Your Retirement Savings Goal for 2021

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I’m trying something new this week. I built a calculator just for you. It’s meant to help with your retirement planning and look at the next baby step on your retirement path. The calculator asks you some basic information—your age, future retirement details, whether you’re conservative or optimistic about investments—and then calculates a suggested retirement savings goal for 2021.

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I know New Years is more than a month away. But it can’t hurt to start thinking about 2021’s resolutions today. Saving money can be one of those resolutions, and retirement is a great thing the save for.

But a retirement savings goal is a difficult number to quantify. What if you retire at 60? At 55? At 50? What if your investments do well? Do poorly? What if they’re somewhere in between? You certainly don’t want to run out of money, so how should you account for that? This calculator answers all these questions.

There are lots of moving pieces in retirement planning. This calculator isn’t a cure-all, but it does simplify some complex math. It boils all the inputs down into one simple output: how much should you save next year to keep you on your retirement path?

And don’t worry—I explain all of my assumptions towards the end of the post.

Go ahead—give it a shot!

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Drumroll, Please!

There it is! The field above shows your calculated retirement savings goal for 2021. This is the amount of cash the Best Interest recommends you should put into long-term investments. If you follow this advice year after year, you’re likely to achieve your retirement goals.

Below you’ll find a few different ideas: a FAQ, some Things to Try, and a list of Assumptions.

As always, let me know if you have any questions.

Retirement Savings Goal FAQ

As you ask more questions, I’ll update the FAQ below.

“What Should I Do With the Money I Save?”

I’m happy to tell you how I invest. That’s what I’ll be doing with my retirement savings in 2021.

“I Think the Calculator is Broken…”

I did not test this calculator like a software company would, so I admit that some inputs might “break” the calculator or lead to strange results.

My first recommendation: make sure you use “realistic” inputs. I tested a bunch of realistic scenarios, and they all ended up working as expected. But I didn’t try every possible combination. If you say you’re 50 years old and want to retire at 40, then you need a time machine, not a blog calculator.

That said, if you’re being realistic and you still think it’s broken, let me know.

“My Retirement Savings Goal Seems Really High…”

First, I recommend you read the next section. Most of us will have supplemental income in retirement (e.g. social security), and the next section describes how you should incorporate that into the calculator. It’ll lower next year’s retirement savings goal.

After that, there’s a stark realization here. Retirement is expensive! If you hope to retire soon, live a rich retirement, and/or have a long retirement, then you’ve got to save a lot of money.

There’s a reason why your younger years are so important for investing.

“How Should I Consider Supplemental Income in Retirement?”

There are dozens of ways you might supplement your income in retirement. Common examples include Social Security and pensions. The lotto doesn’t count.

If you fall into one of these camps, I recommend re-running the analysis after reducing your “Annual Spending in Retirement.” Let’s work through an example.

The calculator is pre-set to assume $36,000 in annual spending. The average Social Security pay-out in 2020 is about $1500 per month, or $18,000 per year. Therefore, I’d recommend adjusting the calculator’s “Annual Spending in Retirement” to $18,000 ($36k – $18k = $18k).

“Why Is My Retirement Savings Goal NEGATIVE?!

There are a few simple explanations why your savings goal might be negative.

The first and most common: you already have enough money saved for retirement! This is really good. This especially applies if you’ve been diligently saving for years and plan a low-cost retirement.

If you doubt you already have enough saved, go back and check your calculator inputs.

If you’ve checked your inputs and something still seems wrong, let me know.

“I Have NO IDEA What My Spending in Retirement Will Be. Help!”

Fair enough. It’s hard to predict what you’ll spend in retirement.

My recommendation: start with what you spend right now. And if you don’t know what you spend right now, that’s your sign that you should start budgeting.

