A typical Roth IRA has nearly $40,000, but you can accumulate significantly more.

This Week In Your Wallet: Your Tax-Exempt Strategy

With the Olympics approaching, I can't wait to see athletes like Simone Biles showcase their incredible skills. The precision and strength displayed on that narrow beam astonish me. (Curious about gymnastics? I found a fascinating article on Chelsea Memmel's inspiring comeback.)

After a gymnast competes, her teammates rush in for hugs, celebrating her efforts or offering comfort if things didn't go as planned. Perhaps we should adopt a similar approach to journalism? Kudos to the reporters at ProPublica for sparking important discussions with their work.

Recently, one investigation revealed how billionaire Peter Thiel transformed a Roth IRA into “a massive tax-free piggy bank.” Can you believe it? A staggering $5 billion! This dwarfs the average Roth balance. Many readers express interest in Roth IRAs, and rightly so. If you expect your tax rate to rise, funding a Roth now can be a wise choice, allowing tax-free withdrawals in the future. You can also access contributions for emergencies, home purchases, or education without worrying about required minimum distributions. This makes sense if you, like me, foresee rising taxes.

Of course, we're not all billionaires. However, as Anne Tergesen pointed out, many might be overlooking ways to contribute more to a Roth through conversions. The secret lies in after-tax contributions to a 401(k). About half of 401(k) plans allow such contributions, which can exceed the maximum annual limit ($19,500 for those under 50, $26,000 for 50 and over) by an additional $38,500. If done quickly, you can convert these funds to a Roth IRA or Roth 401(k) for tax-free growth.

Even if after-tax contributions aren't an option, traditional Roth contributions or conversions have their advantages. Check out this podcast episode featuring Ed Slott, a Roth expert, along with the related IRA mailbag for valuable insights.

Spotlight on Two Stories

Another ProPublica article that intrigued me focused on issues with Chime accounts. For those unfamiliar, Chime is a fintech company acting as a bridge between customers and an FDIC-insured bank. With 12 million users, Chime appeals to lower-income consumers by not requiring credit checks and offering paycheck advances.

However, since April 2020, over 900 complaints against Chime have been filed with the Consumer Financial Protection Bureau, and five times that number with the BBB. Many complaints involve inexplicable account closures, causing delays in accessing funds. Chime claims these closures aim to mitigate fraud.

As fintech and neo-banks rise, it's crucial to understand the institution handling your money and the terms involved if issues arise. While we might not need to know our bank tellers personally, trust is vital when it comes to your finances.

Recommended Reading

If you're returning to work, be cautious about the confusing hybrid work models emerging today. Inconsistent rules can lead to frustration, which might indicate a toxic work environment. A toxic hybrid workplace is characterized by unclear guidelines that leave you feeling like you’re in trouble despite meeting deadlines. If this sounds familiar, the conversation with Lindsey Pollak might be insightful.

Back to School on a Budget

Thanks to everyone who expressed interest in a FinanceFixx session for recent college graduates looking to manage their finances. We’re compiling a list of interested individuals and will launch a session soon. (Want to join? Email us!) The next 8-week adult course starts August 12. Limited spots remain, so if you want to gain control of your financial future this back-to-school season, sign up!

“With retirement several years away, FinanceFixx helped me prepare financially for when I stop working full-time. It allowed me to assess my spending and prioritize what matters, uncovering ways to save more. FinanceFixx clarified the adjustments needed to feel ready for the next chapter in life.”

— Linda H, Maine