How to Review a 401(k) Statement

As financial documents have become paperless within the past decade, most of us neglect to review them regularly. Periodic pay statements, monthly bills, insurance policies, and investment account statements go unseen, as many are only accessible online. We often neglect retirement plan statements until the stock market drops, typically when making investment changes is inappropriate.


Traditional or Roth Contributions

On the path to financial independence (FI), a retirement savings plan is one of the most powerful tools for building wealth, with compound interest on your side. Retirement accounts are available in two popular flavors, traditional and Roth. These words simply indicate the tax treatment of the account’s contributions and distributions.


Roth IRAs: Know the Facts!

As we start 2021, we can reevaluate and anticipate our financial objectives, income assumptions, and tax-efficient savings opportunities for the new year. Whether you are actively employed and accumulating assets or distributing income in retirement, a Roth IRA can play a major role in your financial plan. Roth IRAs are becoming more popular as investment vehicles, and for good reason! These accounts can provide incredible growth potential, cash flow flexibility, and favorable tax treatment to and through retirement. If you want to demystify Roth IRA contributions, conversions, rollovers, and distributions, let us dig into the facts!

What is a Roth IRA?

A Roth IRA is an individual retirement account that can offer favorable tax-free growth and tax-free withdrawals in retirement, subject to rules – we will get to those! Roth IRA contributions are deposited with after-tax dollars, vs. Traditional IRA contributions that may be tax deductible.

If you contribute to a Roth IRA, it is similar to buying apple seeds (paying tax) and planting them in the ground. Decades go by and you are now ready to reap what you sowed. The seeds have grown into an apple orchard, and every apple you pick from the trees is tax-free (no sharing). If you instead make a tax-deductible contribution to a Traditional IRA, you pay no taxes on the seeds BUT every apple you pick from the trees in retirement is taxable as ordinary income – the IRS may take a bite!