Hello! Should you contribute to a Traditional IRA, or a Roth IRA? This is just one of many questions we may face on the road to financial independence. Like nearly all of these questions the answer is multi-factorial and depends on your unique set of circumstances. Read on to learn more about the dominant factor in comparing the two options. Best, Michelle Morris, CFP, EA BRIO Financial Planning In 1997, Congress created the Roth IRA as an additional alternative to the Traditional IRA. First of all, the basic rules for each: With the Traditional IRA you may get a tax deduction on contribution; the growth is tax-deferred. …
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What I Learned about Investing from my Office Light Fixture
This is the light fixture in my home office: As you can see, it has 4 bulbs. On a regular basis one of the bulbs burns out. Eventually, I ask my handyman extraordinaire (aka my husband) to change the burnt bulb. And then the next time I flip the switch I always have the same reaction: “WOW, it is SO much brighter in here.” Every single time! Gaining a light bulb always seems more dramatic and noticeable than losing one. And then one day I realized that gaining a bulb IS more dramatic than losing one from a mathematical point of view. When I lose a bulb (from 4 to 3) I lose 25% of the light. When I gain a bulb (from 3 to 4) I gain 33%. On the rare occasion that 2 bulbs go out in …
Your W-2 form – have you ever really looked at it?
It’s tax season, and I’ve been looking at a lot of W-2 forms. If you’re an employee, you get one of these every year. Your employer sends it to you and the IRS. It shows your annual wages and the amount of taxes withheld from your paycheck. If you have someone else prepare your taxes you probably don’t give it a second glance- you throw it in the pile of things to give to your preparer. (By the way—that email from your tax preparer, the one you’ve been ignoring? Answer it. Now!) I could write a book about all the information on a W-2 form. OK, maybe not a whole book, but at least a chapter! But today I want to focus on Boxes 5 and 12. Spoiler alert: this topic has some math. If …
Savings Bonds: More Exciting than you Think!
Like many of my clients you may have a dusty pile of savings bonds lying around somewhere.** Maybe they belong to you or your children. Odds are they were gifts from an older relative. Most likely they are EE bonds, which have their charms. But, the savings bond I’m most excited about today is the I bond. I bonds were introduced in 1998. The interest rate you earn on I bonds is adjusted every 6 months based on inflation as measured by the Consumer Price Index. There are several great features of I bonds: They are inflation protected = you don’t lose purchasing power The current composite rate (which consists of a fixed rate + the inflation rate) is 1.48%, handsome compared …
Why You Should Fall Out of Love With Your Tax Refund
Like many taxpayers, you probably get a refund each year when you file your taxes. Last year ≈73% of individual tax returns resulted in refunds. The average refund was $2,783. It’s no secret that taxpayers use the tax withholding system as a form of savings. Too much money is taken out of your paycheck throughout the year and is refunded back to you after you file your tax return. It seems like a windfall, but of course it isn’t. It’s really YOUR money the government has been holding for you. One argument against getting a refund is you’re giving an interest free loan to the government. However in today’s interest rate environment that’s not much of an argument. On an average refund …
