Ep 13 – Upside Insights: Maximizing Your Retirement Contributions with Diana Hoff

In our first Educational Webinar series of 2021, Diana Hoff to discusses steps and tricks to make sure you are:

  • Taking advantage of all the options to grow your retirement accounts
  • Not leaving money on the table.

Listen on Anchor.fm or on Spotify


Watch the YouTube video here:


Jessica: Welcome everyone and thank you for joining our Upside Avenue educational webinars series. This series is developed with your input. We surveyed investors and followers to find out what financial investment topics everyone is interested in learning about, and then we scour the country for subject matter experts to speak on these topics in hopes of providing you with the knowledge and confidence to discover your Upside. So, subscribe at upsideavenue.com to know when our next webinar is or follow us on our social media channels. This presentation is for general information purposes only and Upside Avenue recommends that you do your own thorough research and due diligence before acting on anything suggested today. Today we are going to talk about retirements, specifically, how to make sure that you’re maximizing your retirement contributions and not leaving any money, sometimes free money, on the table. Our speaker today is a member of the American Banking Association, and Institute of Certified Bankers as a certified IRA services professional. She has over 30 years in education, Training, and discussing topics about growing your wealth tax deferred or even tax-free. And when she’s not leading many seminars and webinars for Mountain West IRA as well as continuing education classes for Realtors, you can find her in full Elizabethan garb shooting English long bows or dressed in Viking costume throwing axes and knives at Renaissance fairs, which I think is absolutely fantastic, so, help me welcome our friend from Mountain West IRA, Diana Hoff welcome Diana. 

Diana: Thank you, and thank you all for coming today. I’m really excited to be here. I love working with you guys. 

Jessica: We love working with you too. So, I’ll turn the time over to you now. 

Diana: OK, let me go ahead and share my screen. So, that we can see what we’re doing and don’t worry, I promise it’s not death by PowerPoint today. So, like she said, my name is Diana Hoff I work for Mountain West IRA, we’re a little different. We are a self-directed IRA retirement company. We help people invest in alternative assets like real estate and promissory notes and all that fun stuff. But today we’re going to talk about maximizing your retirement contributions, which is really the first step in assuring that you have enough money to retire comfortably. So, have a lot of your pictures your ideal retirement? What does it really look like? Do you want to travel or live in a comfortable home? Do you have enough retirement income to fund an easygoing retirement of your dreams? One of the most important things to do while saving and investing for retirement is to maximize your contributions. Everybody eventually wants to retire. I know I do. Annual retirement savings really do determine how comfortably you’ll live and whether your money will in fact outlive you, which is no place any of us want to be. Making the most of your retirement savings is essential if you want to build a nest egg that’ll withstand the risks of inflation, market turmoil, and unexpected longevity, which you know doesn’t seem like a bad thing unless you outlive your money. So, today we’re going to talk about the steps you can take to grow your retirement accounts and be assured that you are not leaving money, sometimes free money, often free money on the table. So, let’s talk about your options: if you work for an employer, a lot of us do, chances are good that you have an employer plan available to you at work. If your employer plan offers a 401K, you really need to take advantage of it or you are leaving free money on the table. Think of it this way, you contribute pretax money, which means that you’re saving more money than you would have pocketed if you just had it added to your paycheck. So, let me explain that by giving you a really basic example: if you’re in a 20% tax bracket and you put $100 into your 401K each pay period, you would have only received $80.00. If you left that in your paycheck. Now that’s a very simplified amount, but even if you only contributed that $100 per paycheck and you got paid twice a month, that’s $40 per month or $480 per year. That would simply have gone to taxes never to be seen again. And really, that is just the beginning. So, do you work for a company that offers an employer match? If you do, that’s free money designed to build your retirement account. So, typically an employer will match your own contributions up to a certain percentage. So, if you know what that limit is, then you can set up your contributions so, that you’re getting the maximum of their match. These employer funded contributions are free money, and you don’t want to leave that money sitting on the table. At the very least, sign up to contribute the minimum amount needed to get the maximum match for your employer. Sometimes they’ll match 100% up to 3% and maybe 50% up to. 5% so if you put in 7% of your income, 10% of your income, you’re going to get every cent of that employer match. If you don’t contribute, that’s free money that you’re just leaving behind. That’s like saying, “I don’t want to raise.” I want to raise. So, most 401K plans have vesting rules for those company match contributions, so, these rules define how long you have to stay with the company before you own those employer funded deposits. OK, for example, the plan rules might state that your ownership increases by say 25% each year until you’re with the company for four years. So, under those rules you’ll own 25% of the matching contributions after one year, 50% at the end of the second year. Of course, 75 after the 3rd, and you won’t be fully vested until you hit that four-year anniversary. So, consider the cost of losing those contributions if you decide to change jobs when you’re 100% vesting is only a few months away. Maybe you should just hang in there until you’re fully vested and then move on. Now, if your new job offers a considerably higher salary, it may be worth it to walk away from your company match contributions. Just remember to increase your contribution rate at the new job to make up for the funds that you left behind. OK, these days a lot of us are going to change jobs more than a half dozen times over the course of a lifetime. Even those of us who were on the tail end of the baby boomers have run into this. It’s not our parents time anymore where you went to work for one company. They set up a pension you worked until you retired. You got that gold watch and you were with that company being that company, man or woman the whole time. That just really doesn’t happen a lot anymore, so, when people change jobs, many of them are going to cash out their 401K plans every time they move. 

