Consumer Debt is stopping Retirement Savings!

This is NOT acceptable!

Consumer debt is approaching $14 Trillion!

$9.14 Trillion mortgages
$1.65 Trillion auto loans
$1.44 Trillion student loans
$829 Billion credit card debt

Consumer unsecured debt exceeded $4 trillion for the first time in 2019. Credit card debt is surpassing $1 trillion. (Federal Reserve) Current average interest rate is 17.41%.

One in Three people or 86 million Americans are afraid they will max out their credit card when making a large purchase (most considered a large purchase anything over $100).

Charge-Off and Delinquency Rates for credit cards is around 2.59% or approximately $25.9 billion. Approximately 4.3 million people.

Delinquency rate for student loans is a little over 11% or around $166 billion. Approximately 4.4 million people. Now whether the 4.3 million people with credit card debt charge off/delinquencies and the 4.4 million people with student loan delinquencies are one in the same, it is still a very large amount of debt. Meaning there is between 4.4 million to 8.7 million people that are in debt.

Financial debt plans are needed NOW! Plans that reduce debt and increase retirement funds!

Debt Vs Retirement

More than 253 million Americans have credit cards, an average of 4 cards per person with an average interest rate of 15.32%.

Average balance is $6,028.

The average American household carries $137,063 in debt. Using 5% simple interest this is $6,853/year or $571 per month in interest only payments.

Did you know that if you had less debt and paid $500 per month into a Roth IRA or Traditional IRA retirement account, you could have the maximum allowable contributions per year?

A Roth IRA and Traditional IRA contributions are capped at $6,000 per year, either $6,000 in a Roth IRA or $6,000 in a Traditional IRA or a combination of both can only total up to $6,000 per year if you are single. $12,000 if married and catch up after 55 is $7,000 for single and $14,000 if married per year.

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Setting up that retirement account sooner rather than later is always a good idea!

Assuming you have nothing in your retirement account to start and assuming a 7% annual return:

If you are 25 today and contributed $6,000 per year toward your retirement; you would have $1,383,965 in your retirement account when you retire at 67.

If you are 35 today and contributed $6,000 per year toward your retirement, you would have $661,396 in your retirement account when you retire at 67.

If you are 45 today and contributed $6,000 per year toward your retirement; you would have $294,079 in your retirement account when you retire at 67.

If you are 55 today and contributed $7,000 per year toward your retirement; you would have $125,242 in your retirement account when you retire at 67.

If you have a Roth IRA all the money including gains are taken out tax-free.

General information about Roth IRA and a Traditional IRA:

Roth IRA is an individual retirement account (Roth IRA) allowing a person to set aside after-tax income up to a specified amount each year. Both earnings on the account and withdrawals after age 59½ are tax-free.

Traditional IRA is an Individual Retirement Account (IRA) is a government sponsored, tax-deferred personal retirement plan. Taxes on Traditional IRA contributions and earnings are deferred until the account owner takes a distribution from the IRA. When money is withdrawn from a Traditional IRA it is taxed as regular income.

The biggest difference between a Roth and a traditional IRA is how and when you get a tax break: The tax advantage of a traditional IRA is that your contributions are tax-deductible in the year they are made. The tax advantage of a Roth IRA is that your withdrawals including the gains on the account in retirement are not taxed.

5 Year Rule for Roth’s. Even applies to Roth Conversion Strategies

It is very important to open a Roth IRA today. Earnings in the Roth IRA, regardless of age, are subject to the 5 year rule. Meaning no earnings can be withdrawn for 5 tax years after the Roth IRA is opened. However, once the Roth IRA is opened and a contribution made, the subsequent contributions are already considered in the 5 tax year period. Meaning once an Roth IRA is opened and a contribution made, then it is 5 tax years from that date and any other contributions made in later tax years are considered to be a part of the original 5 tax years.

Annual Income Too High to Contribute to a Roth IRA? Not a Problem.

Your annual income is limited in a Roth IRA to $135,000 for single but annual contributions limits are reduced starting at $120,000. If you are married then the limit is $199,000 however contribution limits start at $189,000.

Here is how to solve that problem:

A conversion can get you into a Roth IRA—even if your income is too high. The conversion would be part of a 2-step process, often referred to as a "backdoor" strategy. First, place your contribution in a traditional IRA—which has no income limits. Then, move the money into a Roth IRA using a Roth conversion.