Once you know how much you spend right now, take your largest expenses and scale them for retirement. Here’s my personal example of simple scaling:

  • Housing – I expect this to decrease, since I’ll have my mortgage paid off when I retire. (-$900) per month.
  • Kids – I don’t have any now, and I also plan that I won’t have any who I’m actively supporting when I’m retired. No change in this category.
  • Automotive – about the same.
  • Food, consumer good, etc. – about the same.
  • Medical – to be safe, I’m going to increase this number. Based on some quick research, +$500 per month.
  • Fun stuff – I think I’ll do a bit more fun stuff in retirement. For now, I’ll allocated +$200 per month to fun.

That’s it. This brief, simple scaling suggests I’ll spend about $200 less in retirement than I’m spending now.

But Jesse—by the time you retire, won’t the Best Interest be pulling in millions of dollars due to its amazing ability combine financial education with entertainment?!

Maybe, but I’m playing it safe for now.

“Should I Include Taxes?”

Most likely! Let me give you my personal example. About 75% of my current retirement savings lie in accounts that will get taxed upon withdrawal in retirement.

So if I need $40K for my actual spending, I’ll probably need to withdraw between $45K and $50K—the extra goes to income tax and capital gains tax. As such, I should input that $45 – $50K value into the Annual Spending on the calculator.

“Is My ‘Current Long-Term Investments’ Just My Net Worth?”

Not quite. Net worth includes many assets and liabilities that should not be considered long-term investments.

Your emergency fund is part of net worth, but it’s not growing like an investment. Your house might be a long-term asset, but you likely won’t be selling it in order to retire. And you debts count against your net worth, yet don’t count against your long-term assets. You can simultaneously save for retirement and pay down your debt.

“But This is Just One Year…”

That’s true. If you want to look further into the future, I recommend this article from Financial Freedom Countdown that answers the question, “When can I retire?”

Things to Try in the Retirement Savings Goal Calculator

Here are some cool ideas I recommend you try with the calculator. Keep two things in mind as you play around. The first is to investigate how changes in your life today can affect your long-term goals. The second is to realize that certain things—like market performance—are out of your hands, yet can still affect you.

1) Play With the Optimism/Pessimism Slider

Market performance plays a huge role in the retirement savings goal calculator. It controls both how your nest egg with grow leading up to retirement and how your nest egg will shrink as you withdraw in retirement.

If you’re too optimistic, you might not save enough. If you’re too pessimistic, you might end up saving more than you’ll ever need—and thus work longer than you need to.

I recommend you play around with the slider to understand the range of recommended savings goals. If you can, set the bar high and aim for a conservatively large savings goal in 2021. As the years go by, you can always reevaluate.

Remember—saving more money in your younger years is vital.

2) Give Yourself Some Extra Years

We don’t often get to play God, so take this chance to tack on extra years at the end of your life. Running out of money in retirement is not ideal, so this exercise will give you some buffer years at the end of your life—and will increase your 2021 retirement savings goal accordingly.

3) Go Fat, Go Lean

Take your 2021 savings goal—let’s say it’s $10,000.

Now we’re going to try to re-create that $10,000 result in two separate ways.

First, try to decrease your Annual Spending by 50% while also decreasing your retirement age. Tweak your retirement age until your recommended 2021 retirement savings goal ends up around $10K again. This gives you a rough idea of how quickly you could achieve a “lean” retirement. You’d be leading a spartan lifestyle, but retirement could be closer than you think.

Second, try to increase your Annual Spending by 50% while also increasing your retirement age. Again, tweak your retirement age until the calculator recommends saving $10,000 in 2021. This gives you an idea of how much more time you’d need to work in order to eventually live a “fatter” retirement. You could afford a lot more—-but at what cost? It’ll likely lead to many more years of work.

When I try this exercise, I get the following:

  • My normal input –> retire at 55
  • Lean = 50% less retirement income –> retire at 43
  • Fat = 50% more retirement income –> retire at 63

I’m not sure when I want to retire. But the spectrum of potential retirement lifestyles necessitate a spectrum of career lengths and savings.

The entire “FIRE” movement is based on these spectra of retirement lifestyles and career lengths.

