Pamela Yellen

Yes, it's possible to borrow money and owe less, provided you have the assets available to use this method of reducing debt. The method to this madness is to lower the total amount you owe by paying a lower interest rate on your debt. Provided you follow a few guidelines, this method will work.

  Do you have money invested in your home that you wish you could use? A home equity loan is funds taken from the money you've invested, in your house and using it to consolidate other debts that carry a higher interest rate. Home equity loan rates are very low and the payments made using this money, are tax deductible, making the rate even less. Don’t make the mistake, however, of paying off your credit cards with a home equity loan and then using your cards to incur more debt. Don’t use the cards at all until the home equity loan is paid in full.

  Borrowing money from your 401(k) is another method that pays off your debt and you can pay back the money borrowed at a lower rate of interest. You've got five years to pay the money back, or you'll find yourself dealing with some tax penalties. If you leave the employer where you've got the 401(k), you'll need to pay any money still owed in one lump sum.

  You can also borrow money from a life insurance policy that has a cash value, to pay off higher interest debts. Remember to pay the money back into the policy, however. If you pass away before the money is paid back, it will cause problems for family members you name as beneficiaries.

One of the most popular selling features for a Roth IRA is that it allows you to have a tax-free withdrawal on your money when you retire. You'll pay taxes when you deposit the money, so you won't have to worry about it later. This can be an advantage or a disadvantage to you, depending on your circumstances.

  IRA's, or individual retirement accounts, also differ from a traditional 401(k). A 401(k) will be organized and administered through your employer. Your contribution level maximum will be higher for a 401(k), than it will be for either type of IRA. If your employer offers to match your contributions to a 401(k), as is occasionally the case, this will definitely be a good option for you.

  A traditional IRA will offer you the opposite. When you deposit money into a traditional IRA, you are not taxed. When you withdraw money, however, you'll be taxed. The decision between the two can be made based on your income. A Roth IRA will have a maximum income, whereas a traditional IRA doesn't. Your income while you're working, compared to your income when you're retired, can also be a deciding factor for when you'll want to be taxed.

  Your employer may also offer a Roth 401k plan. You’ll receive the same tax benefits with a Roth 401k as you will with a Roth IRA. You’ll still be able to withdraw your money without being taxed, and your account will be tax-sheltered. Your maximum contribution level, however, will be much higher with this type of account, than it would be with a Roth IRA.

As you plan for retirement, you’ll want to start understanding the vocabulary of the investment world. Two common retirement accounts are SEP IRAs and Roth IRAs. Roth IRAs are managed by individuals. SEP IRAs can be opened by business owners for their employees. 

If you’ve got a Roth IRA, you’ll contribute your own money and choose where it will be invested. The money you contribute will be taxed and your withdrawals will be tax-free (assuming you follow the terms). If you’ve got a SEP IRA, your contributions will be tax-free, but your withdrawals will be taxed. Contribution limits to a Roth IRA are much lower than those for a SEP IRA. The idea of a SEP IRA is that the account can serve as an employee pension fund, so you’re allowed to contribute much more. Also, remember, Roth IRAs don’t require withdrawals at any time. They can be untouched and inherited by heirs, if an account holder chooses. If you’ve got a SEP IRA, you’ll be required to start withdrawing money when you’re 70.5.

Roth IRAs have an income limit. These are changed with the tax year so, if you make more than $100,000, you’ll want to check on the year’s limit.  SEP IRAs have no maximum income limit. Any employee who is over 21 years old and has worked at least three out of the last five years is eligible for a SEP IRA, if they meet the minimum income guidelines. These income requirements are quite low so, unless the employee rarely works, it’s likely they’ll meet this qualification.  

The primary difference between a regular IRA (or a traditional IRA) and a Roth IRA is the way that they’re taxed. If you opt for a traditional IRA, you’ll be paying taxes after you retire. If you’ve got a Roth IRA, you’ll pay taxes when you deposit money. You won’t have a yearly tax on the funds in either of the accounts, but you’ll need to choose if you want to pay taxes when you deposit money, or when you withdraw money. A traditional IRA will give you a tax break when you deposit, whereas a Roth IRA will not.  

  There are some differences in how and when you can withdraw your money. Roth IRAs will allow you to withdraw your money without a penalty. It’s important to note, however, that you can be penalized if you withdraw your investments earnings before you’re 59.5 years old. There are circumstances under which you can withdraw your earnings without penalty under the age of 59.5, but they are few, so it’s best to plan to not to do so. If you move your money from a traditional IRA into a Roth IRA, you must wait five years to withdraw it, or you’ll be penalized.    

  If you’re more concerned with leaving your money in an IRA to build interest, you should know about the different rules regarding this. A Roth IRA won’t require you to take money out at any time. If you’ve got a traditional IRA, you’ll be required to start making withdrawals at the age of 70.5. You can contribute to your Roth IRA at any age, but you must stop making contributions to a traditional IRA at age 70.5.

Have you ever considered setting up a retirement fund for your children? If your child has started working, he or she can setup a Roth IRA account.

When you’ve got a Roth IRA, you pay taxes on the money you contribute, but can withdraw it tax-free. The great advantage to this is that a low-paying, part-time job will have a very low tax rate. If your child works over the summer, you can deposit some amount of the money in March, to meet the previous year’s tax deadline, and deposit the other part in April, for the following year’s taxes. The important thing is not necessarily how much money your child saves. You’ll want to focus on the lesson it can teach. Show him or her how much the money will grow over a long period. Track down some online retirement savings calculators, to look at the impact of the term and the amount deposited. Your kids will likely be shocked to see how much money they can have when they retire, if they start saving early.

