Monday, September 29, 2014

Money Monday: The More You Know

As I've fallen into the grown-up "financial trap" (the world of paying bills and taxes), I've been fortunate to have a little guidance along the way. I will admit, though, that I didn't start learning about more significant aspects until after I turned 23. And, trust me, this is good stuff to know. 

"Money Monday" will be a regular addition to the site going forward, in the spirit of encouraging awareness on the topic. From sharing money-saving tips to spotlighting the not-so-basic terms, I'll offer the things I've learned along the way. In light of this being the first edition, there are a few definitions of various terms below.

I'm always open to ideas and suggestions, so feel free to email your thoughts to:
OneToSpare@gmail.com

Happy Monday!
xxxx Alyssa Marie
  • Traditional IRAs:  A Traditional IRA (short for "Traditional Individual Retirement Account") enables you to put away money for retirement, without getting taxed on it until it's withdrawn. Traditional IRAs help you to grow your money much faster (since none of your dividends, interest payments, or capital gains will be taxed). 
  • ROTH IRAs:  The biggest difference between "Traditional" and "Roth" is that the contributions to a Roth IRA are tax deductible. A qualified withdrawal (stipulations include being age 59 ½ and having had the account for at least five years), including earnings, from a Roth won’t get taxed because it already has been. Roth is a tax-exempt plan, versus a tax-deferred savings plan (Traditional IRAs).
  • 401(K) A 401(K) is an employee-sponsored retirement plan. Basically, money comes out from your paycheck (before taxes) and is invested in mutual funds, stocks, and bonds. Most companies usually offer a 401(K) plan and many also offer to match whatever the employee puts in it (i.e. if 5% of your yearly income goes into your 401(K), your employer will contribute a matching amount). You are not required to pay taxes on the money in your 401(K) until you make a withdrawal from it (which usually isn't usually allowed until you're 59 years old). It's worth contributing more to your plan so you can pay less in taxes.  Contributions you make to your 401(K) plan are completely vested (which means that you own everything you put into it). The contribution from your employer most likely holds a stipulation that the vesting percentage increases every year you work for them (until you own all of it). It's a good idea  to start saving money for retirement sooner than later….so, if you have the option to pick between companies, the quality/offering of a 401(K) plan should be an important factor.

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