Assumptions in the Calculator

An analysis is only as good as its assumptions. If I assume that I can run at 60mph, then my path to become a world-record holder is paved with gold. Usain Bolt, I’m coming. Bad assumptions = bad answers.

So here are some of the most important assumptions from today’s retirement savings goal calculator.


I assumed 2.5% inflation per year. That applies to every year in the calculator. It affects how your current 2020 spending gets multiplied to reach a future nest egg goal. This is as good an assumption as one can make based on historical inflation rates.

Portfolio Makeup and Performance

Like the original Trinity Study, I assumed that your portfolio would comprise a 50/50 mix of stocks and bonds. Important note! Many portfolios—especially if you’re young—will leaning much heavier into stocks than bonds. This makes your portfolio riskier, but also is more likely to lead to better long-term returns. This is why I recommend you toggle to Optimism/Pessimism slider.

But let’s go back to the 50/50 portfolio. The Optimism/Pessimism slider affects the stocks’ simulated performance, varying between 1.9% growth per year and 11.1% growth per year. These numbers represent the worst 30-year annual return and best 30-year annual return in S&P 500 history, respectively. The bonds were assumed to return a steady 5% per year.

If you’re interested in the market’s past (and potential future) performance, this decade-by-decade comparison is a good starting place.

So when the slider is set at 0, the stock portion returns 1.9% and the bond portion returns 5%. The net result is a 3.45% return. When the slider is set at 10, the stock portion returns 11.1% and the bond portion still returns 5%, leading to a net 8.05% return.

Each increase of 1 on the slider will increase your annual portfolio return by about 0.5%.

This is way too coarse for some people. For a future iteration, I’d like to add functionality where you can choose your own stock/bond allocation. If you’d be interested in something more, let me know.

“The 4% Rule”

The 4% Rule is a brief nickname for the outcome of the famous Trinity Study. The rule states that…

  • if you’re planning a 30-year retirement
  • and if your portfolio is 50/50 stocks and bonds
  • and you want to be 95% confident in your retirement planning

Then you can withdraw 4% of your nest egg in Year 1 of your retirement, and then increase that withdrawal in each subsequent year to account for inflation. This makes your nest egg target easy to calculate—it’s your annual spending divided by 4%, which is equivalent to your annual spending multiplied by 25.

If you want more conservativism or if your retirement will last longer than 30 years, then you’ll want a “lower” rule (e.g. 3.5%). This increases what your target nest egg would

If you want to be more optimistic about your investments, or if your planned retirement is shorter than 30 years, then you’ll want a “higher” rule (e.g. 5%).

For this calculator, I used your input of “optimism or pessimism” to scale this “rule” between 3.5% (pessimistic) and 4.5% (optimistic). Then I scaled that number using your planned retirement length. Longer retirements scale the number down, shorter retirements scale the number up.

Clear the Memory

Thanks for giving the calculator a try. It’s my first attempt. If you didn’t get the memo earlier, I’d love to get feedback.

I hope you find it helpful. A retirement savings goal is something to think about every year. So why not start in 2021?

If you enjoyed this article and want to read more, I’d suggest checking out my Archive or Subscribing to get future articles emailed to your inbox.

This article—just like every other—is supported by readers like you.

Share the Best Interest

Tagged calculator, goal, retirement


Alternative Investments Are Not Just for the Wealthy

This page may include affiliate links. Please see the disclosure page for more information.

We hear a lot these days about alternative investments. Wall Street firms regularly tout their expertise in these investments and try to convince us we need them in our portfolio.

In the beginning, alternative investments were only available to what most would consider the wealthy.

The SEC set the definition of the wealthy with their accredited investor definition. To be eligible to invest in these alternative investments, one has to have an income of at least $200,000 (individual) or $300,000 (joint) for the last two years. Additionally, the rule states the investor expects that income to continue going forward.

If they don’t meet the income requirement, accredited investors must have a net worth of at least $1,000,000 (exclusive of personal residence). Though that group is growing, it leaves out millions of people who could benefit from the diversification offered by this asset class.

