Tax Free Retirement Does That Even Exist?

[Ellamay]

So  I'm a college student and I pay my school tuition out of pocket and still manage to save a bit. Recently I was approached at college by someone from Unlimited Success Incorporated saying for as little as $50 dollars a month I could have tax free retirement money. As a college kid $50 extra dollars seems like a bit of a commitment.

Now I'm young and still naive in many ways, especially when it comes to finances. I tried to do a little research but I couldn't really make heads or tails of this. It sounded great when he was "selling" this option. It sounds too good to be true and I was wondering if you heard anything about this type of investment?

I'm really nervous to start investing but I do want to start somewhere. I'm just not sure this is the right option for me. Any thoughts or comments would be really appreciated. Has anyone heard of this?

[MDM]

Now I'm young and still naive in many ways, especially when it comes to finances.

It sounds too good to be true...

Apparently you are old and wise enough to know that if something sounds too good to be true, it probably is.

Seems "stay away from USI" would be best for you.  Is that what you think also?

[Gin1984]

You don't need that company or even need to save $50/month.  It is called a Roth IRA and you can put up to your earned income or $5500/year, whichever is lower into it. And then when you withdraw it, it is tax free.

[Dodge]

So  I'm a college student and I pay my school tuition out of pocket and still manage to save a bit. Recently I was approached at college by someone from Unlimited Success Incorporated saying for as little as $50 dollars a month I could have tax free retirement money. As a college kid $50 extra dollars seems like a bit of a commitment.

Now I'm young and still naive in many ways, especially when it comes to finances. I tried to do a little research but I couldn't really make heads or tails of this. It sounded great when he was "selling" this option. It sounds too good to be true and I was wondering if you heard anything about this type of investment?

I'm really nervous to start investing but I do want to start somewhere. I'm just not sure this is the right option for me. Any thoughts or comments would be really appreciated. Has anyone heard of this?

You want tax-free retirement money, put that $50 a month towards your Roth IRA.

Now once it's in the Roth IRA, what do you invest it in?  If you're looking to learn more about investing, I recommend starting with this short Boglehead video series.  Yes the guy is a bit over the top, but he explains the concepts very clearly, and the content is geared towards newbies:

http://www.bogleheads.org/wiki/Video:Bogleheads®_investment_philosophy

If you're just looking for a quick answer, I'd say a Vanguard LifeStrategy fund:

https://investor.vanguard.com/mutual-funds/lifestrategy/#/

[Ellamay]

That was kind of my thought on it, but I wanted to make sure I wasn't truly "missing out" on this opportunity he talked about. My pastor signed up originally otherwise I wouldn't have given this option any thought at all. Apparently it follows the stock market but instead of dropping into the negative whenever the market goes down it actually only hits zero. I've never heard of that before so I was skeptical. I guess I'll put my money in a more reliable place.

 So far I've had about $5,000  just sitting in my saving account. It might not seem like that much for seasoned mustachians but it's a lot of money for me to just experiment with. Thank you so much for pointing me in the right direction.

[Gin1984]

That was kind of my thought on it, but I wanted to make sure I wasn't truly "missing out" on this opportunity he talked about. My pastor signed up originally otherwise I wouldn't have given this option any thought at all. Apparently it follows the stock market but instead of dropping into the negative whenever the market goes down it actually only hits zero. I've never heard of that before so I was skeptical. I guess I'll put my money in a more reliable place.

 So far I've had about $5,000  just sitting in my saving account. It might not seem like that much for seasoned mustachians but it's a lot of money for me to just experiment with. Thank you so much for pointing me in the right direction.

Ah!  Now I know what it is, it is an annuity.  Don't invest there, the fees are insane.

[Ellamay]

Oh my gosh you're right! I just read up on annuities and the fees could be as high as 3% a year. Yeah no thank you I think I'll pass on that option. Thank you so much for the advice! I think I'll go ahead and start a Roth instead.