That’s an incredibly bad plan if you cash out every time, you’ll have nothing left when you need it, especially when you consider that you’ll pay taxes on the funds plus a 10% early withdrawal penalty if you’re under 59 and a half. So even if your balance is too low to keep it in that plan when you move to your next job. You can roll that money over into an IRA. You can roll it over into the 401K plan at your new job so that you keep it growing and you keep it tax deferred. That’s really important. Don’t set yourself back however many years you were growing that. In 2021, you can contribute up to 19,500 to your 401K plan, plus an additional 6500 if you’re 50 or older. Employer match contributions don’t count towards those limits, but there is a cap on total 401K contributions. In 2021 the sum of your contributions plus your company match contributions cannot exceed $58,000 under 50, or 64,500 if you’re 50 or older. Oh, and if you’re self-employed, you can still contribute to an employer plan that you set up yourself. So, freelancers, entrepreneurs, small business owners, you still have the ability to have those tax advantage ways to save depending on your type of business or if you have employees, you can set up a solo K s SEP IRA or even a simple plan. Simple plans are very simple, but that’s what they’re called. Some are better for maximizing contributions and some are easy to set up and administer, so, you just have to figure out which one works best for your situation. So, this is a new one, not a lot of people are familiar with this, but after you’ve maxed out your 401K an if you’re eligible, start contributing to a health savings account or HAS. HSAs are available to anyone who is enrolled in a high deductible health care plan. That’s defined as a health insurance plan with a minimum deductible of, right now, it’s 1400 for an individual or 2800 for a family. So, if you use the HSA as a long term investment account, it can become a crucial piece of your retirement portfolio, ’cause just like a 401K you contribute to the HSA with before tax dollars. The investment earnings in the account grow tax free. Here’s the standout feature of the HSA, though: you can take tax free withdrawals for qualified medical expenses anytime you need them, once you turn 65. No, anytime you need them, and once you turn 65 withdrawals for non-qualified expenses are taxed at your normal income tax rate. So, that’s just like they would be for your 401K. So, if you think about it this way, an HSA is a really good plan for people who want that emergency fund available for unforeseen medical expenses. Because you can get into it whenever you need to. But if you don’t need it, it can add to your growing wealth for retirement and then of course, once you’re retired, you can also use that tax free to help you with your Medicaid expenses. Excuse me, Medicare expenses. So, it’s-it’s really a handy tool that not that many people know about. So, in 2021, HSA contribution limits are 3550. That’s a weird number for individuals and 7100 for families. Now, if you’re 55 or older, you can contribute a catch up contribution of an additional $1000. So, let’s take a look at what that looks like. Uhm? Yes, I have that all in there. So, as you can see, if you are single $3600, oh, that’s right, it went up another $50 this year, and for a family $7200. Sorry, I was giving you 2020 numbers, and then single over 55. It’s 4600 and then a family of 55 plus it’s 8200. So, as you can see, this gives you an opportunity to put a little more away, but at the same time you have access to that for any kind of medical expenses that might come up. So, it’s-it’s just really handy and not that many people know about it. OK, so far we’ve maxed out our company match 401K contributions an if you’re eligible HSA contributions, but there’s more. You can still make contributions to a Traditional and/or a Roth IRA. Contributions for an IRA $6000 per year or 7000 if you’re 50 or older. Now keep in mind that contributions to a Traditional or a Roth IRA are aggregate. That means that you can contribute up to 6000 or 7000 total cumulative. Even if you’re contributing to both a Traditional and a Roth, so, anyone can contribute to an IRA, as long as they have earned income. But remember, you can’t go above that amount, So, split it between them. If you need a tax write off in one year, contribute to the Traditional. If you don’t need that tax, write off in a year. Contribute to the Roth, it’s always good to have that diversity of different types of accounts now. Not everybody knows the difference between a Traditional and Roth, so, let’s go ahead and cover those really quick. A Traditional IRA allows you to contribute pre-tax income, which may be tax deductible in the year that contribution is made, so that can reduce your taxes. Now, while the investments are growing in the IRA, there are no capital gains and there’s no dividend income no matter what. You’re investing in. Taxes don’t happen until you make a withdrawal, and when you do make a withdraw, those funds are taxed as regular income. 

