The Thing We Never Talk About

Timothy Iseler: Hi everyone.

Welcome to The Thing We Never Talk About.

My name is Tim Iseler.

I'm a Certified Financial Planner™ and I
run my own independent financial advisory

business helping musicians, artists,
and other people with weird jobs make

smarter decisions with their money.

You can learn more at iselerfinancial.com.

And if you have a question about money or
personal finance, please send it my way

by visiting Iselerfinancial.com/podcast

and I will answer it in a future episode.

And if you enjoyed this podcast, you can
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I write about exactly this kind of
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You can subscribe at
Iselerfinancial.com/newsletter.

Today we're gonna talk all about the
individual retirement account, also

known as an IRA, or in some areas an ira.

IRAs are one of the easiest and best
ways for ordinary people, just like

you and me, to save for retirement.

But what I've learned through lots
of different conversations, including

on the show, is that they are also
kind of mysterious and misunderstood.

So my goal for today is to cover some
of the biggest and most important topics

related to IRAs so that you can make
more well-informed decisions when it

comes to your own saving and investing.

Here's what we're going to cover:

what is an IRA and why you need to
think about what you own inside it;

Who can contribute to IRAs;

the two main types of IRAs and what
the differences are between them;

How much you can contribute and
whether you can have multiple IRAs;

how the IRS treats the two
main types of IRAs, including

deductibility of contributions and
what happens when you take money out;

I will briefly touch on a
technique that high earners can

use to move money into Roth IRAs;

and I will wrap up by mentioning
two types of more advanced iRAs that

self-employed people might consider.

First, let's just start with the
name individual retirement account.

The first thing you'll notice is the
word individual, which means that an

IRA can only be owned by one person.

Not a couple, not a
company, but an individual.

Obviously the word retirement is in there,
so we can gather that The purpose of

this account is to save for retirement.

But of course not everyone
actually wants to retire.

If you're one of those people who
wants to work forever, just think of

"more and better options" whenever
you hear the word retirement.

And finally, there's the word account.

Specifically, it's an account in
which you can hold investments.

And because the government wants to
encourage people to save for old age,

there are tax advantages associated
with these types of accounts.

So the first point I want to make is
that an IRA is not itself an investment.

Rather, it's an account in
which you can hold investments.

If you're new to investing, you might
not understand this distinction.

Adding money to an IRA is a good
thing, but if you don't use that

money to invest, then it just sits
there as cash and you basically

have a complicated savings account.

That is not ideal.

So again, when you put money
into an IRA, you should use

that money to buy investments.

What kinds of investments you own inside
an IRA will depend on your age, current

financial health, and risk tolerance.

In terms of what you should own inside
your IRA, I'd first like to say that

you should not consider anything I
say on this podcast investment advice.

I'm sending this out to a mass audience,
the entire world, so nothing I say

could possibly incorporate all of
the relevant factors in your life.

Now that disclaimer aside, I will say
that the further you are from being

financially independent, meaning you
don't need to work to support yourself,

the more you need your money to grow.

And conversely, the closer you
are to financial independence,

the more you need to think about
balancing growth with preservation.

I hope that makes sense.

Generally speaking, investing in stocks
tends to be very volatile in the short

term, meaning they go up and down a
lot from day to day, but they are very

reliable for building wealth if you extend
your timeline to 10 or 15 plus years.

So if you're more than 10 to 15 plus
years from being able to live off

your investments, a stock heavy mix
is probably a good match for you.

And generally speaking, investing in
bonds or bond funds tends to be more

stable in the short term, and it generates
a little income to boot, but it's not

really growth oriented over the long term.

So as you get closer to financial
independence, you can think about

shifting some of your stocks or stock
funds into bonds or bond funds to

balance out growth with stability.

A rule of thumb is that a typical
retiree mix might be 50% stock funds

and 50% bond funds, while 90% stocks
and 10% bonds would be considered very

aggressive and therefore appropriate
for someone with many decades to go.

Almost everyone is gonna fall
somewhere in that spectrum between

90% stocks, 10% bonds, which is
very aggressive, and 50% stocks, 50%

bonds, which is very conservative.

My personal belief is that everybody's
investing superpower is being able to

own the same investments for a really,
really long time, because then you get

to enjoy the benefits of compound growth.

So I always try to match someone
with an investment mix that fits

not only their timeline and goals,
but also how they feel about risk.

I'd much rather you own investments
that let you sleep at night, and

therefore that therefore you can
own them for a really long time,

then to try to optimize everything
and put you in investments that are

technically correct, but stress you out.

I hope that makes sense to everybody.

So who can contribute to IRAs?