[skyrefuge]

Oh my gosh you're right! I just read up on annuities and the fees could be as high as 3% a year. Yeah no thank you I think I'll pass on that option. Thank you so much for the advice! I think I'll go ahead and start a Roth instead.

Even better, once you learn a bit more (like by watching the videos Dodge recommended), you could help out your pastor by sharing your new knowledge with him. After all, it would be particularly unfortunate if he started actively influencing other young people (who might not have as good of a too-good-to-be-true nose as you) to buy into the same scheme.

[Wolf359]

Yes, tax-free retirement does exist if you really want it, but you have to work towards it.  I second the advice to read up on techniques on Bogleheads and other sites that stress tax-advantaged accounts and low-cost, diversified, broadly based index funds to achieve this.

There are multiple ways to achieve it, but they require work or knowledge.

Mustachians focus more on retiring very early on a frugal lifestyle that effectively achieves tax-free retirement because the required income is so low.

If your income is below $70K, your qualified dividends are not taxed, essentially making yours to retirement income tax free even in a fully taxable account.

The Bogleheads site discusses multiple Roth vehicles and techniques that allow tax-free income, including Roth IRAs, Roth 401ks, TIRA to Roth conversions, and tax-efficient behaviors and asset placement. 

Tax free retirement takes work, and is often an objective to strive towards as opposed to something everybody hits.

[Sid Hoffman]

I think some people are so risk-averse that they like the idea of the guaranteed lifetime payout that many annuities offer.  There are some groups that do not pay into Social Security, some clergy included thus those people cannot fall back on SS for their old age retirement, as they have no credits in the system.  Those groups are usually the most common to offer huge group pensions with guaranteed payouts, but I think it would be more sustainable for everyone if nobody is allowed to be FICA-exempt on ordinary income so all workers have SS to fall back on.  The upside is you get more money flowing into the SS system and free up those pension workers to fund their own potentially more profitable self-directed retirement savings.

[Cathy]

That was kind of my thought on it, but I wanted to make sure I wasn't truly "missing out" on this opportunity he talked about. My pastor signed up originally otherwise I wouldn't have given this option any thought at all. Apparently it follows the stock market but instead of dropping into the negative whenever the market goes down it actually only hits zero. I've never heard of that before so I was skeptical. I guess I'll put my money in a more reliable place.

 So far I've had about $5,000  just sitting in my saving account. It might not seem like that much for seasoned mustachians but it's a lot of money for me to just experiment with. Thank you so much for pointing me in the right direction.

Ah!  Now I know what it is, it is an annuity.  Don't invest there, the fees are insane.

Well, it may not be an annuity in particular. It could also be a structured note or principal-protected note or some combination of equities and hedging instruments. However, all of these investment choices are generally poor long-term investments.

[Cheddar Stacker]

Yes it does, but doing it via annuities from a salesman is not a good way to go about it. Here's a better method:

http://www.gocurrycracker.com/never-pay-taxes-again/

[Gone Fishing]

Just the name Unlimited Success Incorporated sounds sleazy. A quick google search reveals their website as:  http://www.unlimitedsuccessincorporated.com/index.html  It appears they provide answers to just about any issue.  If I had to guess, I bet they are just a referral source for other sleazy businesses and get paid a fee for each "fish" they catch.
 
The terms "tax free retirement" are commonly used to sell products and services that skim a chunk off of your retirement assets. In reality, a "tax free" retirement  is nearly possible, but it takes a bit of education and bit of jockeying to make happen.  If you are really serious about a minimum tax retirement, start educating yourself on the US personal tax system before you ever enter the workforce and understand how a progressive tax system actually works followed by how to use retirement accounts to "smooth" your high income earning years into your lower income retirement years.  Read through the links in my signature line.  The may sound like Greek to begin with, but as you immerse yourself, more and more will begin to make sense.  After a bit of study, come back and read them again, and again, and again, until they make sense.