One thing common in the early days of these investments was high fees. In the beginning, managers charged investors 2% of the amount invested plus 20% of profits. Here’s what that means.

In This Article

The High Cost of Fees

If someone invested $100,000 in a fund, and the fund earned 10% (few do), the total dollars paid by the investor would be $4,000 ($100k x 2% = $2,000 + $10,000 x 20% = $2,000). That means instead of making $10,000 on your $100,000 investment, you walked away with $6,000! Instead of a 10% return, you earned 6%! That’s a 40% drop in your profit!

Also, your money was not available to you until the project or fund sold or closed. That typically is five years or more.

Over the years, investors became wise to the scheme, as did other investment product producers. They introduced lower cost, more liquid alternative investments into the marketplace, and lowered the bar for investing.

In today’s post, we’re going to introduce you to six investments you may not have considered – three for accredited investors, three for everyone else. We think by the end of this post, you’ll feel more comfortable and confident in looking at these investments for your portfolio.

What Are Alternative Investments?

Let’s start with what most consider the traditional investment products – those would be stocks, bonds, and cash. Investors can put money in the U.S. and international markets in both stocks, bonds, and cash. Most investors access these products via mutual funds and exchange-traded funds (ETFs). The most popular form of investing in these markets is via index funds.

When investing in index funds, investors put their money in funds that mirror the market. There are no fund managers picking which stocks to buy, when to buy them, and when to sell. Instead, in index funds, investors get all of the stocks in that index (like the S & P 500) at the same proportion each stock makes up in the indexes.

Rather than trying to beat the market, investors take what the market offers. It’s a very inexpensive and easy way to invest.

Alternative investments, on the other hand, are not mutual funds, ETFs, or index funds. Instead, the funds have a management team and invest in things that are different from the stock and bond markets. They include offerings like private equity, real estate, hedge funds, venture capital, managed futures, and derivative products.

Many of you have heard these names thrown in the financial press. In addition to high fees, many alternative investments have high minimum initial investments.

Crowdfunding – The Game Changer

For the reasons mentioned above, innovation entered the alternative investment arena. As a result, companies began developing investments with lower fees and smaller minimum investments. They made these accessible to non-accredited investors. These innovative investments are a game-changer for the everyday investor.

Crowdfunded real estate investment trusts are the primary vehicle for these investments. These newer funds register with the SEC as exempt funds, usually under the SEC’s Regulation Crowdfunding. Crowdfunding in real estate, like with individual or small business crowdfunding allows smaller investors into an investment space that hasn’t been available to them in the past.

We’ll offer a couple of specific funds to consider shortly.

Other options come in the form of mutual funds (managed futures, commodities, long-short funds, etc.). We will leave the discussion of these for another day. We want to focus on private funds, which are more like the traditional alternative investments initially designed for the wealthy.

Alternative Investments for Everyone

We want to highlight three investments available to non-accredited investors. One, Vinovest, is a unique offering. The other two, DiversyFund and Fundrise, are crowdfunded real estate funds as described in the last section.

Let’s dive into the summaries.


Vinovest offers a unique alternative investment in assets; one would normally not consider an investment class. We’re talking about fine wine. You can read our review of Vinovest for a more detailed description.

The first thing to know about investing in fine wine is that it takes knowledge to understand how to choose the right wines. Vinovest has a team of experts, called sommeliers, who have undergone rigorous training over several years. Three of their four sommeliers have achieved the Master Sommelier title. That’s the highest degree of recognition in the wine industry. These folks know their wine.

Wine selections come from their knowledge and a sophisticated algorithm their technical team developed — the result – the best wines with the best chance or price appreciation. You own the individual bottles. Vinovest will store and age the wine at their state of the art facilities around the world. They guarantee the safety of your wine.

The minimum investment is just $5,000. It’s a unique offering and worthy of consideration.

