Excellent work with 401(k) plans! Now let's explore Individual Retirement Accounts (IRAs) - another powerful tool for building retirement wealth.
Unlike 401(k)s that come through your employer, IRAs are accounts you open directly with investment companies like Fidelity or Vanguard.
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What's the main difference between a 401(k) and an IRA?
There are two main types of IRAs: Traditional and Roth. Both help you save for retirement, but they handle taxes completely differently.
Think of it like choosing when to pay a bill - you can pay now or pay later, but you can't avoid paying.
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If you could choose when to pay taxes, would you prefer now or in retirement?
Traditional IRAs work like 401(k)s: you contribute money before paying taxes on it, reducing your current taxable income.
But in retirement, when you withdraw money from a Traditional IRA, you'll pay regular income taxes on everything you take out.
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In simple terms, what's the tax strategy of a Traditional IRA?
Roth IRAs flip this completely: you contribute money that you've already paid taxes on. No tax deduction today, but here's the magic...
In retirement, you can withdraw everything from your Roth IRA completely tax-free - both your contributions AND all the growth!
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What’s the big tax perk of a Roth IRA when you retire?
Roth IRAs have income limits though. For 2024, if you're single earning over $153,000 or married earning over $228,000, you can't contribute directly to a Roth.
High earners can still use "backdoor Roth" strategies, but that's more advanced planning.
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Do you expect your income to exceed these Roth IRA limits?