In order to put money into an IRA,
which is called a contribution,

the first requirement is
that you have earned income.

In other words, did you
work for compensation?

If so, then you can contribute to an IRA.

If not, then you cannot contribute.

And by the way, that
also applies to minors.

If someone who's under 18
has earned income, then he or

she can contribute to an IRA.

That's wild, right?

If you have a kid at home with any
reportable income, you can consider

getting them on the saving and investing
tip early by opening a minor iRA.

There is one small asterisk when it
comes to having earned income: spouses

can contribute to each other's accounts,
so even if one spouse earns most or all

of the household income, both spouses
can still contribute to separate IRAs.

There are two main types of IRAs and
I'd like to give you a quick overview

before diving into some of the details.

The two main types of IRAs are
called Traditional and Roth.

Traditional is kind of an industry term,
but most people might think of it as

just the quote unquote regular type where
you get a tax break for contributing.

Tax breaks are awesome, everybody
loves saving money on taxes, but the

downside is that all distributions
from Traditional IRAs are taxed

as ordinary income, including the
money that you originally put in.

Roth IRAs, on the other hand, offer no
current year tax break, but the upside is

that all growth, dividends, and interest
can be taken out tax free in retirement.

So the big picture difference is when
you pay taxes on your contributions.

With Traditional IRAs, you can
avoid paying taxes on that money

now, but you'll pay taxes on that
money and all of the growth later.

With Roth IRAs, you pay taxes on the
money now, so you don't save anything

now, but you won't pay any taxes on the
growth, dividends, or interest later.

And compounding being what it
is, with enough time, that growth

could easily double or triple
what you originally put in.

So balancing the near term and long
term tax consequence is important.

The amount that you can contribute
is the lesser of the current

annual maximum or your total
earned income, whichever is less.

The annual maximum for 2026 is $7,500,
so if you earn $8,000 this year, then you

could put that $7,500 max into an IRA.

However, if you only earn
$6,000 this year, then 6,000

is the most you can put in.

Does that make sense?

You can only put in the
maximum contribution if

you made that much or more.

Otherwise, the most you can
put in is total earned income.

FYI, the annual maximum changes
from year to year, so just do

a quick Google search if you're
listening to this and it's not 2026.

Additionally, there is no rule that
you can only have one IRA per year.

The rule is that there is a maximum
amount you can contribute to all IRAs

each year, but those contributions could
be spread across multiple accounts.

For example, you could have 10
different IRAs and put $750 into

each of them, which would max out
your contributions for the year.

Now, I don't see a lot of utility
in doing that, in, in having that

many different accounts, and I don't
necessarily recommend it, but I

just wanted to make the point that
the rule is around the total amount

you contribute and not necessarily
the number of accounts you own.

However, if you qualify to contribute
to both a Traditional and a Roth

IRA, you could choose to split your
contributions between them so that

you get some immediate tax benefit
with the Traditional account and

some tax-free dis distributions in
retirement from the Roth account.

As long as your total combined
contributions don't exceed the annual

maximum, that's totally allowed.

And I see a lot of benefit in
choosing to do that, getting

both kinds of tax advantages.

Or if you have an up and down income
like most self-employed people, you

could have both a Traditional and a
Roth IRA and choose to contribute to

the Traditional account during the
years where you make more money, and

therefore the tax deduction would mean
more, and contribute to a Roth IRA

during the lower income years when you
would see less benefit from a tax break.

Does that make sense?

If you make more money in a
given year, you'll see a bigger

impact from a tax deduction, so
the Traditional IRA makes sense.

If you make less money in a given year,
then the tax deduction won't mean as much

and so you could choose to forego the
current year tax break in favor of the

tax-free distributions from a Roth IRA.

Now let's talk about the
tax consequences of IRAs.

Regardless of which type of tax
advantaged retirement account you use,

whether that's a Traditional IRA, roth
IRA or even a workplace account like

a 401k, there are no taxes owed on any
dividends, capital gains or interest as

long as the money stays in the account.

So as long as you keep your money invested
in the account, it can grow tax deferred.

That's true of all IRS
approved retirement accounts.

But the IRS does not
have infinite generosity.

They want you to save for
retirement, but they also want to

get their tax money eventually.

So let's look at how the IRS
treats the two main types of IRAs.

We will start with Roth
accounts 'cause it's actually

a little bit easier to explain.

I already said that the IRS doesn't give
you any tax break for contributing to

a Roth IRA, but they let you take all
the money out tax free in retirement.

In other words, you owe taxes on
the money you contribute now, but

as long as you follow the rules and
wait until the right age, you'll

never owe taxes on that money again.