Fundrise and DiversyFund

Crowdfunding offers a method of fundraising that can bypass Wall Street firms and big banks with their high rates and fees. The introduction of crowdfunding was disruptive. In crowdfunded real estate, non-accredited investors now have access to similar real estate investments that accredited investors have always enjoyed.

Both FundRise and DiversyFund are crowdfunded real estate funds. Investors can invest in these funds with as little as $500.

Here’s a summary of each. You’ll find a link to our review of both for reference.


Fundrise has invested over $2.5 billion to date and has a history of above-average returns. They offer three core plans to get you started – Supplemental Income, Balanced Investing, and Growth. Each name describes the goals of the fund. If you’re looking for income, consider the Supplemental Income fund.

If you want a mix of income and growth, go with the Balanced Investing Fund. Are you looking for capital appreciation? Choose the growth fund.

You can get more details and learn more about REITS and crowdfunded real estate in this review.


Contrary to Fundrise, DiversyFund is a reasonably new entrant in the field of crowdfunded real estate investing. Unlike the Fundrise investment options, the team at DiversyFund focuses on growing investors’ capital. They have a value add investment strategy when looking for properties.

What that means is they look for multi-family properties (apartments, condos, etc.) that have positive cash flow (renters) in good neighborhoods. The value add in their property selection comes from finding properties that need some work. We’re not talking about a complete redo. Instead, the building might need a new roof, updated bathrooms or kitchens, or maybe a fresh coat of paint.

With the improvements, they can charge more rent when the leases expire, and new tenants come on board. Get additional details from this review.

Alternative Investments for Accredited Investors

What follows are three recommendations for those of you who meet the criteria of the accredited investor. What follows are offerings that have much lower minimum investments and fees. Two are crowdfunded offerings. The other is not.


Have you ever thought about investing in farmland? Did you not pursue that thought because you didn’t know you had enough money or didn’t know enough about it? If either of those describes you, you’re going to want to learn about FarmTogether.

FarmTogether offers a low-cost investment opportunity that allows investors to own real land. Real land is less subject to inflation and more stable than many other investments. Why? For one thing, we’re not making any more of it. The law of supply and demand means it’s likely to appreciate.

For those looking for cash flow, they offer that as well. The typical investments range from $10,000 – $50,000 per transaction. That $10,000 number is much more accessible than many of these types of offerings. And there are precious few funds that offer investment in farmland with cash flow.

Here’s a look at their current offering:

alternative investment offering details from FarmTogether

You can read our full review here.

Yield Street

YieldStreet is a fixed income alternative investment. The team focuses on investments in litigation finance, real estate, consumer and commercial financing, to name a few. Getting into these types of alternative fixed income areas has typically been limited to hedge funds and other institutional investors. Accredited investors can now access these alternatives with Yieldstreet. They have the experience and expertise you want. Below are some of the details and history.

YieldStreet alternative investment stats

They have multiple offerings from which investors can choose. The minimum and maximum investment depend on the offering chosen. The minimum investment is usually $10,000. Once again, that is much lower than many alternative investments.

You can read our review of YieldStreet here.


PeerStreet is another alternative investment in the real estate space. Rather than buying properties, the team at PeerStreet invest in loans backed by real estate. The quality of the loans is directly related to the quality of the real estate backing the loans. Here’s a picture of their loans.

Snapshot of PeerStreet loan history

The returns for loan investments are above average. The LTV (loan to value) of the properties shows they are not heavily leveraged, and the terms are relatively short. Like many of the investments we highlight here, PeerStreet has a low minimum investment of only $1,000 per loan.

Be sure to check out our review of PeerStreet to learn more.

Finding Other Alternative Investments

When it comes to investing, there are numerous options from which to choose. The problem comes in knowing where to look for the options. MoneyMade has you covered. What is MoneyMade?

From our review – “It’s a discovery engine built to help you find and compare all types of investment opportunities, spanning from alternative investment platforms through to Robo Investing.” And it’s super simple to use. Just enter the criteria of the investment you’re looking for and let MoneyMade do the rest. Take a look at a search for Startups on MoneyMade below.