Want to speak with a financial advisor about your retirement options? Make an appointment with a financial advisor today. >>

Statistics on Americans and retirement:

77 percent 

1 in 3 Americans have less than $5,000 saved for retirement. Wow! 1 in 3!

Experts generally recommend earmarking 10 to 20 percent of your income just for retirement savings. Researchers at the Stanford Center on Longevity project that, if you want to retire at age 67 and maintain your standard of living, you need to put 10 to 17 percent of your current income into a retirement account.

You should have:
By age 50, have FIVE times your current annual salary saved.
By age 55, have SIX times your current annual salary saved.
By age 60, have SEVEN times your current annual salary saved.

General information about 401(k) and a Roth 401(k)

A 401(k) is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren't paid until the money is withdrawn from the account.

How does a 401(k) plan work?

If you earn $750 each pay period and elect to defer 5% of your pay, $37.50 is taken out of your pay and placed in the 401k plan. These contributions are deducted from your salary on a pre-tax basis. This means that by contributing to a 401(k), you actually lower the amount you pay in current income taxes.

What are the benefits of a 401k plan?

Tax Benefits! The tax advantages of a 401(k) begin with the fact that regular contributions are on a pretax basis. Because of that, the amounts you add to your plan up to that $19,000/$25,000 limit are exempt from current federal income tax, which means they lower your taxable income for the year in which you make the contributions.

How does a 401k work when you retire from your job?

If you want to keep contributing to your retirement savings, but cannot contribute to your 401(k) after retiring from your job at that company, you can elect to roll over your account into an IRA. ... However, you must deposit the funds into your IRA within 60 days to avoid paying taxes on the income.

When can I cash out or take draws from my 401(k)?

Age 55 to 59 1/2. If you are retired, most 401(k) plans allow for penalty-free withdrawals at age 55. If you roll your 401(k) plan over to an IRA, the retirement age 55 provision will not apply. The earliest age at which you can withdraw funds from a traditional IRA account without penalty taxes is age 59½.

What happens to my 401k if I die?

When a person dies, his or her 401k becomes part of his or her taxable estate unless you do Estate Planning. However, a beneficiary generally won't have to wait until probate is completed to receive the account balance.

What age do I have to take withdrawals from my 401(k) and is it taxed?

If your 401 k contributions were traditional personal deferrals the answer is yes you will pay income tax on your withdrawals. If you take withdrawals before reaching the age of 59 ½, the IRS may also impose a ten percent penalty. The RMD, required minimum distribution, will kick in even at the age of 70 ½ even if your 401 k is Roth.

Does my employer contribute to a 401(k)?

The general contribution from an employer is usually 3% to 6% of an employee's pay. For employees to receive a contribution from their employer, the employee must contribute a specified percentage into a 401(k) plan. The employer will then match that contribution to the retirement plan being offered. The employer is not required to contribute to your 401(k).

What is the maximum contribution I can make to my 401(k)?

In 2019, the contribution maximum rose to $19,000 per employee. The “all sources” maximum contribution (employee and employer combined) rose to $56,000. If you're wondering about the employer and employee contribution limits, it will increase $1,000 in 2019 to $56,000.

What is the difference from a Roth 401(k) and a traditional 401(k)?

The main difference between a Roth 401(k) and a traditional 401(k) relates to the taxation of funding and distributions. When a traditional 401(k) is funded, the account holder the contribution is deducted from the employee's pre-tax income. A Roth 401(k) is funded with after-tax income.

What is the benefit of Roth 401(k)?

This means that any contributions will come out of your paycheck after you have paid income taxes. You will not get a tax break or lower your taxable income when you choose to invest in a Roth 401(k). However, the Roth 401(k) withdrawals including the gains are tax free, whereas you will pay taxes on the traditional 401(k) withdrawals.

What are the contribution limits on a Roth 401(k)?

The current contribution limit for a designated Roth 401(k) account for the 2019 fiscal year is $19,000, up from $18,500 in 2018. In addition, account-holders who are age 50 or more may make catch-up contributions of up to $6,000, for a potential total annual contribution of $25,000.

Want to speak with a financial advisor about your retirement options? Make an appointment with a financial advisor today. >>