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GUIDE 03

Retirement Accounts

  • What is a retirement account?

    • A place where you put money so that when you’re not working (retired) you have a source of income

    • Your employer can offer you one, or you can obtain one by yourself, or both (ie have a 401k and roth ira account)

  • What are "Roth accounts"?

    • After-tax contributions, that grow tax-deferred, and tax-free withdrawals in retirement. Post tax (because you paid taxes earlier on).

    • You cannot contribute to Roth accounts depending on your income and tax filing status 2019.

      • Limit is $122,000 if filing single

      • Limit is $193,000 if married filing jointly

    • Thus, residency is the most realistic time to contribute to Roth accounts.

    • Money grows tax free

      • Roth IRA

        • Limit $6,000 for the 2019

        • Increased from 5,500 in 2018

      • Roth 401k/403b

  • What are "Traditional accounts"?

    • Pre-tax contribution, grows tax-deferred, taxable on withdrawal (because you didn't get taxed on this money yet)

      • Traditional IRA

      • Traditional 401K/403b.

  • 401k/403b

    • 401k – for profit organizations

      • Limit $ 19,000 for 2019. Increased from $ 18,500 in 2018

      • Can be a traditional 401k (pretax money)

      • Can be Roth 401k (posttax money)

    • 403b – for non-profit organizations

      • Limit $ 19,000 for 2019. Increased from $ 18,500 in 2018.

      • Can be a traditional 401k (pretax money)

      • Can be Roth 401k (posttax money)

  • Taxable individual accounts (usu always post tax)

    • Post tax money. Growth is taxed yearly. And withdrawal is not taxed.

  • Roth accounts or traditional accounts during residency?

    • Roth accounts, rather than traditional retirement accounts, are the better choice for most residents. Your income now is almost certainly much lower than it will be in retirement, so it is smart to pay taxes on your contributions at your lower tax bracket now, rather than pay the taxes at your higher retirement tax bracket.