Of course, retirement won’t be very interesting to children, but it’s a good lesson for other short-term accounts. Set some shorter term goals for them. Show them how much they can earn if they save money for just a few years. If it’s feasible for you, try to match their savings. It doesn’t need to be a lot of money, to teach them a lesson on planning and saving.

If you’re self-employed, you’ll need to ensure that you’ve got a clear financial plan. You spend so much time managing your business, that it can be easy to forget about your personal future needs. When you don’t have an employer contributing to a retirement account for you, it’s critical to establish your own retirement plan.

  If you’re looking at an IRA, you’ll want to be familiar with your options. Two common choices for self-employed individuals are Roth IRAs and SEP IRAs. If you select a Roth IRA, you’ll be taxed on the money that you contribute. However, a Roth IRA will give you tax-free withdrawals if you meet the basic requirements. If you choose a SEP IRA, you won’t be taxed on the money you contribute, but you will be taxed when you withdraw the money. On first glance, it may not seem like it matters, because you’ll be taxed either way. This is true to some extent; however, it’s important to think about the tax rate. If you’re just starting out with your business, your income may be much lower now, than it will be in the future. In this case, you’ll be better off to be taxed now, when your income is lower. If you’re making a good income now, you’ll probably want to be taxed after retirement, when your income is lower.

  It’s also important to think about how close you are to retirement and how much money you want to be contributing. A Roth IRA will have a much lower limit than a SEP IRA, so you need to look at the tax year’s maximum, to decide what will be right for you.

If you’ve already started to look into your retirement planning options, you know there is a wide range of choices. There is no single best option. Your choice should depend on your unique financial situation, and your anticipated future needs. Roth IRAs and 401Ks are among the most popular options. If you’re considering using one of these options, it’s important to understand some basics about both of them.

   If you choose a 401(k), you won’t be taxed on the money you are contributing but, with a Roth IRA, you’ll pay taxes when you deposit. The situation, however, is reversed when you withdraw your money. If you’ve got a 401 (k), you’ll be taxed when you withdraw the money, whereas you’ll have tax-free withdraws from a Roth IRA. The key here is to decide when you’ll pay the lowest taxes. If you’re at an entry-level job right now, your income and taxes will probably go up in the future. In other words, if your income is low now, you should opt to be taxed now. If you currently have a higher income and expect to be making less money after you retire, you’ll want to be taxed later. Even if you end up choosing an option that isn’t a 401(k) or Roth IRA, it’s important to think about when you want to be taxed.

  You should also consider who you want administering your retirement account. A 401(k) will be managed by your employer, so you can’t decide how the funds will be invested. If you get a Roth IRA, you can choose how to manage your account. Depending on your personality, one of these might be stressful for you. If you’re not sure how you’d want to invest your money and don’t want to worry about it, you’ll want to choose a retirement account that isn’t self-administered. If you do want the control, look into accounts like a Roth IRA.

A Roth IRA is one of your many retirement saving options. It distinguishes itself from other retirement savings accounts by allowing you to cash out your account tax-free. It allows more flexibility than a 401(k), by diversifying your investment options. If you’re ready to start a retirement account, it’s important to understand the advantages and disadvantages to different types of accounts.

  Your maximum contribution amount will vary from year to year, so it’s important to know your yearly limits. This can be an important factor, if you’re close to retirement. You should also consider your comfort level with risk. A Roth IRA will allow you a more stable investment than stocks, but will also be less stable than other savings options. Again, your comfort level may depend on how many years you’ve got left until retirement.

  It’s also important to consider that you can only invest money if you’re employed. You must be earning an income, so if you’re in college or are working on starting a new business, it’s not an option for you. Also, you’ll need to look at your income, to ensure that you are under the maximum. This will depend on the tax year and your filing status so, if you’re income is over $100,000 per year, you’ll want to look into it.

  One advantage to Roth IRAs is that you can withdraw your money tax-free. Remember, however, this only applies to the money you deposit. You can’t withdraw your earnings before age 59.5. If you do take out your earnings, you’ll pay taxes and a 10% penalty. Because of this restriction, it’s important to try to anticipate your future needs as well as possible.

It’s important to start planning for retirement as early as possible. Even if you only deposit a minimal amount, it will grow over the years. Never think that it’s too early to start planning for retirement. You’ll probably find that you don’t actually miss the money you save, if you have it taken directly from your paycheck. You don’t need to have a high income to start saving. Take a careful look at your budget to see what you can afford. If you’re able to afford your basic expenses, you’re probably ready to start saving away something for retirement.

  When you first start planning, it’s important to know your options. Roth IRAs are a popular choice for a few reasons. Roth IRAs offer the benefit of tax-free withdraws after you retire. If you pay taxes on your contributions now, you’ll be able to receive the full amount of money in your account after you retire. If you open a Roth IRA, you can invest your money anywhere you want. They are self-managed, so the choice is yours. After you deposit money, you’ll be able to withdraw it at any time, without paying taxes. It’s important to note, however, that you can’t withdraw from your earnings without penalty. The money you take must be the money you put in.