Roth or Traditional: Which IRA is right for you?

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There are many options when it comes to how to save for retirement, with one of the most popular being an Individual Retirement Account (or an IRA). With two different types leading the pack, it can be hard to determine which type of IRA you should go for. Here, we break down the differences between a traditional and a Roth IRA, as well as their advantages and disadvantages so you can determine which type is right for you.

What is a Traditional IRA?
A traditional IRA (individual retirement account) allows individuals to direct pre-tax income toward investments that can grow tax-deferred. The IRS assesses no capital gains or dividend income taxes until the beneficiary makes a withdrawal. Individual taxpayers can contribute 100 % of any earned compensation up to a specified maximum dollar amount. Income thresholds may also apply. Contributions to a traditional IRA may be tax-deductible depending on the taxpayer's income, tax-filing status and other factors.” - Investopedia

Pros

  • Tax deductions are made with pre-tax dollars

  • Flexible contribution restrictions

  • Extended contribution timeline per year (15.5 months instead of 12)

Cons

  • Required minimum distributions

  • Employer plans can interfere with tax-deductible contributions

  • Restrictions on investments

  • There are penalties for early withdrawal

What is a Roth IRA?
Roth IRAs are funded with after-tax dollars; the contributions are not tax deductible—although you may be able to take a Saver's Tax Credit of 10% to 50% of the contribution, depending on your income and life situation. But once you start withdrawing funds, qualified distributions (see below) are tax-free.” - Investopedia

Pros

  • Savings grow tax-free

  • There are no required minimum distributions

  • There is no penalty for withdrawing contributions

  • With right distribution management, you can diversify your taxes in retirement

Cons

  • Taxes are paid upfront, rather than when you withdraw

  • The maximum contribution is low - only $6,000/year

  • You have to keep track of your account and set it up yourself

  • You can only open a Roth IRA if you meet the income limit requirements

Is one better than the other?

Not necessarily - the biggest difference between the two is how the contributions are taxed, so, depending on your situation, this will be the biggest factor in your decision. Your income will also help - if you make too much to contribute to a Roth IRA, then the decision’s been made for you.

Typically, people will opt for a Roth IRA if they can, mainly because of the lack of restrictions for withdrawals and during retirement. Also, while you may be getting an immediate benefit of tax breaks now when you contribute to a traditional IRA, you’ll have to deal with that when you retire. In the end, it’s up to you to decide which IRA is best for your situation.

Which type of IRA do you contribute to? Do you think one is better than the other? Let us know in the comments!

Curated - June 2019

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Here are some of our favorite financial reads and Internet finds we came across from last month!

Remove temptation and the ability to act on it from your life as much as possible.
— Trent Hamm

My Biggest Retirement Fear | Can I Retire Yet? | We have many fears that creep up as we get closer to retirement. Darrow Kirkpatrick does an excellent job in breaking each of them down, along with what you can do to ease your worries.

12 Enemies of Good Spending Habits | The Simple Dollar | Does your budget suffer due to these temptations? Here’s how you can combat them.

How to Create a Budget-Friendly Spread for Fourth of July | Mint Life | Holidays and celebrations can get expensive, but they don’t have to be! Here’s how to save and still have fun.

Some Advice for New Investors | A Wealth of Common Sense | Don’t let investing scare you! Here are some tips on how to set yourself up for success.

When You Earn Extra Money, Don’t Save It All | Life Hacker | When was the last time you took a vacation?

ICYMI: How Much Should You Save in Your Emergency Fund? We’ve come up with some guidelines for you to evaluate your situation and figure out just how much you should have saved in your emergency fund before taking the next steps towards financial freedom. Check them out!

How to do a Semi-Annual Financial Check-In

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When a new year begins, it’s very easy to get excited about resolutions and goals. While this may be good for your finances at first, eventually life can and will get in the way. That’s why it’s always a good idea to do a 6-month check in with any of your goals, be they financial or otherwise.

Today, we’ll help guide you through your semi-annual financial check-in to make sure you’re still on track, or to get you back on track.

