any action required by you! (If you don’t have a checking account, please read here…. a checking account is a very basic need in the start of this process…). This is the easiest way to keep a resolution… remove your need to remember to do it!  Start small, with an amount you are comfortable trying, and set a reminder for yourself to review the amount and try to increase it each month.  This is your budding emergency fund, so HANDS OFF!
  • Work up a budget…. (I know, stop cringing… it is just a word!) You need a budget to really understand where your money is going. Many people are oblivious when it comes to how their paycheck is being spent. Maybe you are spending more on dining out than you expected? How can you know if you don’t have a baseline in the form of a budget.  There are so many good tools available to make this step so easy now!  (You can try Mint, which is free, or YNAB, which has a small monthly fee after a trial period.)  It is easier to start looking at your spending trends right at the beginning of the year. 
  • Set a few goals for yourself for the year.   Maybe it is finally killing that credit card balance so you can use those interest payments for your own needs. Maybe it is going back to school to invest in yourself, or paying off your student loans. (Try this debt payoff calculator to see how quickly you can get there.) Maybe it is to build some savings to use as a down payment on a house.  (Try this savings goal calculator.) Maybe it is to start investing in your future life goals (like owning a business) or saving for retirement.  There can be so many different goals, but if you do not set your mind to something specific, you will not be able to achieve it. 
Photo by Xan Griffin on Unsplash

Even though they seem like very simple basic steps, they can really set your mind clear on how you want to proceed into the New Year, what you are expecting out of it, and where you want to be when the year finally ends! Give yourself this chance to set a goal and feel proud of your achievement when you fulfill it!

Note: I have no affiliation or relationship with the service providers listed in this post, other than as a user or friend of a user of some of their services. These recommendations are for your research purposes only. 

Habits to Learn – Part 2

“The biggest mistake is not learning the habit of saving properly… Do not save what is left after spending; instead spend what is left after saving.”

-Warren Buffet

This is the next step towards your independence.  The first steps were in Habits to Learn –Part 1.   In that step, you made sure you had a few dollars in your pocket at all times so you can avoid bank fees and you established a checking and savings account so you can start making progress towards your emergency fund. 

It is time to fill up that emergency fund to help you get through standard “emergencies” that arise.  There are a lot of different ways to start adding funds, but first it is important to determine a goal so that you can measure your progress towards it.  How much you need to set aside depends on your situation.  If you are married with a dual income household with a spare room that you rent out for extra income, you will need a different type of emergency fund than if you are a single parent with one income and young kids relying on you.  In the first case, if there is a loss of income from one party, it is likely that you can cut costs and rely on the other income until a new job can be found.  There isn’t a great need for hearty emergency fund, but a small one for car troubles and the like is still necessary.  In the second case, it would be better to have a bigger fund.  With little ones relying on you for healthy meals and a feeling of normalcy, and with only one income to rely on, it is important to really buckle down and put your mind to having a significant fund.   These are two extremes, and your situation will likely fall between them somewhere.  

One rule of thumb is to stock your e-fund with 6 months of expenses.  This may be a daunting task that could make you feel like you will never reach the goal.  I suggest, instead, start small.  Get $500 into that e-fund as quickly as possible.   It isn’t as hard to do as you might expect. 