So, give you an example: if you buy a single-family home and use it as a rental, all those funds go back into your IRA and then if you decide to sell that property because. Properties going up quite a bit right now. All those funds go back into your IRA and then you can do your next thing, but you’re not-you’re not taxed, there’s no capital gains tax on that. You don’t have to worry about a 1031 exchange. You can then use those funds and continue to invest, and that’s where the real power of compounding comes in. So, deductibility limits. You can fully deduct your Traditional IRA contribution if you and your spouse are not covered by a retirement plan at work. However, if either one of you is covered by a plan at work, the deduction may be reduced or even eliminate it. Now, that doesn’t mean that you can’t make the contribution, it just means you might not be able to write off the whole amount. This is determined by your modified adjusted gross income. Whether you are single, head of household, married filing jointly or married and filing separately. It also depends on who is covered. Is it just you or is it your spouse that’s going to change things. If you are not covered but your spouse is, that’s going to change the amount and up it so that you’re more likely to be able to contribute and get that deduction. OK, here’s-here’s the kicker that a lot of people are not terribly fond of at the age of 72, you must begin taking distributions based on the IRS life expectancy table. What this means is that you will be required to take funds from your Traditional IRA each year by December 31st after the age of 72. Now, every once in awhile they will waive required minimum distributions. If there is something going on, for instance, 2020. Yeah, we didn’t have anything going on in 2020. In 2020 they waived required minimum distributions and people that didn’t need them did not have to take them out. So, that was very helpful. Now let’s talk about Roth. Roth’s are the wonderkind of IRA’s, a Roth IRA is an individual-individual retirement account that allows qualified withdraws on a tax-free basis provided certain conditions are satisfied. So, first off, you don’t get a tax write off for contributing to a Roth. A Roth IRA is a retirement account where you make contributions with after tax money. So, that’s the money that’s leftover that you get out of your paycheck that’s already been taxed. So, qualified withdrawals are tax-free. What makes a Roth qualified though? It has to have been open for five years, and you must be over 59 and a half or have a qualifying life event such as a first-time home purchase, higher education expenses, disability and of course, 2020. Sometimes the government allows for special circumstances such as a natural disaster or last year. They allowed people to take up to $100,000 out of any of their retirement accounts without having any type of early withdrawal penalty. So, that does happen occasionally. Last year was just kind of special and we got all kinds of perks for people who needed to dip into their retirement accounts. So, most people believe that Roth IRA our best when you think your taxes are going to be higher in retirement than they are right now. Some like the ability to have the diversity of having both tax deferred and tax-free accounts to draw from, and some simply prefer the Roth because there are no required minimum distributions after 72. Now you can’t contribute to a Roth IRA if you make too much money in 2021, the modified adjusted gross income limit for singles is 140,000. For married couples, the limit is 208,000. Now that doesn’t mean that you’re unable to have a Roth IRA. Many people choose to convert existing IRA’s or 401K’s to a Roth, some even open what’s known as a backdoor Roth. By going to a traditional account and then converting those funds. Now, a Roth conversion refers to taking all or part of the balance of an existing retirement account, paying taxes on that value and then moving it into a Roth IRA. Now, there’s some things you should keep in mind if you’re going to do that. Will you need the money in five years or less? Because remember a Roth IRA has to be open for five years to be qualified, or will the amount of the conversion put you into a higher tax bracket the year you convert? Also, where are you going to get the money to pay the conversion taxes. If you’re over 59 and a half, you can withhold them and not have to worry about getting any kind of early withdrawal penalty. Because if you use an IRA to pay those taxes: remember that you’re actually taking funds at that point it’s a withdrawal, and those could have early withdrawal penalties. So, you have to plan ahead. Talk to your CPA, talk to your tax guy, make sure it’s the right time for you to convert. So, we talked about 401K’s, company match HS, a Traditional, Roth. What if your spouse doesn’t work? A spousal IRA is a strategy that allows a working spouse to contribute to an individual retirement account that is in the name of a nonworking spouse with no income or very little income. Now this is an exception to the provision that an individual must have earned income to contribute to an IRA, and this is the only exception. So, spousal IRA’s are just regular, Roth or Traditional IRA’s that are used by married couples. Now they’re not joint accounts. Each IRA is set up in the name of an individual spouse. So, for 2020 and 2021, the use of a spousal IRA strategy allows couples who are married and filing jointly. You must be married and filing jointly to contribute $12,000 to IRA’s per year, or 14,000 if their age 50 or older due to the catch-up contribution provision. So, that is another way not to leave money on the table just because your spouse might not be working doesn’t mean you’re not able to sock away that extra funds. And remember when it’s a Traditional or Roth IRA, a Traditional IRA or pre-tax IRA: you get to take that off of your taxes, so, it lowers your tax liability at the same time that you’re putting money away that you can continue to invest for retirement. 

