The Power of Compounding: Why Investing Early can Build your Wealth

Think twenty is too young to be thinking about your future retirement? Think again. Putting money into your own IRA account is one of the smartest ways to save for your retirement without paying thousands of dollars in taxes later on.

5 Reasons Why Young Millennials and GenZers Should Take Advantage of Roth IRAs:

1. You’ll Get Decades of Tax-Free Growth

   That’s right. By taking advantage of a Roth IRA and following the rules, you’ll be able to put away thousands of dollars while your earnings and contributions grow 100% tax-free.

2. Withdraws After Retirement are Tax-Free

   Why lose a percentage of your precious earnings and contributions when you can withdraw for FREE? A Roth IRA has this among many other benefits. 

   And if that wasn’t enough of a reason to start a Roth IRA young, individuals in their 20s often make less than their elders in their 30s and 40s, which means they’ll be in a lower tax bracket. Use this opportunity to put away as much as you can!

3. You Can Start at ANY Age (But the Sooner the Better!)

   As long as you have an earned income, you can start your Roth IRA just as soon as you’re ready! Keep in mind that there is a limit to how much you can make when you’re contributing to a Roth IRA. If you are a single tax filer and earn more than $133,000 in 2020, you will not be eligible to contribute to a Roth IRA. For married couples the income cutoff is $196,000. 

4. You Can Use Your Roth IRA Fund for Future Home Purchases

   If you follow the rules, you can use up to $10,000 for buying, building or rebuilding a home. This is a “first time homebuyers exception”. However, this doesn’t necessarily have to mean you’ve never owned a home, just that you haven’t in the last two years. 

5. Saving Young Means Saving More - And With Far Less Hassle

   Financial planners will usually advise you to save between 15-20% of your income, beginning in your twenties, but having a clear goal is a much better plan. 

   You can find out specifically how much you’ll have to save a year using this handy financial planning calculator. Just remember that the more you can save, the better. After all, this is your retirement we’re talking about! 

To put things in perspective, if you were to put a minimum amount of $1,000 a year towards your Roth IRA starting at the age of 20, you will have already accrued around 225,508.12 by the time you’re ready to retire at 65. 

Contrast this with waiting until you’re 30 to begin putting a minimum of $1,000 a year towards your retirement, which would come out to be around $118,120.87 by the time you were 65 at an annual rate of 6%.

Another useful way to look at this would be that if you want to have over a million dollars in savings by the time you retire at the age of 65, you should be actively putting away around $4,500 a year from the time you’re 20 until you retire. This comes out to be $1,014,786.56 in total. Awesome, right?

Meeting savings goals will get harder the older you get because in order to save a minimum amount of around a million dollars for retirement, you’ll have to put nearly half your income into savings in a single year if you wait until you’re 40.

When it comes to retirement, the more you can save, the better. And that means the sooner you start, the more you can save and the easier it will be to meet your savings goals. 

What Are You Waiting For? Open a Roth IRA TODAY!

For contributions in 2019 and 2020, you’ll be able to contribute as much as $6,000 to a Roth IRA for both years. Remember, you have until July 15 to contribute to your 2019 IRA; For contributions in 2020, You can deposit from Jan. 1 this year to the tax year’s filing deadline in mid-April of 2021. 

When you open a Roth IRA account with Firstrade, you’ll be able to secure your retirement in a completely no-fee IRA. That means no maintenance fees, no account set-up fees and no annual account fee!

In addition, you’ll be able to take advantage of trading free of commission on stocks, options, and mutual funds in your IRA.

So what are you waiting for? Let’s open your Firstrade no-fee Roth IRA account and start saving for your future and retirement NOW!

How to Save on Your 2020 Taxes

A great portfolio requires strategic planning on how taxes impact investments. See how 2020 tax changes could affect your decisions as you look ahead to filing.

Here are among the things you should be thinking about before filing your taxes: 

1. Contribute the maximum to your IRA

You can contribute as much as $6,000 to an IRA, (the same maximum amount as in 2019). If you’re age 50 or older, you can make an additional $1,000 contribution.

2. Defer some income if you can

You only pay taxes on the income you receive during a given year. So, you can put off paying some taxes by deferring some income. While this may be difficult for salaried employees, consider deferring some income until next year. Perhaps you can defer your annual bonus, for instance. If you’re self-employed, it may be easier to delay payments until 2021. You may want to consult your accountant, however, because this only makes sense if you’re going to stay in the same or lower tax bracket next year.

3. 2020 Tax brackets have been adjusted.

Tax rates have remained the same, but income ranges (tax brackets) have been adjusted slightly to account for inflation. These adjustments may cause some individuals to be placed in a lower tax bracket than they were last year. Tax Brackets for 2020 are as follows:

4. Think about additional deductions you can take

Here are some itemized deductions worth paying attention to:

• State and local income taxes, property taxes, and real estate taxes are capped at $10,000.

• The mortgage interest deduction is a tax deduction for mortgage interest paid on the first $1 million of mortgage debt. Homeowners who bought houses after Dec. 15, 2017, can deduct interest on the first $750,000 of the mortgage.

• Medical expenses more than 7.5% of adjusted gross income (AGI) can be deducted.

• No miscellaneous itemized deductions are allowed.

5. Contribute more to your flexible spending account  (FSAs)

If your employer offers a health care FSA, take advantage of the increase in contribution limits. Your employer dictates what you can contribute, but the IRS maximum for 2020 is $2,750. Contribution limits for dependent care FSAs, remains at $2,500 for individuals and $5,000 for married couples or individual heads of household.