Gather up all your accounts and statements

First, you’ll want to make sure you have all your ducks in a row by getting all your financial account statements. This includes your bank statements, credit card statements, investment statements, any debts or loan repayments you’re doing, real estate/mortgage, and anything else you can think of that falls into this category. You could also include your credit score statements, but just be careful you aren’t checking these scores too often in one year, as this can affect your score.

Having all the documents laid out will make sure that, when you evaluate them, you aren’t forgetting anything. Make a check-list if you want to be extra-organized!

Re-evaluate your goals

A lot of the time, people will feel as though they are trapped in their goals and have to see them through before making a new one. This doesn’t have to be the case! Sometimes our values or expectations change, which means that our goals will also change. Don’t be afraid to admit if your goal doesn’t align with your beliefs or lifestyle anymore, and change it accordingly.

If your goal is still relevant to you, however, take a look at what steps you’ve accomplished so far, and take time to congratulate yourself. Even if you aren’t quite where you want to be yet, acknowledging that you’ve made progress at all is a great way to keep yourself motivated.

Write down your action plan for the next six months

It’s one thing to think about what your next steps are going to be - it’s another thing entirely to write them down. According to a study at the Dominican University of California, you’re at least 42% more likely to achieve your goals if you write them down and revisit them consistently.

By taking your plan and writing it down step-by-step, you’ll set a clear path for yourself to make sure you will reach your financial goals, and you will also be able to know when you complete certain steps!

Do a quick check-in every month to stay on track

When it comes to my finances, I check my statements every single day to make sure I haven’t missed anything and that I’m on the right track. You don’t have to be as crazy as I am, but make sure you check in with your progress at the very least once a month. Once a week may be even better! That way, you can figure out immediately what has worked, what hasn’t, and change your plan accordingly.

Goals, especially financial ones, can be daunting if you don’t have a path or you’re unsure what to do. Follow these steps, however, and you’re much more likely to be successful!

What are some of your financial goals for the next six months? Have any of your goals changed from January? Let us know in the comments!

How to Save Money During the Summer

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Summer is here! The endless parties, nights, vacations, festivals, food and drinks are always fun to partake in - but they all take a toll on your finances as well. Here are our top five tips to save some money this summer and still be able to have some fun! 

  1. Embrace the beautiful weather!
    Now that we're going to have consistently warm and sunny weather, it's time to use that to our advantage! Instead of driving, consider walking or biking to work, and you'll save on gas money and parking. 
    Exercising outside will also help with any monthly gym fees you may have but never use. Jogging, hiking, or yoga are all great outdoor activities!

  2. Timing is everything!
    Seeing a movie? Go during a matinee! Getting dinner or drinks? Take advantage of the longer days and go outside of the dinner rush. Always be aware of local deals happening during off-times during the summer when you'll perhaps have a little more free time. 

  3. Picnics over patios!
    Summer and Patio Season are interchangeable. While it's fun to meet friends for outdoor drinking once in a while, change it up and plan a potluck-styled picnic instead. Everyone gets to share their best recipes, you'll be outside where it's likely to be less crowded, and you'll be saving money! 

  4. Don't forget about local deals!
    A lot of places offer a discount for people who live in Milwaukee or the surrounding area. The museum and the zoo are two notable examples, and both are great for summertime visits. When out and about, make sure to bring your ID with you, and you may be treated to a discount or special you never even knew existed!

  5. Street festivals, anyone?
    One staple of Milwaukee is what seems to be its endless supply of street festivals during the summer. When I lived in Bay View, I was lucky enough to be able to walk to the end of my own street to partake in one every year! Bars and local businesses love making these events happen to celebrate their city and thank their community, so head to these for inexpensive fun! 

Happy Anniversary! Looking Back on Year One

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Originally featured in the May 2019 E-Newsletter. Click here to subscribe.

On the 13th of this month, Milborn Advisors officially turns the page on our first year. We are extremely thankful to our family, friends, and clients for the support during these past 12 months. Before we look ahead, I thought it would be fitting to look back on our favorite moments throughout year one.

