you need to take care of your future first. Take advantage of saving through your tax-sheltered retirement accounts before you set aside money in custodial savings accounts for your kids.
Last-mile boot camps: Last-mile programs teach students technical skills and clear the pathways to jobs in growing industries like technology, biotech, fintech, and healthcare.
College minimum viable products (MVPs): These programs combine the technical skill training and placement of traditional last-mile programs with significant cognitive and noncognitive skill development that students get from a good college.
Apprenticeships: Emerging apprenticeships provide pathways for jobs in the manufacturing, healthcare, pharmacy, information technology (IT), insurance, financial services, and software development industries.
Staffing firms: These companies hire workers and staff them out to clients. For example, Revature, an IT staffing company, hires experienced software developers. Also, Avenica places students from many colleges and offers last-mile training across many industries.
Vocational and trade schools: Also known as career and technical education (CTE), these schools provide gateways to a wide range of jobs in the automotive industry, culinary arts, emergency services, healthcare, and more.
Investing short-term money
So where should you invest money earmarked for a shorter-term goal? A money market account or short-term bond fund is a good place to store your short-term savings. See Chapter 4 in Book 2 as well as Book 4 for more information on these options. The best bank or credit union accounts may be worth considering as well.
Investing in Retirement Accounts
During your younger adult years, you may not be thinking much about retirement because it seems to be well off in the distance. But if you’d like to scale back on your work schedule someday, partly or completely, you’re best off saving toward that goal as soon as you start drawing a regular paycheck.
This section explains the benefits and possible concerns of investing through so-called retirement accounts. It also lays out the retirement account options you may access.
Understanding retirement account perks
Where possible, try to save and invest in accounts that offer you a tax advantage, which is precisely what retirement accounts offer you. These accounts — known by such enlightening acronyms and names as 401(k), 403(b), SEP-IRA, and so on — offer tax breaks to people of all economic means. Consider the following advantages to investing in retirement accounts:
Contributions often provide up-front tax breaks. By investing through a retirement account, you not only plan wisely for your future but also get an immediate financial reward: lower taxes, which mean more money available for saving and investing. Retirement account contributions generally aren’t taxed at either the federal or state income tax level until withdrawal (but they’re still subject to Social Security and Medicare taxes when earned). If you’re paying, say, 30 percent between federal and state taxes (see Chapter 2 in Book 2 to determine your tax bracket), a $4,000 contribution to a retirement account lowers your income taxes by $1,200.Modest income earners also may get an additional government tax credit known as the Retirement Savings Contributions Credit. A maximum credit of 50 percent applies to the first $2,000 contributed for single taxpayers with an adjusted gross income (AGI) of no more than $19,750 and married couples filing jointly with an AGI of $39,500 or less. Singles with an AGI of between $19,750 and $21,500 and married couples with an AGI between $39,500 and $43,000 are eligible for a 20 percent tax credit. Single taxpayers with an AGI of more than $21,500 but no more than $33,000, as well as married couples with an AGI between $43,000 and $66,000, can get a 10 percent tax credit.
Your employer may match some of your contributions. This cash is free money from your employer, and it’s use it or lose it, so don’t miss out!
Investment returns compound tax-free. After you put money into a retirement account, you get to defer taxes on all the accumulating gains and profits (including interest and dividends) until you withdraw the money down the road. Thus, more money is working for you over a longer period of time. (One exception: Roth IRAs offer no up-front tax breaks but permit tax-free withdrawal of investment earnings in retirement.)
Grappling with retirement account concerns
There are legitimate concerns about putting money into a retirement account. First and foremost is the fact that once you place such money inside a retirement account, you can’t generally access it before age 59½ without paying current income taxes and a penalty — 10 percent of the withdrawn amount in federal tax, plus whatever your state charges.
You can make penalty-free withdrawals of up to $10,000 from IRAs for a first-time home purchase or higher educational expenses for you, your spouse, or your children (and even grandchildren).
Some company retirement plans allow you to borrow against your balance. You’re essentially loaning money to yourself, with the interest payments going back into your account.
If you have major medical expenses (exceeding 10 percent of your income) or a disability, you may be exempt from the penalties under certain conditions. (You will still owe ordinary income tax on withdrawals.)
You may withdraw money before age 59½ if you do so in equal, annual installments based on your life expectancy. You generally must make such distributions for at least five years or until age 59½, whichever is later.
