Increase your... by 25%!!!

Dear ED sufferers,

I hope this email finds you well if you have subscribed to my blog. I wonder if gmail will spam filter my own writing due to that title; that would be absolutely hilarious if they did.

So what is the ‘…’? That would be the size of your tax return* if you happened to have graduated this past year and are stacking that 'paper'. The federal government has also stacked your change for you, and has assessed a hefty bill, which you have prepaid via ‘federal withholding’.

‘Hold on, g, did you just trick me into reading a post about taxes with false promises of male augmentation? That’s bait-and-switch!!’

Yes I did, and that’s why you listen to my nonsense: I attempt to elevate the mundane to the exciting (and vice versa). To be truly technical, this blog post can increase your return by $1,250 and set you on your way to retirement…if you act within the next 5 days before the April 15 deadline.

Really quick summary, by setting up a traditional IRA you can save $1,250 in taxes if you have $5,000 to invest to max out your 2009 contribution. This is aimed at graduates from 2009 who made below $82,250 in 2009 (more on this in a bit). If you already know about Individual Retirement Accounts and the tax benefits, then please ignore my redundancy. If not, read on to pry back $1,250 from Uncle Sam’s warm, non-dead fingers.

If you’re still on your way to making the big bucks, then just remember to earmark this post for the future.
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First off, mo money mo problems. The finances of getting through pharmacy school meant taking out enough loans and learning to stomach enough ramen and low-priced energy drinks to survive from financial aid check to check. It was a simpler time. When you graduate and get a job (if you get a job**), you’ll be inundated with more money than you’ve ever thought possible. You might be tempted to withdraw $1,000 in Jacksons, put the paper on your bed, and wallow around in the cocaine-dusted, sweet perfume of the U.S. banknote like Scrooge McDuck.***

Fine, but after you have an orgy with that money, calmly collect them all together and redeposit them back at your bank; if the teller gives you a dirty look, tell him/her that you deal drugs for a living and show your RPh wallet card.

It is ridiculous that some pharmacists are in debt (of their own design) when they make six-figure salaries. Sure, loans are expensive, but you can knock them out in 5 years and still live well. If you don’t have a clue how to manage money, a good place to start is to find a financial planner. Make sure they’re fee-based (not commission-based) since those planners would probably be the most unbiased.

But in the meantime, you can start your own brokerage account online (I recommend Vanguard for their rock bottom expenses ratio and their user friendly site) and fund your IRA, which you still have until April 15 for the 2009 tax year.

So what about that $1,250? Well if you’re single (as in not married) and made between $33,950 and $82,250, then you fall into the 25% marginal tax bracket, which means you only get to keep 75 cents of every next dollar you earn. After $82,250, you only get to keep 72 cents (28% marginal bracket). It kind of makes you empathize with the Republicans****.

The traditional IRA allows you to fund pre-tax dollars into a retirement account, which means that you don’t have to pay tax on that money. $5,000 (the max contribution for young folks) at a marginal rate of 25% means $1,250 tax relief. The tax on that money and its earnings is deferred until you take them out when you retire so you’ll eventually have to pay taxes on them. You can never escape death or taxes.

So I kind of fibbed a little bit; you’re dropping $3,750 in your bank account (liquid) to gain $5,000 in a retirement account (non-liquid). You’d transfer $5,000 to your retirement account, but your income tax return will increase by $1,250, thus a net decrease of $3,750.

Confused? I am not a certified financial planner, and it’s hard to both stir up interest and tell you everything about an IRA. Take my word for it: forego the Audis and Beamers and Benzs and fund your retirement NOW. The stock markets are on an upswing.

Personally, I fund a Roth IRA rather than a traditional IRA. Roth IRAs are funded with post-tax money, but the earnings are tax-free. In my opinion, this is the better of the two options if you’re eligible for the Roth. The only reason why I tout the traditional IRA in this post is because it’s easy to see the immediate tax benefit, and most young people are all about instant gratification.

So if you’re interested, google ‘IRA’ and read away. Then google ‘Roth vs traditional IRA’ and read that discussion. Then pick one and invest. Afterwards, find a reputable financial planner and have a sit-down conversation to discuss finances. Though it can be pricey at first ($300-500 per session), it can literally net you hundreds of thousands in your lifetime.

Make sure you do your research well and do what is best for you. Don’t buy anything you don’t understand; you can be sure there will be thousands of people out there ready to sell you financial snake oil (reference: 2AM infomercials).

Please consult with a financial adviser before investing. Stock markets earnings are not guaranteed. Of course the world could end tomorrow, and you could always get a big mattress and stuff your greenbacks in it or dig a hole in your backyard and bury your stash there.

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*guys, sorry to disappoint; I have some Extenzze and Viaggraaa emails that I can forward to you if you like
**methinks the pharmacist demand bubble is about to burst in the next 5 years
***I considered doing this, but I thought it might be a bit weird.
****I don’t describe myself as Dem, Rep, or Ind. I follow what I think is best for me and society.