MoneyMade: Discover | Startups

Read our review of MoneyMade to learn more and take advantage of this great new platform.

Final Thoughts

I hope by now, you see that alternative investments are no longer the exclusive investments for the uber-wealthy. Competition from mutual funds, and, more recently, from the crowdfunded investment arena have brought costs and minimum investments way down. That’s not so good for the Wall Street product producers. But it’s great for consumers.

The six investments we highlight are, by no means, meant to be the cure-all be all for alternative investments though we do think that Vinovest and FarmTogether are two of the more unique offerings available.

Before doing any investing, you should know why you’re investing. You should know what you want your investments to do for you. Once you get those foundational questions answered, you can take the time to investigate the best investments to help you achieve those goals. If you don’t know where to start, a great place would be MoneyMade. If you feel like you need help deciding, consider hiring an independent financial advisor.

Whether you’re a seasoned investor of a DIYer who is looking for alternatives to the traditional stocks and bonds, we think the six investments highlighted here are worthy of consideration. If none of those make sense, head over to MoneyMade and let them help you find what you’re looking for.

Good luck!

Fred started the blog Money with a Purpose in October 2017. The blog focused on three primary areas: Personal Finance, Overcoming Adversity, and Lifestyle. During his time at Money with a Purpose, he was quoted in Forbes, USA Today and appeared in Money Magazine, MarketWatch, The Good Men Project, Thrive Global and many other publications.

I April 2019, Fred, along with two other partners, acquired The Money Mix website. To focus his time and energy where he could be the most productive, Fred recently merged Money with a Purpose with The Money Mix. You can now find all of his great content right here on The Money Mix, along with content from some of the brightest minds in personal finance.


What Is an IRA?

IRA is short for Individual Retirement Account, one form of retirement savings. There are plenty of ways to save for retirement. Some people contribute to a 401(k) through their work. Others choose savings accounts, online investments apps, or a combination of these.

IRA nest egg

There is no shortage of ways to invest for your retirement. Despite all these options, however, many people have yet to save a penny for their retirement.

According to the Economic Policy Institute, most families living in the United States have little to no retirement savings. In fact, the average savings of any family in the US is a meager $5,000.

Some experts recommend that by the time you retire, you should have 10 times your annual salary saved for retirement. There is currently a huge disparity in what we as a nation are saving and what we’re going to need when we’re older. So how do you bridge the gap? One option is with an IRA.

IRA Basics

Individual Retirement Accounts are accounts that give you tax breaks to invest in your own future. It is one of the most effective ways for you to save for your retirement.

Depending on the type of IRA in which you invest, money that you deposit into the account is either tax-free or tax-deferred. There are plenty of restrictions and rules, but the general idea is that you deposit money and avoid paying income tax. The catch, however, is that you’re unable to withdraw the money without penalty until you reach a certain age.

IRA Contribution Rules

There is a limit to the amount you can invest per year, so you should consider investing the maximum annual contribution limit. After all, once the money is invested, there’s no limit to how much it can grow. There are reports of IRAs in the hundreds of millions of dollars.

These grew largely out of stocks that grew or split and are a direct result of equity grown within the account. While there are no guarantees of your own account’s growth, the golden rule of retirement planning still applies: the earlier you start, the better.

IRA Contribution Limits for 2021

The contribution limit for 2021 is $6,000 or $7,000 if you are 50 years old or over. A brokerage firm sets up the IRA for you and a custodian manages it for you. Once the money is in your IRA, you can direct the custodian to make investments on your behalf, again with several restrictions.

There are several different types of IRAs with the most common being a traditional, Roth, and SEP IRA. There are a lot of similarities between them, but also some significant differences. The one you choose depends on your current situation and future goals.

Check Out Our Top Picks:

Best IRA Accounts of 2021

What is a traditional IRA?

A traditional IRA, sometimes referred to as a deductible IRA, is completely deductible from your taxable income in the same year that you deposit funds into your account. If you earn $50,000 per year and invest $5,000 in a traditional IRA, you are taxed on only $45,000 of your income.

