- Types of IRS's
- Brokerage Accounts
- How To Make A Trade
The basic difference between a Traditional IRA and a Roth IRA is you pay income tax on withdrawals from the Traditional and with a Roth you don't. One can enter their checking account information to your IRA website and initiate an Electronic Funds Transfer in order to make a contribution. Doing this you are doing it with federally taxed money.
When you contribute to a Traditional you get to take it off your 'taxable income' when you file your taxes. With a Roth you don't get that tax break when you file, but then, any withdrawal in retirement age from a Roth is not taxed, like the Traditional is. Also, both have contribution limits, so be sure to check the Internet for the current year limits...
Many will argue a Roth is better since any withdrawal after age 59 1/2 is not taxed. Now that we are debt free and still working we have a lot of disposable income to invest. I set a goal to contribute $1,200 per month, $14,400 a year, and this is on top of the 11% contribution I make, and the 6% my wife makes, to our 401k's.
The 2023 IRA limit is $7,500 for each of us. The HSA max together is $7,750. What I do is simple. The first 3 months of the year I contribute to our HSA, (3,600) then $6,400 to my wife's IRA. Then the final $4,400 goes to my Roth. For my wife and I, this ensures our tax refund is pretty good. We are at the lower end of what is considered middle-class. But we can get the best of both words, tax free money to spend on medical, dental and eye-wear costs with the HSA, and a retirement account that isn't taxable.
Brokerage Account
If you max out on your IRA contribution for the year, have a healthy 401k contribution and still have cash to invest, the next best think is a brokerage account, especially if you think you might need access to the cash. With IRA's and 401k's there is a 10% penalty for early withdraw, plus withdrawal's are considered income, so you might have a higher tax bill come April. Since a brokerage account is not a retirement account there is no withdrawal penalty or need to pay income tax. The only tax liability is on gains.
Fidelity has a brokerage account that comes with a Visa Debt Card. I put 5k in it and bought three monthly dividend payers. About $46 goes in as cash every month from the dividends. I could buy more shares of something or I could use the debt card and buy some gas for the truck....
How To Make A Trade
I always recommend Fidelity.com when talking to friends about IRA Dividend Investing because it is what I use and I am familiar with it. I've never had to call them for anything. Their website is user friendly and they have a lot of great features like; analysis, performance, and planning. You also have the option for your dividends to automatically buy more shares, or go into your account as cash. Just click Account Features - Brokerage & Trading - Dividend & Capital Gains - to make a change from "reinvestment" to "cash". If you do make a trade to buy and it executes the default is your dividends will go to buy more shares.
You can have both types of IRA's, a brokerage account that comes with a Visa Debit Card and a Visa Rewards Credit Card. And, if your wife opens an IRA you can link hers with yours and view all your accounts from one log in. And, there is no charge for any of this. Even buying and selling securities costs nothing.
They also make it real easy to roll over old 401k's. I've done it once for me and three times for my wife. All you have to do is first sign up for an IRA. Then call your 401k admin and tell them you want to roll your 401k into your Fidelity IRA. They will probably mail you forms to fill out and send back. Some have online portals. You will give them your Fidelity IRA account number and they will send you a check. It will be payable to Fidelity in care of you. You then mail it to Fidelity. Or they make the transfer to Fidelity directly.
To make a stock trade...
1. From the Summary Page click Trade, top left on the main menu bar.
2. Select the right Account, if you have more than one.
3. Click on the Symbol box and enter the stocks symbol. If you were to type FAX, than the tab key, this information would show: ABERDEEN ASIA PACIFIC INCOME FUND INC (FAX). If you did it on 3/31/21 it would show the current price, which was $4.09.
4. Select Buy or Sell.
5. Select Shares or Dollars.
6. Enter Share or Dollar amount in the next field.
7. Select Limit and enter the "limit" you are willing to pay.
8. Select Day or GTC, Good Till Cancelled. The Day trade is good for one day and expires 4pm Eastern Time. If you make a trade order after 4pm ET then it will be good for the entire next day.
9. Select Preview Order then Submit.
If you open a trade at 6pm to buy FAX at a Limit Price of $4.10 and the market opens the next day and out the gate FAX is at 4.12 your trade will not execute because you made your trade with a limit price of $4.10. If sometime in the day it goes back to $4.10 it will execute. An option is to make your buy trade for FAX at a Limit Price of $4.12. That's 3 cents higher than it's closing price. Chances are better the next day your trade will execute. But again, if at the opening bell FAX opens at $4.13 you trade will not execute.
Lets say you did an EFT (Electronic Fund Transfer) of $1,000 and wanted to buy FAX at $4.09 your $1,000 would buy 244 shares. FAX is monthly dividend payer of $ 0.027500. Your 244 shares made you $6.71 that month, or $80.52 a year. But if your dividend buys more shares each month automatically you would get a bit higher return after a year because each month you'd have more shares and each month a higher dividend payment. Fidelity doesn't charge to buy and sell, even if it's just one share.
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