  • Decide on a set amount that you can take from each pay check and send directly to your savings account.  Set up a direct transfer from your paycheck through your HR department at work if possible.  If not, then set up an automatic withdraw from your checking account. Start with at least $10 per pay period and get the funds into that savings. Don’t touch them for any reason! This isn’t for food or for a night out at a restaurant.  It is an emergency only fund. Discipline yourself to use it in that way only. 
  • Now, take a look around your house and see if you have any items that are not being put to good use.  There are a number of internet sites that allow you to list your items for sale. There are many websites that will buy books straight off of your bookshelf. Using these is usually quite easy, with the sites providing you a shipping label and instructions on how to package the books so they arrive in good condition. (try BookScouter  or SellBackYourBooks.com) If you have text books,these can possibly bring a decent chunk to add straight towards that $500 goal. 
  • Take some time to meal-plan for the week, buying healthy low-cost ingredients to make your family healthy meals at home instead of paying a premium for meals out at restaurants or fast food meals (which seem cheap, but really are NOT!).  This is a fast way to save money if you normally eat out a lot.  
  • Now, take a look at your bills.  The reoccurring bills can almost ALWAYS be cut down.  Call you electric/gas company and ask them to put you on a budget plan.  Ask them if they have any advise or packages available that will help you reduce your energy usage. Some have discounted high efficiency light bulbs for a great discount. Some will send you out a free package of insulating strips to put in doorways and around light fixtures that reduce draft and energy losses.  After the electric company, contact your cable company (if you still have cable…. Everyone is cutting the cord no-a-days!)and have it CANCELLED! Even if that is difficult at this time, savings can be over a hundred dollars per month in many cases. You can find free/very cheap television entertainment with just internet access (Hulu, Netflix and the like.) Call your auto insurance company and ask them to reduce your rate.  Even if they can only find $5 in savings,take it!  Look at your other bills with this same fine-tooth-comb mindset and you may be amazed just how much you can take off of your monthly costs.  There are cell phone services like Republic Wireless, T-mobile, Cricket Wireless and others that offer acceptable services at a fraction of the cost of some of the bigger names. Even if there is a fee for cancelling your contract early, if you do the math, most of the time it is still scientifically cheaper to change to a low cost cell service company.  Do not cancel legally required coverage (like auto insurance), but cut back as much as you can.  You may find that you can add another $50-$150 per month to the e-fund just from these savings alone! 
Photo by rawpixel on Unsplash
  • At work, if reviews for raises are coming up soon, start making a list of all of the responsibilities you have currently.  Think of and write down any instances where you have saved the company money (ie. Finding correctable errors,finding better rates, arranging things in the office/warehouse that add efficiency or speed to some processes…). When you sit down to discuss your performance review and raise amount,bring this list with you and be prepared to discuss why you think you are worth more.  If your company isn’t in a position to offer a decent wage raise, they may be able to offer some other type of perk that saves you money. For example, if you find that you are using your personal cell phone for work purposes constantly, ask for the company to provide a company cell for you to use.  Then cut your personal cell phone back to the bare minimum.  Everyone goes to work to make money.  Your employer knows that just as well as you do, and if you can show them your worth, most good managers will be willing to improve your raise, even if only slightly, which builds on itself with your next percentage raise or percentage bonus you receive.

All of these things will not only accelerate your path to a full emergency fund, it will set your life up to be cheaper on the baseline.  This new “normal” cost of living will change your perspective on how much things should cost.  You may find that you would feel better with $1,000 or more in your e-fund.  Shift your goals to be what feels right for you. 

Any other suggestions, please comment!

Note: I have no affiliation or relationship with the service providers listed in this post, other than as a user or friend of a user of some of their services. These recommendations are for your research purposes only.  I do have a link to get you a discount on service from Republic Wireless if you are interested…. Join using my link and get $20 off your first bill: https://republicwireless.com/invite/988JZ1ZH

Habits to Learn – Part 1

Photo by Johny vino on Unsplash

Make a habit of carrying a small amount of cash with you.  It seems that with the introduction of the ATM card, and the advertising teams that banks hired to market the idea that using an ATM card is the “same as using cash”, most of American has succumb to this idea.  It is NOT the same.  There are usually convenience fees involved to withdraw your money, fees from vendors, fees for processing the exchange,and possible overdraft fees… it is certainly not the same as cash.  Carrying a bit of cash will minimize the need for all of these fees.  Have you ever noticed that those machines usually only dispense $20 bills?  What if you only wanted $10 to have on hand if you or your children needed something small, like a drink or some kind of treat?  If you don’t have cash, you would stop at the ATM machine, giving you twice as much money and likely charging you a convenience fee to get it.  Now, are you more likely to spend more money since you have a $20 on you instead of a $10?  A rule of thumb that may be useful is to always have two $5.00 bills in your pocket or wallet at all times.  Stop at the bank and take out $50.00, asks for it all in $5.00 bills and I keep it in an envelope at home.  You will never feel broke or deprived when you have cash to spend, but limiting the amount and the convenience fees involved with getting to it is the key factor that will saving you money.

Always understand the rules of your bank account. For example, many banks charges a fee of $15.00 or more per month if your account drops below $100.00.  Don’t give your money away!  You earned it and deserve to spend every penny of it.

There are some people who can use credit cards without having any issues.  Credit cards are very different than bank ATM cards.  AFTER you get a good grip on your budget and have established a good emergency fund and good money habits, then you may want to look into the perks offered by credit card companies.  The biggest problem with credit cards is when people use them to compensate for their terrible budgeting skills.  If you cannot pay your credit card balance off in full at the end of each month, then you should not use credit cards.  (The only time this is not true is if you make a large purchase on a card that has a “NO INTEREST for x-number of months” offer…. And you pay equal amounts of the total bill each month so that it is paid the month before that NO INTEREST deal expires… there are no other exceptions!)

If you already find that you have credit card debt that you are not able to pay off (in full) when the bill is due, you are already in an emergency state! It is OK, because you are going to fix it, but it must be your absolute priority to get rid of that credit card debt.  Nothing gets on my nerves worse than when people get taken advantage of when they are vulnerable, and being nickle and dimed by credit card fees is a prime example of this.  If you are paying interest to credit card companies, you are losing your hard-earned money into a black hole and you are getting absolutely nothing for it. 