Your IRA contributions are fully deductible if your modified adjusted gross income (MAGI) was $64,000 or less in 2019.


This has several advantages and benefits for multiple reasons. First, this tax-deferred benefit means that you do not pay income tax on the money invested until you withdraw funds from your IRA account. While you can’t avoid the IRS, you can hold them off with traditional IRAs.

When you pay tax on money withdrawn from traditional IRAs, it is based on your tax bracket the year of withdrawal and not from when you invested the money. There are two tax benefits to this, the first being that it can lower your current rate.

If you are on the edge between two tax brackets, your traditional IRA can push you down to the lower rate.

Lower Your Tax Rate at Retirement Time

The second advantage, for some people, is that you’ll have reached retirement by the time you withdraw from a traditional IRA and your tax rate at that time could be much lower.

If you think that your income will be lower later in life when you withdraw from your IRA, than a traditional IRA may be a good choice for you. Additionally, if you want to lower your current rate a traditional IRA may be able to help you.

The downside is that you’re penalized if you withdraw from the account before age 59 1/2. The penalty for early withdrawal is 10% of the total taken plus applied income tax for the year of withdrawal. You are also required by law to begin taking distributions by age 70 1/2.

What is a Roth IRA?

Roth IRAs are almost the exact opposite of a traditional IRA in terms of taxes. While a Roth IRA is still an Individual Retirement Account, it is not tax-deferred.

Instead, you pay taxes the year you invest in the account, but pay no tax when you withdraw your initial investment or any money that you have earned within the account. While there are no upfront tax breaks with Roth IRAs, there is the potential for a large tax break when you withdraw. Let’s compare with an example.

If you invest a total of $50,000 in your traditional IRA, you pay no taxes on that $50,000 of your income for the year. You do, however, pay taxes on that money when you withdraw it, plus any money that you’ve made within the account.

No Taxes on Earnings

If you have a good investor and double your money, you’re now responsible for the entire $100,00 within the traditional IRA account when you withdraw. With Roth IRAs, if you invest the same amount of money and see the same return you only pay tax on the original $50,000 that you’ve invested.

While you may be at a lower tax rate when you retire, the difference between the amount invested and the amount of the return may mean that your taxes may be lower with a Roth IRA if your investments have paid off. This is the fundamental difference between traditional and Roth IRAs.

Plus, since you’ve already paid taxes on the money invested in your Roth IRA, there isn’t a penalty for early withdrawal. You are, however, taxed on any money earned within the account. There is also no age limit for required distributions.

Are there contribution limits on a Roth IRA?

Because of the benefits of a Roth IRA, higher income brackets are limited in the amount they can contribute or are altogether ineligible. These amounts differ depending on whether you are married or single, but begin to come into play when someone makes $125,000 per year or more.

Roth IRA Contribution Limits for 2021

If you make less than $125,000 and are single, your annual maximum contribution is $6,000 or $7,000 if you are over 50. If you are married, limitations start when your income reaches $198,000.

If you go over those income amounts, your maximum contribution is reduced until you may not invest in an IRA when you reach these thresholds: $140,000 when filing as a single or $206,000 if you are married or filing jointly.

coins in glass jars

These rules don’t apply to a traditional IRA. Anyone is eligible to invest the maximum amount into a traditional IRA because you’re taxed on the entire amount when you withdraw.

If you are a high earner and want to maintain the benefits of a Roth IRA, there are some tricks you can pull to maintain the tax benefits without the IRA contribution limits. This is referred to, rather ineloquently, as a Backdoor IRA.

How to use a backdoor IRA

In 2010, the federal government eliminated income limits on transferring from one IRA account to another. This now means that you can open a traditional IRA and then open a Roth IRA and transfer money from one to the other. You’ll have to pay some taxes when you transfer, but you won’t be taxed on the money earned within the new account and there are no limits to how much you earn.