10. The Gift of Wine

Our very first appointment on that first Monday was with a long-term client of ours. He rewarded our journey with a bottle of wine that still sits proudly in my personal office. We are saving this memento for our next milestone anniversary.

9. Sign, Sealed, Delivered

A very proud moment came a few weeks after we officially moved into our office in the Third Ward. Chris Sherman of Brilliant DPI stopped by to hang our official signage on the front of the building.

8. Not-So-Evergreen

Last spring, Drew and I decided to walk to MODGEN - an incredible general store a few blocks from our office - to reward ourselves with some beautiful office plants. We realized after this trial period that neither of us are plant people. If you have a green thumb, please assist us the next time you stop by - these plants need you!

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7. Won't You Be My Neighbor?

Deciding to locate our office in the heart of the Third Ward has been extremely rewarding. It's great to meet fellow business owners through the Historic Third Ward Association, grab a quick lunch at the Public Market, or run into our great friends and clients as they are perusing around the city.

6. Welcome Home!

The evening when many of our clients and friends gathered for our first open house was one to remember. We were so excited to showcase all the hard work that went into our original vision of Milborn Advisors. Watching everyone react to the space was definitely one of the biggest moments for me personally.

5. Simply Having a Wonderful Christmas Time

On another personal note, back in the dead of winter, we hosted a second open house for Christmas in the Ward. My kids still talk about the night they came to dad's office and met Mr. and Mrs. Claus, along with all the reindeer. It was just what we all needed to get into the holiday spirit.

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4. History Repeating

In January, we hosted our first client appreciation event at Pizza Man on the East Side. It was an amazing collection of clients - some with us for 4 months, and some for 10 years. We ate, drank, and listened to my dad tell stories. This night was certainly a nostalgic experience for he and I, as we had our first dinner in Milwaukee in 2007 at the original location. 

3. In the Airwaves

As a die-hard music lover, I couldn't believe when I heard our first live read on Milwaukee's independent radio station, 88Nine. This is a station that I have listened to since I moved to Milwaukee - to hear our practice showcased on the air was a dream come true! 

88Nine will also be the space for our client appreciation event in July, so be on the lookout for invitations!

2. Braving the Cold

Of course, I have to give a special thanks to everyone who braved the ridiculous arctic conditions back in January for the evening at the Ice Bars. I think we can all agree that that may have been the coldest experience for everyone in attendance, but we were able to take some amazing photos to prove that we all toughed it out!

1. Here We Go....

Finally, sending out our introduction letters and e-mails a year ago was one of the most rewarding - if not stressful - days of our lives. We trusted that most of our clients were going to join us on this journey, but we really didn't know what it was going to look like until we pressed "Send".

Within minutes, I received some of the most encouraging e-mails and text messages on my phone. This is a day I will never forget.

This year has been tremendously rewarding to continue working with everyone and allowing us to do what we love. I also want to extend a special thank-you to the handful of clients who retired this year under our new practice. It has been an absolute pleasure and joy to meet with all of you throughout this past year, and we look forward to many, many more years here at Milborn Advisors.

Cheers! Now - can we please officially start spring? 

Curated - May 2019

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Here are some of our favorite financial reads and Internet finds we came across from last month!

I didn’t really understand what it meant to have a relationship with money until I hit my 20s. It was ingrained in me that to have money meant you were either inherently shrewd or corrupt. So we ignore our behaviors, thoughts, and beliefs about money until the damage is done.
— Jackie Lam

If you think financial advisors are a waste, here are six reasons why they aren’t | Rockstar Finance | Not that you need us to convince you, of course.

A Loan Won’t Solve Your Money Woes If You Don’t Fix These 10 Issues First | The Simple Dollar | Make sure you reevaluate your money habits before considering taking out a loan. The Simple Dollar gives great examples as to why.

What I Wish I Knew About Money Throughout the Years | Mint Life | How old were you when you learned these lessons?

Retirement Surprises: What I Wish I Knew About Retirement BEFORE I Retired | New Retirement | The sooner you learn these tips, the better your retirement will be! And - if you’re already retired, consider incorporating these into your life!