You can think of contributions to
Roth IRAs as after tax, meaning the

IRS will get their cut during the
year that you contribute, so you're

contributing after you paid taxes.

And since they already got their slice and
there are no taxes owed on the money you

take out in retirement, the IRS doesn't
care if you ever take that money out.

That means you could keep
investments in your Roth IRA for

a really, really long time to take
advantage of compounding growth.

Not a bad deal, right?

The only stipulation is that Roth IRA
contributions can only be made if your

income falls below certain thresholds.

Those thresholds change from year to
year, but, for 2026, if you make less than

$153,000 as an individual or less than
$242,000 as a married couple, then you

are eligible to contribute to Roth IRAs.

the big takeaway to remember is
that Roth IRAs are designed to

benefit lower income earners.

So if you earn too much money, you will
not be able to contribute to a Roth IRA.

Traditional IRAs are different.

Remember that contributions to Traditional
IRAs can be deductible, meaning they

can give you an immediate tax break,
but the trade off is that all money

that comes out in retirement is taxable
at your ordinary income tax rate.

These contributions are considered
pre-tax, since you don't pay tax

on the money when you put it in.

But because the IRS wants to get
their taxes eventually, they actually

require you to start taking money
out once you reach a certain age.

Those are called required minimum
distributions, or RMDs, and if you don't

plan ahead, you could end up having
big tax consequences later in life.

For anybody born after
1960, the RMD age is 75.

If you were born before 1960, the RMD
age is actually a little bit lower.

Now anyone with earned income
can contribute to a Traditional

IRA, regardless of income.

However, the deductibility of those
contributions depends on two factors:

number one, whether you participate in
a workplace retirement plan like a 401k;

and number two, how much money you make.

If you do not participate in a
workplace retirement plan, then

contributions to Traditional
IRAs are always fully deductible,

regardless of how much you make.

Okay?

So if you don't have any workplace
retirement account, you can deduct all of

the contributions to a Traditional IRA.

However, if you do participate in a
workplace plan, then the deductibility of

your contributions depends on your income.

If you make too much money and you
participate in a workplace plan, then

your contributions are not deductible.

Keep in mind that you can still
contribute, but you just won't

get any tax break for doing so.

It's important to note that
participation in a workplace plan

doesn't just mean that you put money in.

You're also considered to
have participated if your

employer puts money in.

So that's definitely something to be
aware of for high earners who also

have workplace retirement accounts.

Now, let's talk about
taking the money out.

Retirement is a flexible concept, right?

While most people think about
retirement as something that happens

in their sixties or maybe even their
seventies, other people might want to

retire young or never retire at all.

And of course some people might
decide that they actually can't wait

until retirement to access that money
because they need it right away.

The official age when you can take
money out of an IRA is 59 and a half.

That's a stupid rule because who actually
pays attention to their half birthday?

If you turn 59 and a half in July,
but you take money out in June,

you've broken the rule because you're
only just 59 and five twelfths.

It's totally stupid.

They should just make it age 60 and then
everybody would understand the rule.

But I'm not in charge of tax rules, so
59 and a half is the age when you can

access that money without any penalties.

If you need to take money out before
age 59 and a half, though, you should be

prepared for some unpleasant consequences.

First of all, if you take money out
of an IRA too early, then you'll owe

any applicable taxes on that money.

Plus, depending on the type of
account and how long you've owned

it, you may also owe a mandatory 10%
penalty on your early withdrawals.

So if you take money out of
an IRA too soon, you might be

looking at giving up 30% or more
of that money right off the bat.

I have to tell you, 30% is a steep
price to pay to access your money, so

I encourage everyone to only put money
in a retirement account that you're

confident you won't need for a long time.

If you think you'll need that money in
the next few years, it's best to keep

it in an interest-bearing cash account
in a bank or in a quote unquote regular

investment account where you can turn
it into cash and not get penalized.

And again, because the IRS wants their
tax dollars from the money in your

Traditional IRA, they require you to
start taking RMDs at a certain age.

This is important to keep in mind because
investments, as I've mentioned several

times, tend to compound over time.

For example, investments that grow
an average of 10% per year, like the

stock market, will tend to double
about every seven to eight years.

So if you have a million dollars in an
IRA at age 65, you could easily have

twice that much at your RMD age of 75.

That means you could be forced to take
out more money than you actually need,

which might push you into a higher
tax bracket for no good reason at all.

If you anticipate having a really large
Traditional IRA or 401k balance when you

retire, it's worth your time and money to
make a plan for how you will distribute

that money in the most tax efficient way.

PS that's the kind of thing a Certified
Financial Planner™ can help you do.

I am gonna take you on a brief aside.

It's a little in the weeds, so I'll try
to keep it quick and understandable.