6. Consider “loss harvesting”

You may want to consider selling some stocks in your portfolio to realize losses, which can then offset any capital gains to reduce your overall tax burden. Losses will offset gains dollar for dollar so this could be a winning strategy for you.

7. Save more on taxes with your health savings account (HSA)

The maximum amount you can contribute to an HSA for 2019 is $3,550 for an individual and $7,100 for a family. If you’re age 55 or over, you can contribute an extra $1,000.

8. You may qualify for the child tax credit 

Kids are great, especially since the child tax credit could even be paid back as a tax refund. And, did you know that tax credits reduce your taxable income?

You may be eligible for a tax credit of up to $2,000 per dependent child age 16 and younger, if your household income is below $200,000 for single filers or $400,000 for joint filers. If your child is 17–24, you may still qualify for a credit of up to $500.

9. Beware the “kiddie tax”

A child’s investment income above $2,200 is taxed at the same rate as trusts and estates, which are usually higher than individual tax rates, so you may want to stay under that amount.

10. Alternative minimum tax (AMT) exemption could impact investment decisions

For 2020, the AMT exemptions are $72,900 for single filers, $113,400 for married taxpayers filing jointly, and $56,700 for married taxpayers filing separately. The phase-out thresholds are $1,036,800 for married taxpayers filing a joint return and $518,400 for all other taxpayers. 

11. Give More, Save More on Estate Taxes

The unified estate and gift tax exemption is now $11.58 million for 2020. It’s higher than last year, but will expire at the end of 2025.

The gift tax exemption, which allows you to “gift” investments to family members, remains at $15,000 per recipient.

Top 25 Most Traded Stocks by Investors at Firstrade in January 2021

Here’s the full list of top favored stocks among Firstrade investors:

1. Tesla Inc. (TSLA)

2. Taiwan Semiconductor Mfg. Co. Ltd. (TSM)      

3. Apple Inc. (AAPL)

4. GameStop Corp. (GME)

5. Palantir Technologies Inc. (PLTR)

6. NIO Inc. (NIO)

7. Advanced Micro Devices (AMD)     

8. AMC Entertainment Holdings Inc. (AMC)

9. BlackBerry Ltd. (BB)

10. Fubotv Inc. (FUBO)

11. Quantumscape Corp. (QS)

12. Square Inc. (SQ)     

13. Facebook, Inc. (FB)

14. NVIDIA Corp. (NVDA) 

15. Nokia Corp. (NOK)

16. Marathon Patent Group Inc. (MARA)

17. BioNano Genomics Inc. (BNGO)

18. Nano Dimension Ltd. (NNDR)

19. Alibaba Group Holding Ltd. (BABA)

20. Plug Power Inc. (PLUG)

21. Sundial Growers Inc. (SNDL)

22. Microsoft Corp. (MSFT)

23. FuelCell Energy Inc. (FCEL)

24. Naked Brand Group Ltd. (NAKD)

25. Xpeng Inc. (XPEV)

Most Anticipated Earnings Releases (January 25-29, 2021)

Here are some of the most watched Q4 (2020) earnings releases scheduled for this week.

Is Margin Trading Right for You? Here's What You Need to Know

If there’s one thing that can increase an investor’s buying power, it’s leverage. Leveraged trading, done in margin accounts, allows investors to use funds borrowed from their brokerage firm to buy more assets than their current balance affords. The positions purchased on margin act as collateral for the loaned funds, and a small amount of interest is charged on the outstanding loan amount. While margin trading can kickstart growth, it also carries risks, so read on to decide if it’s right for you. 

How Margin Accounts Work

A margin account differs from a cash account in that it gives investors the ability to make trades that exceed their balance of available cash. By providing at least the required percentage of cash (generally 50 percent), investors can leverage the margin loan to buy twice as much stock as they could otherwise. For example, an investor with $10,000 in a margin account could buy up to $20,000 in securities without having to deposit additional funds. 

The Benefits and Drawbacks of Margin Accounts

Margin accounts open up many more trading possibilities than traditional cash accounts. Investors can trade certain types of options in a margin account, sell short, and even day trade. When using a margin account for leveraged trading, there is always the possibility that the value of the leveraged positions will rise, potentially allowing the investor to liquidate a portion of the position and use the proceeds to pay back the margin loan. 

Of course, investments don’t always go up in value, which brings us to one of the risks of margin trading: margin calls. When the margin account balance falls enough that the outstanding margin loan exceeds a certain percentage (usually ranging from 30%-75%, depending on the margin requirement for the portfolio held in the account. See more information here.) The brokerage will issue a margin call asking the investor to deposit enough cash or other assets to bring the account’s balance back up to the required minimum level.

Unfortunately, since we can’t time the market, margin calls can hit when investors are least prepared to meet them. When an investor can’t meet the call, some or all of their securities may be sold. Therefore, before you apply for a margin account, make sure to read through the margin risk disclosure statement to understand the risks that might occur.

Advantages to the Firstrade Margin Account

While most margin accounts give you the benefits of increased profit potential, better diversification, and more trading options, Firstrade goes several steps further, offering margin accounts with no application or closing fees. Our margin accounts feature a relatively low margin interest rate and a flexible line of credit that can be withdrawn for other uses, such as an automobile purchase, doing home renovations, or paying for trips, weddings, tuition, and more. Firstrade margin loans are repaid quickly and easily through ACH, ensuring you avoid paying extra fees. ACH can also be used to swiftly meet margin calls.

It’s easy to start trading on margin and using your new account to day trade, trade sophisticated option strategies, and short sell. Simply click here to open a new account and apply for margin privileges.

Already have a Firstrade brokerage account? Then just login to your account and apply!