Money Talks November 2020 | Christian Cintron

Enjoying Double Dinero

 

Let’s be real. Latinos love music. Whether you’re emo and “Dreaming of You” with Selena or whiling out with some reggaetón you are moving to the music. Like us, this cat knows where it’s at. 🕺🏽💃🏽 

But you know what’s the real bop? Free money. It sounds crazy but if your jef@ offers 401k matching, low key, that means double dinero. 💸🤑💸 This is money you get for free just for saving. 401que que?!?

How it Works

Retirement accounts are a special type of savings account for when you retire. Porque like…will social security even be a thing in 30 years? How it works is you start putting money aside when you’re young. These go into accounts like IRAs or 401ks. That money gets invested and it makes money over the course of your life. When you are ready to retire you’ve made money off the 30 years of investing and start taking it out of your account.  

Pero…Where’s the Free Money? 

There are tax benefits for saving for retirement. In some situations, you don’t get taxed until you take the money out of your retirement account when you retire. So if you are taking money out of your paycheck you get taxed at a lower salary. 

Por ejemplo, let’s say this cat makes 10k dollars a year.  That’s all he needs. He’s a cat…so that’s kind of an impressive salary. Now, if he puts 1k a year into his 401k. He is taxed on 9k a year instead of 10k a year. So he ends up paying less taxes that year. 

Now your employer also gets some tax benefits for putting money into your 401k. That’s where 401k matching comes. El gatito blanquito is dancing because his company does 401k matching. So that 1k a year he puts into his 401k he gets an extra 1k from his job. So now that’s 2k dollars saved for retirement plus the tax benefits. 

The Fine Print

Now you do get free money. But you will often have to wait until retirement. 👵🏽 There’s something called “vesting” where the money isn’t 100% yours for a certain amount of time. So you have to wait until the money is “vested” to get it. 

Also, your company may only match part or 100% of your contribution. Now if they do 100% matching you may want to go HAM with your 401k contributions. The more you contribute the more you get for free.

The IRS limits how much tax-deferred money you can donate to your 401k. It’s $58,000 in 2021. Anything over that can be saved for retirement but will need a different account. This is where a Roth-IRA comes in. A Roth-IRA is taxed income you put away for retirement. 

So you may want to save more than the IRS lets you, because the benefit of ROth IRA’s is that when you go to pull the money out when you retire you don’t get taxed on that money. Unlike the 401k where you will get taxes on the money you pull out during retirement.

In either case, you are paying taxes, but the difference here is what tax bracket you are in when you are paying those taxes (now vs. when you retire).

 

Honestly, this is a huge win. Saving for retirement may seem crazy. But if you put a dollar away. In 30 years you will have a whole lot of interest. And what makes 401ks different is that they get higher interest because they’re invested. 

Now that you know there’s free money, take a deep dive into 401k options if they are available for your work. You can also look into IRAs, and Roth-IRAs. Keep an eye on @Wesaresuma on Instagram and wearesuma.com for more information on retirement savings, managing your money, and more.

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