There are restrictions in any IRA as to what and with whom you can invest. You can invest in most stocks and bonds and you can even invest in real estate and other ventures. You cannot, however, invest if you are a direct beneficiary of that real estate.

For instance, you may not live in the residence and there are restrictions on family members as well. The brokerage may have their own restrictions as well. It’s a good idea to talk to your financial advisor about your options or to discuss options with multiple brokers that offer IRAs before investing.

What is a SEP IRA?

SEP stands for simplified employee pension. SEP IRAs have the same taxation rules for withdrawals as traditional IRAs.

Business owners can deduct the contributions from their employee’s SEP IRAs. However, employees are not allowed to contribute and the IRS taxes their withdrawals as income.

What is a SIMPLE IRA?

SIMPLE IRAs are also intended for small business owners and self-employed individuals. SIMPLE stands for savings incentive match plan for employees. It also has the same taxation rules for withdrawals as SEP and traditional IRAs.

However, SIMPLE IRAs allow employees to make contributions to their accounts. Employers are required to make contributions as well.

How do you open an IRA?

There are no shortages of brokers that offer traditional, Roth, and other IRAs. The first decision is whether to open a traditional, Roth, or IRA. Remember, they all come with benefits and restrictions which, based on your situation, may be right for you.

If you want to benefit from tax breaks now and think your income will be lower as you near retirement age, you could look at institutions that offer traditional IRAs. If you believe that you’ll earn significant returns on your investments and don’t want to be taxed on them in the future, consider a Roth IRA.


There are plenty of so-called robo-advisors or online options to open an IRA. These websites typically have an a-la-carte selection of IRAs to choose from and will put your money in predetermined investments such as mutual funds.

While these will likely be low risk, they typically don’t have a high return. Additional benefits are could include no monthly or annual fees and no transactional fees. The downside is that they are solely in control of your investment and while you can make minor changes, you aren’t in total control of your IRA.

Self-Directed IRAs

Self-directed IRAs are just that: an IRA, usually traditional or Roth, that you control completely. If you have the time, determination, and know-how, you can direct your funds into a multitude of investments and not just a fund. While there are likely more fees involved and there may be some restrictions, you can be in total control of the investments you make with your IRA.

What else do you need to know about IRAs?

While we’ve touched on the basics of IRAs here, there are a lot more rules, regulations, and options available to you. For instance, it’s possible to roll your 401(k) into an IRA if you choose to do so. The maximum contribution also changes from year to year, growing higher and higher. There are laws governing what you may or may not invest in that also need to be explored in detail.

An IRA is a fantastic investment tool that can save you money now and in the future. It is one of the best retirement options, especially when you invest wisely. You can pair it with other investments to ensure you have a bright and happy retirement.

Like most investments, investing in an IRA can be complicated and confusing. It’s crucial to contact some type of financial expert to learn about your options and make the right decision for your future. Choosing to start investing in your retirement is a great first step. Figuring out how you’re going to get there is the next.


401k Contribution Limits And Rules

Last year we maxed out contributions to my 401(k).

We’ve been able to max out the 401(k) in the past, and when we do it always seems like a pretty good barometer of how good our year is going.

If we are able to max it out, it means we didn’t have a ton of other expenses to worry about (like hospital bills).

In 2021 we plan on once again investing as much as we can in the company-sponsored 401(k), before investing in taxable investments.

So what do the contribution limits for retirement accounts look like in 2021?

The Roth IRA has remained mostly unchanged for 2021, with the IRA contribution limit staying at $6,000, and catch-up contributions at $1,000.

The 401(k) is a similar story. It hasn’t changed either.

Today I thought I would take an in-depth look at what the 401k contribution limits, rules, and regulations will be for 2021 since we plan on maxing it out again this year.

401(k) contribution limits and rules

The IRS released their 401k contribution guidelines this past week, and the max contribution has remained the same for 2021. That means you’ll be able to contribute $19,500, the same as you did for 2020.

The limit on contributions by employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $19,500.

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