3 Fund Portfolio: The Lazy Investing Strategy That Crushes the Pros | My Money Wizard | An interesting take on how to construct your investing portfolio, and why it works.

An ETF That Pays You to Invest is Probably Not a Good Idea | Two Cents | But it does sound oh-so-tempting, right? Here’s why you shouldn’t go for it.

Investments for Beginners | Nerd Wallet | Here’s a list of 6 investments to help you get started on your investing journey.

Tips to Prepare for Retirement Success | The Balance | You can never be too prepared for your retirement!

How to Discuss Finances Before Tying the Knot | Milborn Advisors | Follow these tips to include this discussion in your wedding planning.

Keep up with us on social media, where we share content like this regularly:

How Much Should You Save In Your Emergency Fund?

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You’ve most likely heard many variations of answers when it comes to the question of “How much should I have in my emergency fund?” From $1,000, to six months of expenses, up to a year, and anywhere in between. These answers vary from person to person, so it’s hard to know which amount will be right for you.

We’ve come up with some guidelines for you to evaluate your situation and figure out just how much you should have saved in your emergency fund before taking the next steps towards financial freedom. Check them out below!

What is your living/family situation like?

The first thing you’ll need to consider is how many people you’ll need to support should you have to rely on your emergency fund for a while. If it’s just you, obviously you’ll need less than someone who is married with three children, or who has their elderly parent living with them. Keep in mind that the more people you have to support, the less your emergency fund money will be spent on you directly.

How do you pay for your living arrangements?

Do you have a mortgage? Do you rent an apartment? How long do you want to be able to make payments before going to work again, should you lose your job or have medical leave or maternity/paternity leave? Are you paying for it all yourself, or are you splitting payments with someone?

Do you own a vehicle?

If you car is your primary source of transportation with no options of biking, walking, or public transportation, you need to take that into account when building your fund. If your car breaks down, you have to be able to fix it as soon as possible so you can continue to go to work.

How much do you spend each month on bills?

Similar to how you assess your living payments, figure out how much you pay monthly on bills. Are there any bills you could negotiate to a lower monthly rate? Are there any recurring subscriptions that you could cancel (whether you’re even aware of them or not)? Do you split costs with anyone? Knowing how much goes out each month will help you figure out how much you can put into savings each month, and how much you’ll need to live three-to-six months without worrying about extra income should the situation arise.

How much do you spend on extra expenses (non-necessary)?

Ah, here come the worst part. We all have to have our vices now and again, but how often do you indulge? Those daily coffee runs can add up, so see where you can cut back. After that, figure out how much this monthly cost is, and figure out if you’ll be able to spend that much after you put away your monthly savings contribution.

Do you have savings already?

Perhaps you have some money tucked away already, but you aren’t quite sure what to do with it. Figuring out a goal for your emergency fund helps give those dollars just floating into accounts a job to do. Plus - you’ll have a cushion already, and you’ll be that much closer to hitting your goal and taking your next financial steps.

Do you use healthcare frequently?

How often you need to visit the doctor and dentist will drastically affect your emergency fund. Make sure you have enough saved to cover any co-pays, medication, and hospital visits should an emergency arise.

Do you have debt to pay off?

If you do, hopefully you’re already making monthly payments. Make sure to figure out how much you can pay if you need to rely on your emergency fund to cover costs. That being said, don’t dip into your emergency fund to pay for debt if you don’t have to. Ideally, this account should be used for last-minute emergencies that may come.

Do you expect a major financial crisis to occur in the next year?

Obviously, it’s hard to predict financial crises, but if you feel as though you may have to make a big payment (for example, you have a feeling your car will break down for good and you need solid transportation), it’s good to trust that intuition and budget accordingly. Hope for the best, but expect the worst (or at least, prepare yourself for it).

What number are you comfortable with?

All in all, it really depends on what number you feel you’ll be comfortable living off of for an extended period of time. Ideally. you won’t need to use your emergency fund hardly ever, but it’s good to have a solid number and time frame should you end up in that situation.

Still not sure how much you should save? Contact us for a free consultation, and we’ll be able to tell you exactly what you should do!