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Retirement Is Sexy Series: a step-by-step guide to set up an IRA through Betterment to reap the tax benefits before the 2015 deadline.
Welcome homies to the Retirement Is Sexy Series - This is exciting! This series will talk all about retirement accounts and alternative options to your employer-sponsored accounts you may already have.
Tax season is pretty much over and 2015 payments have been placed in the mail (I’m high-fiving myself as we speak). Remember how I told you about one of my 7 Savings Accounts that is dedicated to saving for Taxes!!!?
Well, I successfully saved way more than I needed for my 2015 taxes and this means I’m buying a new car! Just kidding, Nikki Honda-Fit Minaj can’t be replaced. This really means, I had enough funds left over to set up and kickstart my self-employed retirement plan, (Sexier than buying a new car, IMO.)
Before you go anywhere, thinking “this bitch is cray, she thinks retirement is sexier than a new car?!” OR “well this is an article for the self-employed, and well, I’m not self-employed.”
Let me address both of those concerns in order:
1. Yes I do, and you should too. Depreciation is no joke.
2. No matter your employment status, this post will help you learn just how easy it is to invest if you’re currently the person who thinks “I really should be doing that but it sounds hard and intimidating and for old rich people.”
3. (I know there wasn’t a third) It also shows you a simple way to set up alternative retirement accounts whether you work for yourself or someone else—take those extra funds you have from 2015 and put them towards your sex-kitten retired self so you can reap the tax benefits before it’s too late.
We cool now?
So, What’s an IRA, Anyway?!
I thought you might ask. It’s an Individual Retirement Account that you set up for yourself outside of your employer-sponsored account (like your 401k). You can contribute a maximum of $5,500 to your combined IRAs (between a traditional and a Roth.. more on the difference between these in the future of this Retirement Is Sexy Series).
Depending on the structure of your IRAs you will either deduct the contribution from your annual taxes this year or the year you take your money out (after age 59.5—don’t even think about withdrawing sooner!).
Added bonus? The money that your money makes (also called Gainzzz, but what smart people call Capital Gains) will avoid being taxed every year as you grow your (golden-bedazzled) nest egg—this is not the case for investments that are not retirement related in the eyes of the IRS.
This sounds great, doesn’t it? I have two things to remind you from the above.
1. Don’t pull the money out after you put it in (TWSS <—figure out my new acronym! Did I just make that up?) until you are passed age 59 1/2.
2. Make this contribution before April 18, 2016 if you want to count it towards your 2015 tax year.
Show Me How It’s Done
Here I will show you how I set up my Roth IRA for this year. I conduct most of my investing and retirement planning through Betterment.*
Betterment is an automatic investing service (a.k.a. robo-advisor). An online platform that invests my money in diversified low cost ETFs automatically. This just means, they do the thinking and legwork for me by deciding what is appropriate for me to invest in based on my age, income and goals, at a very low cost with little fees. Betterment allows me to invest automatically by connecting my bank account, reinvests dividends, makes recommendations, and makes it super simple to set up a goal-based investment account or retirement account.
I used Betterment to set up my Roth IRA for this year, it was free and it literally took me less than 10 minutes to set up.
So, if you’re strapped for time and know you want to take advantage of some of these killer tax benefits, then I present to you my step-by-step guide to funding an IRA for 2015 through Betterment, before it’s too late!
Step 1: Set Up Account
Super easy-peasy. Betterment will ask you a series of questions related to age, income, and goals. They will make sure you have a good safety-net set up (don't worry if you're not there yet, you can still invest) then priority two is all about retirement goals. That's us! (right now)
Once you choose which type of retirement account you want to set up, select the goal then proceed through the setup. You will input basic information, verify your identity, input financial information and connect bank accounts. It will take a couple days to get the bank account connected so if you want this contribution to be made by the deadline, don't delay!
Step 2: Fund Your IRA or Roth IRA
My screenshots are a representation of what it looks like to set up a retirement account when you already have a Betterment account, but the process should be similar. Once you select "add a goal" you'll select which type. Select IRA then select the type. As you can see, I've already set up a Roth IRA, so in this screenflow I'm setting up a SEP IRA (which has different tax implications and serves different individuals), but the process is the same.
Advice Type: You can see how simple Betterment makes this as they show you what type of advice you need. Growth is for people working towards retirement -- That's us!
Goal Details: This shows my goal details for my SEP IRA but they are the same as my Roth IRA goals. Select your retirement age and the amount you want to have at retirement. Betterment will do the rest of the work to get you there. Not sure how much you'll need? Here's a calculator to help. (Mine isn't my full retirement goal since I have a few retirement plans now.)
That's it! You're all set up! Here's a snapshot of what your account will look like before you make a deposit.
You can see that they have already allocated my investments to be Moderate at 90% Stocks and 10% Bonds. This is good as I am young and have many years until I retire. As I age, Betterment will automatically adjust these percentages.
In addition, they make recommendations for how much you can invest now to get on track or how much you should be investing monthly. Right now (in the top right) you can see I'm Off Track as I haven't put any moolah in. Once you invest, the graph at the bottom will adjust to show a more favorable snapshot.
Here's a recent one after I put $5,500 in my Roth IRA. I'm still "Off Track" but will be able to catch up as I ramp up my monthly contributions.
Step 3: Connect Bank Accounts and Set Up Automatic Deposit
Growing your bedazzled nest-egg is just that easy. You can easily set up automatic monthly deposits (or bi-weekly or however often you prefer) to get your retirement savings on track. Check in every once-so-often but don't obsess. The thing about investing is that it takes patience and a calm demeanor. If you see the markets dip for a day or even a couple months at a time, that's normal. Always trust that it will bounce back. Just continue putting money in. In fact, if the markets are down you're getting that stuff ON SALE! So go ahead and buy more.
It really is that easy. Betterment has helped me get invested in the markets more frequently and aggressively than many other platforms that I use. The interface is user-friendly and they have a helpful resource center and expert chats available if you need additional help.
Other Important Details:
If you have an employer-sponsored retirement plan, invest in a Roth IRA to diversity your tax burden. If you want to invest in a Traditional IRA you will not get a full tax deduction for your contributions if you make between $61k-$71k and no tax deduction if you make over $71k. You will not be able to contribute to a Roth if you make over $116k. (different if married. Check here.)
If you’re self-employed and didn’t have an employer-sponsored plan this year at any point, either split the $5,500 in half and go both Roth IRA and IRA or determine your needs on a personal level like I did. You also have SEP IRA as an option which you can wait to contribute for 2015 until October 2016. (Check back for more details!)
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