Keep going with Habits to Learn – Part 2!

Tax Deferred Accounts 101

“‘In this world nothing can be said to be certain, except death and taxes.”

The Works of Benjamin Franklin, 1817:

It seems like an easy enough task… Put your money into investments and let it grow until you are ready to retire.   So why is there so much confusion?  Well, there are some concepts that must be understood in order to do it properly.  Many people find the whole idea of investing to be “out of their league” and so they never get started.  You will NOT be one of those people, because you are willing to start with the basics and really understand what needs to be done!

First, we must specify that there are places where you put money (Accounts) and then there are WAYS that that money is considered for taxes by the government (Tax Status). The tax status of the money you save is important (to you and to the government!)

You can, for example, choose to put money into a brokerage account that allows you to invest in the stock market.  When that money grows with the market, the newly “earned” money is called GAINS, and those gains can be taxed as income if you take them out of the account, unless they are in an account that is set up to be DEFERRED from paying taxes because you plan to use it at retirement age.

That isn’t too confusing! Honestly, they probably make it confusing so people are afraid to use tax sheltered accounts… But you know they are worth it, and you are ready!Great! OK, just one more little thing to add… There are two types of Tax Deferment….

Pre-Tax – Pre-tax means that you do not pay taxes on the money NOW, but you pay them when you withdraw amounts in retirement, you will pay taxes THEN.

Post-Tax – Post-tax means that you pay taxes on the money you invest NOW, but you will not pay taxes when you withdraw amounts in retirement, even on the amounts that it grows in interest/earnings until then.

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A little bit of math done at this time will probably have you asking more questions, so let’s see what we find out… Let’s say you pay the government 15% in taxes on your income. If you earn, $7,000 at work, the government will take $1,050 of that money, leaving you with $5,950 to do with what you will. You can choose to invest that $5,950 and you will earn money from those investments.  When older-you takes out those investments and uses the money you earned, you will have to pay your tax rate at that time(maybe 15% or maybe more, depending on your income level) of what you earn to the government.  That is an example of a Taxable Account.

OR… You can use a tax-deferred account.  *

If you use a Post-Tax deferred account, you will invest your$5,950 and you want to invest it and you will earn money from those investments.  When you take out those investments and use the money you earned, you will NOT HAVE TO PAY any taxes on those gains.

If you use a Pre-Tax deferred account, you will invest your whole $7,000 (the government doesn’t take any yet) and you will earn money from those investments.  When you take out any of the funds, whether they were part of the initial investment or part of the gains, you will pay taxes on the money at your current income tax rate (maybe15% or maybe more).

So, the two tax deferred options are significantly better than the first option where you pay more taxes! Your tax rate will determine how much you are taxed when you take the funds out in retirement, and that is sort of a guessing game, but you know how much you are taxed right now, so you can run some numbers and judge what is better for you. BOTH OPTIONS ARE USEFUL! Depending on your situation, one may be better than the other, but you should do you best to take advantage of both as much as you can! Grow your nest egg as much as you can, and Old You will thank you later!

Photo by Soner Eker on Unsplash

If you work, your company may offer a company sponsored 401k,SIMPLE IRA, or some type of similar plan, which is a Pre-Tax option.  Try to contribute as much as you can to that!  Many companies also offer a“company match” earning you free money just for saving for your own future.There are different maximum amounts for the different types of accounts, and each year the amount may increase, depending on the government’s calculations.

Some other tax deferred accounts are Traditional IRA and ROTH IRA accounts.

                Traditional is Pre-Tax while the ROTH is Post-Tax. 

You can contribute as follows:

                $6,000 per year in 2019, plus

                $1,000 per year in 2019 if you are over 50.

NOTE: You can only contribute to EITHER a Roth or a Traditional, or a combination of both, up to the $6,000limit (or $7000 if over 50)… so, for example, you can put in $3,000 to a Traditional and $3,000 to a Roth…  but you cannot put in $6,000 to a Roth and $6,000 to a traditional in the same year.

IF you take advantage of all of these maximum limits in all of these accounts, you could have a tax “shelter” of over $19,000-$32,000per year!!  And any dollar saved from taxes is truly a dollar earned!

OH! And just one more thing…. There is also a MAX limit to contribute to an HSA (Health Savings Account) that may be available to you, depending on your health insurance setup.  If you do have an HSA available to you, that can even be BETTER than the other tax deferred accounts, since you NEVER pay taxes on the money you used out of an HSA to pay your medical costs!

*Keep in mind, some people will not qualify for tax deferred accounts because of their income levels and other factors, so you should ask a tax advisor if you think you might be one of those people.