There’s no bad there. So, one of the easiest ways to make saving for retirement a regular habit, and I was guilty of this when I was younger, I didn’t do it, is if you set up automated contributions to your retirement accounts that are timed with your paycheck. That way you never have to think about it. Automatic contributions make sure you prioritize retirement and spread that investment risk overtime. You don’t want to be in your 40s or 50s or 60s an realize that you could have done this a long time ago but now it’s going to be a little harder to get where you need to be. So, here is a little-known thing, especially if you’re just starting out: don’t overlook those little things that will give you that little extra push and put a little more money either back in your pocket or back in your retirement account. So, people with low to moderate incomes may be eligible for the Savers credit. A dollar-for-dollar reduction in the taxes you owe? It’s been around since the early 2000s, but not everybody knows about it. If you’re eligible, you could earn a credit of 10 percent, 20%, or even 50% of your contributions up to a dollar amount of 2000, or 4000 if you’re married and filing jointly, remember if you’re married, you want to file jointly unless your CPA has a really good reason, because that’s where all the benefits are. The Savers Credit is available to individuals, heads of household and joint filers who contribute to an IRA, 401K, or any other qualified retirement account whose adjusted gross income falls within certain parameters. Also, you have to be over 18, not a full-time student at not listed as a dependent on anyone else’s tax returns. So, those incomes are adjusted annually, and you can always find that information on the IRS website or you can even just go ahead and talk to your tax preparer, but it’s a little-known thing that could take up to $2000 and stick that right back in your pocket. So, the absolute best piece of retirement advice, and this is one piece of advice that I will always give freely: is to start today. The more time your money has to grow, the more you’ll get out of compounding returns. Even if you can’t set aside a lot of money immediately, any amount you invest today is going to have the chance to compound. Overtime, even a small start can make a huge difference. So, begin today with as much as you can and then increase your retirement account contributions as your finances improve. The longer your money has to grow, the bigger your nest egg is going to be, so, always remember to pay yourself first. It’s just-it’s just that important. So, are there any questions? 

Jessica: Hey thanks so much, Diane. Alright, we’re going to open it up to questions now so please type in your Q and the Q&A box. And I did have a question while we’re waiting for people to type in. Is it still beneficial to contribute to an employer 401K even if the employer is not matching? 

Diana: Absolutely. Absolutely. Like I said, any bit that you can put away has the ability to grow, even if it’s in something as simple as a money market fund where it’s just earning a low amount of interest. That’s still money that wouldn’t have been there. And if nobody else is putting money in, you know, where else is it going to come from? You-you have to contribute, even if they’re not matching.  

Jessica: That’s great. We have another question here. Can you have more than one IRA at a time? 

Diana: Oh absolutely, you can have as many IRA’s, Roth IRAs, 401K’s. It doesn’t really matter. What does matter is that the contribution that you make out of pocket or pretax post tax is subject to the limits. So, if you have a brokerage account IRA and an IRA that self-directed. The important part is you can have those and you can grow them as much as you can grow them, but you’re limited to that 6000 or $7000 contribution per year. 

Jessica: OK. Alright, so, someone else has asked can we open IRAs for our children? 

