"Don’t create things to make money; make money so you can create things. The reward for good work is more work." Hi friends! I’m so excited to be back in your inbox ( This post is a 10 - 15 minute read. I promise. I timed it. And if you read it, it can potentially save you thousands of dollars in taxes or capital gains!).
Since I started writing the Money Scoop, I have connected with a lot of different people and made new friends plus strengthened old friendships. So, when you are done reading this, if you feel like it, shoot me an email or slide in my DM’s and say hi. I want to hear what new projects you’re working on, TV shows you are binging, what you invested in, books you are reading etc. I love connecting with people and I’m here to keep the conversation going. If it feels like a lot has happened in the world since the last time I was in your inbox, that’s because it has. The markets have been all over the place, crypto shot up just to come right back down and then steadied itself, Ethereum hit an all-time high, Dogecoin spiked, dropped and then spiked again, Coinbase went public, and President Biden announced a proposal to raise capital gains for wealthy people to 39.6%. (Wealthy people are considered individuals earning $1 million or more.)
With so much happening, it can feel totally overwhelming and off putting to get started or continue your financial journey. In the past couple of weeks, I had to stop checking my investing apps and just put them away. I have to keep reminding myself that I’m investing for the long run and not to pump and dump assets. Markets always experience corrections and the most important thing is not to panic and sell. If you have spare cash when things take a dip then it’s always smart to buy more at a discounted price.
As promised, today we are going to cover retirement accounts. There are so many of them and every financial advisor will always talk about them but can never easily explain the difference between all of them (at least not in my experience). So, I will try my best to break it down for you. As always, I recommend you to do more research before opening one to see what is best suited for your financial situation. If you aren’t ready to think about retirement just yet, I encourage you to still read the below info just to start getting familiar with them and then save this email so you can revisit it later. I want to emphasize that starting a retirement account early is really important. I know retirement seems very far away but retirement accounts come with tax benefits and 401k plans (employer-sponsored plan) are sometimes matched by your employer which means FREE money. Retirement accounts are a good way to save and grow your money due to the tax advantages.
I strongly encourage you to open up a retirement account for yourself and your parents if they don’t have one. It’s never too late to set one up. I helped my mom open hers during the peak of the covid pandemic and she has seen 30% gains since April 2020. (This was an anomaly since we invested in stocks when they had all crashed and they are all back up.)
There is a website called the Big Later that teaches you investing 101 for only $5. I signed up and, in their emails, they broke down the most common retirement accounts. I’m going to copy and paste their words/key takeaways (plus info from other sources) below so I don’t butcher their writing. Hopefully, this information will help you better understand which retirement account is best suited for your situation. Nothing I say is financial advice. Just my experience and research :)
You can open a retirement account with Stash, Merrill Edge, Fidelity, Charles Schwab, your bank etc. If you want to be hands off with your investments a robo-advisor, will pick investments for you or you can pick them yourself. For more information click here to learn how and where to open an IRA. 401k - Is an account provided by employers to help employees stash away money for retirement directly from their paycheck. (403b is for people who work at schools, hospitals, or non-profits, and the 457b, for government employees. These are all treated similar to 401ks). There are limits to how much you can contribute every year ($19,500 in 2021) and anything withdrawn before retirement age gets hit with a 10% tax penalty. You can set up automatic withdrawals from your paycheck. Some employers will match your contributions up to a certain percentage of your annual pay. If your employer offers a match be sure you’re taking it. It is literally FREE money. With a 401k, your taxes are deferred meaning that money from your paycheck that goes towards your 401k is not taxed. When you are ready to start withdrawing in retirement, your withdrawals get taxed as income and that’s it, you aren’t taxed on capital gains.
Now, there is another slightly-less-traditional way to contribute to your 401k. Instead of paying income tax when you make withdrawals in retirement, you pay income taxes upfront and then never pay taxes on that money ever again. These are called "Roth 401k" contributions. If you have a 401(k) from an old job, you can move those funds into your new employer’s retirement plan or into an IRA. For many people, rolling over into an IRA is the best option, given that IRAs tend to have a wider array of investment choices and lower fees than many 401(k)s.
Traditional IRA – These are individual accounts that you can set up yourself. They are also tax - deferred and you don’t pay capital gains. You are responsible for claiming this deduction when you do your taxes. The max contribution limit for anyone under 50 is $6,000 per year no matter how many IRA accounts you open. When you turn 72 years old, the IRS makes you start taking money out of the account. You can make early withdrawals without paying an additional penalty for certain “qualifying” reasons, but these withdrawals would still be taxed as income. This includes things like first-time home purchases, education expenses, medical expenses, and a few others. Any other withdrawals before age 59½ will be taxed and penalized 10%.
