401k, 457, 403b, and similar plans are the easiest way for most people to begin and continue investing. A portion of your pre-tax earned income can be placed in these plans. Currently, $19,000 can be invested when younger than 50 and $24,000 when older. Taxes are not due on principal or earnings until you withdraw the money from the plan. If you withdraw money before you're 59.5 years old you will also pay a 10% penalty to the IRS, unless for verified hardship or as part of an equal periodic payment over your projected life expectancy. On these employer-based tax deferred plans neither tax nor penalty applies in instances in which you borrow money from your account and pay it back according to your employer’s payment schedule. However, there will be double-taxation on the earned income used to pay off the loan – once prior to payback and later when that amount is taken as a withdrawal. In addition, when the money is not in the plan it cannot provide earnings growth over the years. Therefore, you should refuse to borrow from these plans except in extreme emergencies that would decimate your finances and life if not taken care of with available funds.
A brokerage account IRA also provides great benefit. You put in post-tax earned income. Currently, $6,000 can be invested when younger than 50 and $7,000 when older. When under a certain adjusted gross-income you can take a deduction on your federal tax return. Taxes on the earnings of IRA accounts are deferred until withdrawal and there is no 10% penalty when money is taken out of the plan after 59.5 years of age. A Roth IRA also allows you to invest post-tax earned income and to not be taxed on earnings or charged a penalty as long as you maintain the account for at least five years and do not withdraw earnings before 59.5 years of age. You can withdraw post- tax contributions at any time without additional tax or penalty. On both types of IRA’s there are a few situations where early withdrawal of earnings might not be penalized, but would be taxed.
Because money that you have chosen to invest into the above noted plans is usually automatically payroll deducted from your employer’s payroll or electronic funds transferred EFT from a savings/checking account, you are more apt to continually invest a set amount month after month throughout your working years. Automating the process helps overcome failure to launch investing and procrastination that overtakes many who failed to invest but know they should have started years ago. Once your financial situation is ready for you to invest, 10 percent of gross income is a good starting point that will afford you great long-term earnings over a long-term investing period when the money is put in no-load low-expense stock index mutual funds like S&P 500 or Total Stock Market. You will quickly realize you do not miss the dollars invested. In fact, you will quickly feel good about doing it and seeing your prosperous future unfolding. For example, a person who invests $500 per month or $6,000 per year and earns 10% annual growth would amass $1,130,000 in 30 years.
Research these plans and other types of brokerage accounts to determine which ones better fit your plan for reaching the wealthy place. Also, realize past earnings are no guarantee of future results, yet historical data generally shows the great benefit received by those who over many years buy and hold a broad array of stocks via no-load low-expense stock index mutual funds. This article could not give you a complete picture of these investment plans. However, they are certainly great tools to put your investment plan into action and on auto pilot so you can reap rich rewards. This will enable you to fulfill the plan God has for you and allow you to enjoy many things on earth while you go about your Father’s business.
Please pray for this ministry, email me with any questions, and contact me to speak at your business/ministry’s conference/workshop. May the LORD bless you richly as you follow His plan!
Proverbs 21:20, Ecclesiastes 11:2, Matthew 25:20-23, Luke 19:15-19
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