Diana: Oh absolutely, I actually opened one for my daughter when she graduated. I got her Roth, but you can open IRA’s for anyone who has earned income. Now, I always get asked, but I want to open them for my really young children. Obviously they’re not working well. If you have your own business, if friends and family have their own business, I know people who use their children in their social media, which promotes their business as models and then they pay them to be models. Now, if you’re only paying them up to $6000 per year, you can take 100% of that and put it into an IRA or Roth for that child because they are earning that. Now, obviously, if that’s all their earning the tax situation isn’t really going to be dire for them. Talk to your CPA, but as long as they’re earning income you can help them by start building their IRAs, their retirement funds, and you know that five year wait for a Roth isn’t going to be that big of a deal if you know your child is two. By the time there are seven, they’ll have that five years out of the way, and then you know the sky’s limit for them. They compounding that they’re going to see is going to be much greater than someone who doesn’t start any kind of IRA until their in their 20s, 30s, 40s. So, it’s definitely worth it to get a IRAs for your children or your grandchildren. 

Jessica: Let’s see if we have a small IRA to start with. What can they do? Can they still? Self-direct or do they need for like 450,000 to buy house? 

Diana: Right, I actually get that question quite a bit. So, when you’re just starting out and you don’t have a lot in there, think about the children who have the really small accounts. Maybe only $6000 that first year. You have the ability to not only get you know just a money market that’s going to pay you an interest rate, which is probably not a huge interest rate, but you have the ability to partner your IRA’s. So, I have a family of six people that regularly goes in together to do purchases of real estate or investments and promissory note. Things like that. And yes, the youngest child doesn’t have all that much in their IRA, but even if they only own 2% of that property they just purchased there still growing and they’re still getting that money back. And when the house sells, or if they just keep it as a rental, it just continues to grow and overtime it gets bigger and bigger. So, then maybe the next time they do a deal they have 5% of that deal, or a 10% of that deal. So, just because you have a small IRA, there’s always something you can do now. If you don’t want to partner, maybe you can do stuff like bridge loans or you know those really small loans. Now if you’re loaning out $6000 to someone so that they can purchase a car and you secure with that car, maybe now you’re making 6% or 10%, or if that person had trouble getting alone 12% or 18%. So, you have lots of options, lots and lots of options, and that’s one of the reasons why we put so many educational videos out on our channel is because we want people to know just how many options they have, and it’s so exciting. Every once while someone will come to us and say, hey, can I do this and it’s like? Yeah, yeah, actually you can. That’s a really cool idea and then we help them set it up so that the IRS doesn’t get excited because you can do tons of stuff in your IRA’s as long as you follow the IRS rules so.  

Jessica: So, you’re saying a self-directed IRA you can invest in anything?  

Diana: Just about. The IRS says that you can’t invest in like collectables or life insurance. They are very specific in what they say. You cannot invest in, but, that leaves everything else. Now they also have prohibited transactions. There are certain things you can’t do. You can’t sell to yourself or buy from yourself. You cannot, for instance, do alone or rent to someone who is a prohibited person, which is people who are linearly related to you, which is straight up and down that family tree. Parents, grandparents, children, grandchildren, anyone married to them. But you can go sideways. So, as long as you know the rules, if there’s something that you know of that you can make money on chances are pretty good that there is a way to do that investment inside of your IRA. 

Jessica: Thanks. Let’s see. Any more questions? We’ll just give it a second here. OK, I don’t see any more coming through. So, Diana, thank you so much for sharing this knowledge and providing some really helpful advice on how we can dream big for retirement and have a way to move towards it, you know, with a lot of great tax benefits. 

Diana: Absolutely it’s-it’s actually a lot of fun too. I love seeing what people come up with. 

Jessica: Thank you and thank you to our listeners for joining us. If you’d like to contact Diana, we’ve shared her contact information on the screen here and she’s been more than happy to answer any additional questions you may have after we in today’s presentation. So, also let us know how helpful this content is by taking a short survey at the end of today’s session and let us know if you have any other financial, investment, financial or investment topics you’d like us to cover. Will find subject matter experts like Diana, who can speak on these topics because at Upside Avenue we’re really interested in helping you live your Upside. So, don’t forget to subscribe to our newsletter and follow us on social media and lookout for information on our next webinar. Also check out our library of past webinars at upsideavenue.com/learn. You can discover your Upside with Upside Avenue through our non-traded REITs, you can enjoy the benefits of real estate investing for as little as $2,000. You can visit our website upsideavenue.com or contact us directly for more information. Thank you everyone for joining us today. Stay safe and we will see you next time. 

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