Roth IRA (I have this) - You make contributions with “after-tax” dollars (i.e. dollars that come from your paycheck that are already taxed as income) and you would not claim this as a deduction on your taxes. This means that you literally never pay taxes on that money or its gains ever again. So, you want to be maxing your contributions if you can! The max amount you can contribute is $6,000 annually and you can withdraw contributions at any time without penalty. You can withdraw earnings for qualifying reasons. However, if your income is higher than $140,000 in 2021, this unfortunately means you cannot make the full $6,000 contribution to a Roth IRA.
Solo 401(k) - Also known as a one-participant 401(k) plan, a solo 401(k) is designed for an individual business owner without any workers. If you are self-employed and don't have any employees, you may also be eligible for a solo 401(k). The IRS allows contributions of up to $58,000 in 2021. If you are 50 or older, you can also make catch-up contributions of up to $6,500.
Self-Directed IRA - A self-directed IRA has the same contribution limits and eligibility requirements as a traditional IRA, but differs in the investments that you are able to make. Unlike traditional accounts, a self-directed IRA allows you to place funds into alternative assets such as cryptocurrencies, precious metals and real estate.
HSA - A health savings account can be used to build funds to help cover health costs in retirement. To be eligible for an HSA, you need to have a high-deductible health insurance plan. You can contribute up to $3,600 to an HSA in 2021 as an individual, or as much as $7,200 if you have family coverage. There is an additional $1,000 contribution allowed if you are 55 or older. The amount set aside in an HSA is tax-deductible. The funds grow tax-free and can be withdrawn tax-free if they are used to pay for qualifying medical expenses.
SEP IRA - A Simplified Employee Pension IRA is designed for small business owners with several employees and self-employed individuals. If you are eligible for a SEP IRA, you'll be able to set aside up to either 25% of your compensation or $58,000 in 2021, whichever is less. You won't pay taxes on the amount contributed, but the funds withdrawn will be subject to taxes. You'll need to start taking withdrawals at age 72. If you withdraw funds before age 59 1/2, you may have to pay penalties on the amount taken out. I hope that the above information helped and sorry that it’s so boring. If you take anything away from this email, my advice is to be proactive and set up a retirement account. Talk to your tax accountant or financial advisor to help you decide which one is right for you. Whether you sign up for a traditional IRA or Roth IRA, you will be saving money on taxes and capital gains either now or in the future.
I have to admit I haven’t been maximizing my contributions as much as I should. But after speaking with a financial advisor and putting this information together, I have redirected all of my automatic recurring investments to go directly to my Roth IRA. Every little bit counts when it comes to savings, investing, taxes, and making money. As I keep learning and writing, I’ve come to realize that trying to send out more than two emails a month was a little ambitious on my behalf. I want to bring you content that is well informed and not overwhelm you with information. So, I’ve decided to pace myself and commit to at least one good email a month.
For those of you that want to aggressively dive into your financial literacy, I have discovered a handful of companies that are dedicated to churning out content on the weekly. Below are the websites I visit frequently. They are full of great resources.
-Her Capital was founded with the mission to empower women to become financially independent and to take control of their income. -Team Wealth Wednesdays is a digital financial empowerment platform dedicated to helping build personal, generational, and community wealth. -First Milli the name speaks for itself :)
Every email, I’m also going to be bringing you useful/non-useful links to either educate, inspire, or entertain you:
· 3-minute video with 10 steps to boost your financial health
· Article to help you start thinking how much to save for retirement
· If you like Reese Witherspoon and want to feel inspired then this article is for you. She is creating a media empire tailored to uplift and empower women. Her words, “I want to make a lot of women a lot of money.”
· You might have heard about the guy that became a millionaire from Dogecoin. He invested 180k and it turned into over a million. In this video, they go to his small studio and interview him. I watched the first 10 minutes and it was pretty interesting. He lives a super frugal life, makes 60k a year, and every piece of furniture in his home he either got from friends or found on the street. He is just a really aggressive investor and threw a huge chunk of his paychecks into savings which he then invested. Now I’m not saying to go dump all your money into one stock or live like him. I certainly wouldn’t. But I do find it an interesting perspective. He definitely took a big gamble and so far it has paid off. You can take what you want from it :) All in all, I was inspired to keep saving, researching, and investing. If he could do it why can’t we?
Question of the month:
If you own any crypto assets, how long do you plan on holding? What is your target price and if you sell will you sell all of it or only a percentage? For that manner, if you came up on a stock big time, how long do you plan on holding? Please respond! I’m genuinely curious to know the answer.
Finally, my approach to writing this newsletter is… slow and steady finishes the race. I’m here for the long term, to share my personal investing/financial journey with you and be honest about my successes and failures as they happen. I hope to be around in your inbox for a long time and reach that million-dollar figure in our bank accounts together.
As always thanks for reading and for making me a better writer in the process. If you think a friend would benefit from this information feel free to forward it to them.
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