Savings for Railroad Retirement

Transcript:

Understand the possibilities for those extra dollars you saved for Railroad Retirement.

Welcome everyone to the Highball Advisors railroad retirement whiteboard. My name's John McNamara of Highball Advisors; And today we're going to talk about, uh, you know, putting those savings dollars for railroad retirement and other goals where they should go and just give you a high level of understanding all the possibilities and options, uh, for those dollars. So I'm just going to walk through kind of a little matrix that I put together and I'll give you some ideas that you're saying, well, okay, I should put some money in this account. I should put some money in that account. Some in there, no, no money in there, those types of things. So let's look through the, uh, possible accounts that we're talking about here for savings, right? You have your 401k, uh, your traditional IRA, right? That's your tax deferred, uh, uh, retirement account, your Roth, which is after tax contributions, your HSA health savings account, 529 accounts, which are for college savings.

Okay. And then your taxable accounts, which are your investment accounts, like brokerage accounts and, uh, things along that line. So let's look at how that all works out. So as we work here, right, for contributions. Okay. So 401k and traditional IRA all pre-tax right. You just put the money straight in. There's no taxes taken out, uh, in there similar to the HSA. Okay. Now these other accounts, the Roth, uh, those are with after tax contributions, same with the 529 and your brokerage and taxable accounts. Those are all after tax contribution. So that's on the contribution side. Now, as we move over on the investment growth, right? They all pretty much grow tax deferred, which means you don't have to pay any taxes on the gains that are generated with your investments. However, on the taxable accounts that they are taxable. So imagine if a, uh, a stock might give it out a dividend, you've got to pay taxes on that.

Or if a mutual fund has a dividend, those are taxables. Now when you want to withdraw the money out, okay. Here's where the rubber hits the road. So to speak so on your 401ks and your IRAs, those are taxable at ordinary income rates. Okay? Whatever your income tax rate is at that time, that's, what's taxed at, okay. Your, a Roth IRA is tax exempt that you've paid taxes on the front part, right? The after-tax contributions that you pay. So now you get the money all out tax free, very, very, um, uh, great benefit there in retirement, for sure. All right. Now look at the HSA tax exempt, right? No taxes on that money as withdrawal qualifier though. I should probably put the asterisks up here. Right? I'll do that now. Little asterisks. Okay. Early on medical expenses, right? So you can't go out and buy that big boat with money or HSA taxable tax free only on a medical expenses, same with the a 529, right.

Taking the money out for the kids' college grandkids, college tax exempt again. So another asterix for qualified education costs. All right. And then finally taxable gains on the, uh, investment accounts to brokerage accounts. So, uh, that would be not taxed at ordinary income, but taxed at hopefully long-term capital gains, which means you held the investment for over one year, anything less than one year, it gets taxed at ordinary income. So that's a different little tax strategy down there. All right. So when you look at that, you can take a step back and look at all these really the best one. If you think about it is your HSA, which is pre-tax tax deferred and tax exempt because everybody's going to have medical expenses. So I would say that's the best one. However, when you think about retirement and the 401k, if you get that, that probably comes out the best.

And why is that? Because it comes with usually a company match. So the company match gives you a little extra on top of that and you save for retirement. So 401k, I'm going to put it number one because of the match. And then number two, I'm going, uh, HSA on that, just because of the, all these, I know everybody's going to have medical expenses, and I know I get all these tax breaks. So those are my top two. And then, uh, as you get into retirement, you know, depending upon the amounts, you, you want to try and get everything into those Roths for tax-free conversions, that type of thing. So I hope you found this helpful reach out to me if you need any help with this, especially those closing in, on railroad retirement, as you get in closer, these strategies are very important trying to minimize these, all these little tax buckets.

These, you don't want these red ones coming up, taxable, taxable, right. Strategies to reduce, you know, get that tax-free income in retirement. So once again, please reach out to me, sign up for that boarding for railroad retirement process. And we'll work through all this stuff together. Also subscribe to my YouTube channel it's growing. It's great. Appreciate it. Click on it for notifications. A little bell icon. Give me a thumbs up, like share it. You know, I hear a lot of great stories. Oh, I shared this with this. If I, and somebody might reach out to me. It's great. Uh, so I appreciate that. And the meantime, everyone, please stay safe, stay on track and take care so long everybody. Bye.

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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved.from Highball Advisors, and all rights are reserved.