Q: I’m a 54 year old and I am kind of dirt poor guy living from pay check to pay check. Is there any chance to start low with few bucks and build up an investment?
A: It’s never too late to start saving. If you don’t have a 401k through your current employer, you can open up either a Traditional IRA or a Roth IRA. Deciding between the two (Traditional vs. Roth) is more dependent on your total current income and tax filing status (Single, Head of Household, Married Filing Separately or Married Filing Jointly).
Long story short, most people use a Traditional IRA if they want to lower their contribution to lower their taxable income. The money grows tax deferred and is taxed as ordinary income during the withdrawal period. A Roth IRA is different in that your contribution is not tax deductible, but your money grows tax deferred and it is not taxed at all during the withdrawal period.
If you are over 50, you can contribute up to $6,500 per year to either a Traditional IRA or Roth IRA.
If you have a 401k available through your current employer, you can contribute up to $17,500 per year. Similar to a Traditional IRA, your 401k contribution lowers your taxable income, grows tax deferred and is taxed as ordinary income during the withdrawal period.