Frank Bernheisel: The View From Here
Frank Bernheisel
Frank Bernheisel
Posted 3.9.22
Just Outside Washington



This short piece is targeted at my grandchildren and others in the younger set. It is the result of a conversation over lunch with my friend, who is an economist, investment advisor, former banker, and currently international consultant. The piece recommends saving money because as Tennessee Williams said: "You can be young without money, but you can't be old without it."

These days most companies do not have retirement plans and you will need to rely on Social Security and your investments for retirement income. If you are lucky, your firm will contribute to a 401 (k) plan. Those who do gig work may not even have Social Security, which makes retirement look risky. You may think that you are making good money, and there is no problem. However, the future is hard to predict except for one thing; things will change. So, the advice from grandad is, start to save now and save some amount every month, even if it is only $50.

I recommend you put this money a Roth IRA because when you withdraw the money after you retire, it is tax free.

If you put $50 per month in a Roth IRA savings account at 3 percent interest for 20 years, you would have $18,000. An alternative is the S&P 500 Index Fund, which could result in $65,000 based on the 15 percent growth rate of the last 20 years. Obviously, larger contributions mean a better funded retirement.

A Roth IRA is an individual retirement account, which can contain investments in securities, including common stocks and bonds, mutual funds and index funds (although other investments, including derivatives, notes, certificates of deposit, and real estate are possible).

A Roth IRA can also be an individual retirement annuity, which is an annuity contract, or an endowment contract purchased from a life insurance company (not recommended).

As with all IRAs, the Internal Revenue Service (IRS) mandates specific eligibility and filing status requirements, which you need to check. Roth IRA's main advantages are its tax structure and the flexibility that this tax structure provides. Also, there are fewer restrictions on the investments that can be made in the plan than with other tax-advantaged plans, which adds to their desirability.

The total contributions allowed per year to all IRAs is the lesser of one's taxable income and the limit amounts set annually by the IRS. In the case of a married couple, each spouse may contribute up to the limited amount, which the IRS has raised every year. In 2019 to 2022 the annual limit was $6,000 for persons aged 49 and below and $7,000 for those over 50. However, high earners, are prohibited from contributing directly to a Roth IRA if their modified adjusted gross income in 2022 is at least $144,000. Get in early.

There is discussion in Congress, and legislation has been proposed, which would end conversion of 401 (k) plans to Roth IRAs and to modify or eliminate the Roth IRA entirely. Again, my message is start you Roth IRA now, and contribute to it every month.