I just said a minute ago that anyone
with earned income can contribute

to a Traditional IRA, but if you
participate in your workplace plan

and you make too much money, then it
doesn't get counted as deductible.

This is considered an after tax
contribution because you have

to pay taxes on that money.

It's very natural to ask
why would anyone do that?

I mean, you don't get a tax break,
plus you owe taxes on everything later.

That seems like a bad deal, right?

Well, remember that only people below
certain income thresholds can contribute

to a Roth IRA and Roth IRAs have this
great advantage that all distributions

are tax free after age 59 and a half.

But it is possible to take
money from a Traditional IRA

and transfer it to a Roth IRA.

This is called a Roth conversion.

So a person can make a non-deductible
after tax contribution to a Traditional

account, wait some amount of time,
then move that money to a Roth account.

This is a way for people who don't
qualify to contribute to Roth

IRAs to move money into them.

There are some tax consequences
involved, and it's a bit more complicated

than just move the money from A
to B, but that is the basic idea,

and I wanted to share it with you.

Now, let me just be straight up and
say that the topic of Roth conversions

is too deep for what I wanna discuss
today, but I just wanna mention that

there is a reason why someone who can't
deduct contributions to a Traditional

IRA might still want to make them.

If you have a question about using this
Roth conversion technique, please shoot

me an email at podcast@Iselerfinancial.com

and and we can dig a little
deeper into how this works and

whether it would be right for you.

Okay, back to the main conversation.

The last thing I want to mention today
are two types of employer-sponsored

IRAs that self-employed people can
use to save more money than they

could in a Traditional or a Roth iRA.

One is called a Sep IRA, and the
other is called a Simple IRA.

These are employer sponsored accounts,
so if you are self-employed, that means

you can be both employer and employee.

Keep in mind though that using either
of these types of accounts means that

you will be participating in a workplace
plan, so that impacts the deductibility

of Traditional IRA contributions.

A SEP IRA stands for
Simplified Employee Pension.

It is a stupid name because
it's not a pension at all, but

that's what the name means.

SEP IRAs can only receive
employer contributions.

So as an employee you can't contribute,
but the employer can, and the maximum

contribution is based on a percentage
of your total year compensation.

If you are a sole proprietor, partner
in a partnership, or member of an LLC,

that means the maximum contribution is
a percentage of your total year profits.

The maximum you can contribute is 25%
of compensation, but for technical

reasons that involve how self-employment
tax is calculated and paid, the actual

maximum contribution works out to 18.59%.

If you wanna get into the weeds
on that math, send me an email.

I'm happy to explain how it works.

However, if you elect to be treated
as an S corporation, which I talked

about in an earlier episode, go back
and listen to it, then the maximum

S contribution is 25% of your salary
and not 25% of the total year profit.

A simple IRA stands for savings
incentive match plan for employees.

It just rolls off the tongue, doesn't it?

Unlike a SEP IRA, simple IRAs allow for
both employee and employer contributions.

The maximum employee contribution for
2026 is $17,000, and the employer maximum

contribution is up to 3% of salary.

So depending on your situation, you
might actually be able to contribute

more with a simple than with a sep.

However, despite the name, simple IRAs
are actually more complicated than

SEP IRAs, which is one reason why I
don't often recommend them to people.

I don't want to go much deeper into SEP or
Simple IRAs, but I did wanna mention them

as an option for self-employed people.

Depending on your income, you might
be able to put aside a lot more money

and save a lot more on taxes if you
use one of those types of accounts

compared to a Traditional IRA.

Okay, that was a ton of information and I
hope you now have a better understanding

of individual retirement accounts, aKA
IRAs, AKA, IRAs, and how they work.

I think that's a good place to
put a pin in it, put a bow around

it, call it done for today.

Next week I'll be talking
with Sarah Williams.

Sarah is the co-owner and co CEO of
branding agency Beardwood&Co, but

she was also employee number one
at the company over 20 years ago.

We talk about the mindset shift from
employee to owner, the importance of

learning to delegate in order to maintain
focus and avoid burnout, and anxiety

around long-term financial security.

I think our conversation went in a
lot of interesting areas, so I look

forward to sharing that with you soon.

All right, I will see
you back here next week.

The Thing We Never Talk
About is for educational and

entertainment purposes only.

It is not legal, investment or tax advice.

People on the show, including myself,
may have interests for or against

any investments discussed, so do
yourself a favor and don't ever make

any investment decisions based on
what you hear on this or any podcast.

If you like what you hear, please
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If you have a money or a finance question
you'd like answered in a future episode,

please visit Iselerfinancial.com/podcast.

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Thank you so much for listening.

I appreciate you.