An IRA works similarly to a 401(k). It’s a tax-advantaged account where your investments can grow without being taxed year-to-year, but there are a few key differences:

• You open it yourself through a brokerage like Fidelity, Schwab, or Vanguard. (I prefer to use the same brokerage as my 401(k) for simplicity.)

• You fund it manually by transferring money directly from your bank account.

• The contribution limits for an IRA are lower than those for a 401(k).

Contribution limits for 2025:

• Under age 50: $7,000

• Age 50+: $8,000

These limits apply to the total contributions made to all your IRAs for the year.

One of the best parts of an IRA is flexibility: you have full control over your investments. You can buy nearly anything you’d find in a regular brokerage account: stocks, ETFs, index funds, bonds, and mutual funds. (There are a few exceptions, like collectibles and some alternative assets, but most investors will find plenty of options.) Personally, I stick with target date funds because it’s simple and effective.

Like 401(k)s, IRAs come in two main types, each with different tax treatments: Traditional and Roth.

Traditional IRA

• Contributions may be tax-deductible, depending on your income and whether you (or your spouse) are covered by a retirement plan at work.

• Investments grow tax-deferred.

• You’ll pay ordinary income taxes on both contributions and gains when you withdraw the money in retirement.

Example:

• You deposit $3,000 from your bank account into your Traditional IRA.

• If eligible, you’ll be able to claim a tax deduction when you file your taxes that year. If you’re in the 30% tax bracket, this could reduce your tax bill by about $900.

• Over 30 years (assuming a 7% annual return), that $3,000 could grow to about $22,000

• When you retire, you’ll owe income taxes on the full $22,000

• At retirement, if you’re still in a 30% tax bracket, you’d pay ~$6,600 in taxes and take home $15,400

• If you're in a lower tax bracket in retirement, you'd keep even more

Important: Anyone with earned income can contribute to a Traditional IRA, but not everyone will qualify for the full tax deduction. Eligibility depends on your income and whether you (or your spouse) are covered by a workplace plan. The IRS publishes updated income thresholds each year—see this PDF for more details. You can still contribute even if it’s not deductible. Your money will grow tax-deferred and be taxed at withdrawal.

Roth IRA

• Contributions are made after-tax — when you contribute money directly from your bank account, it’s money you’ve already received from your paycheck (and paid income taxes on).

• Investments grow tax-free

• Withdrawals are completely tax-free in retirement

Example:

• You deposit $3,000 directly from your bank account into your Roth IRA.

• There's no immediate tax deduction because you’re contributing after-tax money.

• Over 30 years, assuming a 7% annual return, that $3,000 could grow to about $22,000.

• When you retire and withdraw the money, you can take out the full $22,000 completely tax-free.

Important: For a Roth IRA, you can only contribute directly if your income falls below a certain threshold. However, if your income is too high, there’s a way around it using the Backdoor Roth IRA strategy.

Some of you reading this in your 20s and 30s might wonder if you’ll even make it past your 60s. It might feel like you're dodging disasters on a daily basis—mass shootings, plane crashes, freak accidents. But the truth is, the odds are overwhelmingly in your favor when it comes to living a long life.

In fact, the average 30-year-old woman has a 90% chance of living to age 60. If she makes it to 60, she has an 89% chance of reaching 70, and a 67% chance of making it to 80. For men, the odds are slightly lower: 84% to reach 60, 82% to reach 70, and 54% to reach 80.

By comparison:

• Odds of dying in a car accident: 1 in 95 (about a 1% lifetime risk)

• Odds of dying in a plane crash: 1 in 11 million (0.00000909%)

• Odds of winning the Powerball: 1 in 292 million (0.00000034%)

Yet many people find it easier to buy lottery tickets than save for retirement, even though most of us will live well past 60, and almost no one wins the lottery. And I get it. Retirement feels distant and abstract, while the lottery—no matter how unlikely—feels like it could happen tomorrow. It’s easier to imagine hitting the jackpot tomorrow than picturing yourself at 70.

The reality is, we’re likely to spend nearly as many years retired as we do working. So, granted that we don’t win the lottery, how do we make sure we don’t run out of money?

Let’s start with the basics.

Understanding Retirement Accounts

Retirement accounts work a lot like brokerage accounts. You can invest in stocks, bonds, ETFs, and more, but with major tax advantages:

• You don’t pay taxes on interest, dividends, or capital gains annually

• Your money grows either tax-deferred or tax-free depending on the account type

That said, retirement accounts also come with a few key rules:

• You can’t withdraw your money early (before age 59½) without a penalty, unless you meet special exceptions

• You can only put in so much each year

• And depending on the account type, there may be income limits or restrictions based on your job situation

But don’t worry—we’ll cover all that as we go.

401(k): Employer-Sponsored Retirement Plans

A 401(k) plan is a retirement account offered through your employer. You can’t open one on your own. Instead, your employer partners with an investment company (such as Fidelity, Vanguard, or Schwab) to manage the plan, and the investments available to you will depend on the options your employer’s plan includes.

When you enroll, your contributions are automatically deducted from your paycheck before the money even hits your bank account. You choose the percentage to contribute (like 5%, 10%, etc.), and that amount is automatically taken out of each paycheck and deposited into your 401(k).

There are two types of 401(k) accounts you can contribute to:

• Traditional 401(k): Contributions are made pre-tax, which lowers your taxable income now. You’ll pay income tax later on both your original contributions and any investment growth when you withdraw..

• Roth 401(k): Contributions are made with after-tax dollars. You won’t get a tax break now, but all withdrawals in retirement, including your investment growth, are completely tax-free.

Example: Traditional 401(k)

• You earn $3,000 for a paycheck and contribute the entire amount (100%)

• Normally, at a 30% tax rate, you’d pay $900 in taxes and take home $2,100

• With a Traditional 401(k), the full $3,000 goes into your account tax-free

• Over 30 years at a 7% annual return, it could grow to ~$22,000

• When you retire, you’ll owe income taxes on the full $22,000

• At retirement, if you’re still in a 30% tax bracket, you’d pay ~$6,600 in taxes and take home $15,400

• If you're in a lower tax bracket in retirement, you'd keep even more

Example: Roth 401(k)

• You earn a paycheck of $3,000 and choose to contribute the entire amount to your Roth 401(k)

• Assuming a 30% tax rate, $900 is withheld for taxes through payroll, and the remaining $2,100 is contributed to your Roth 401(k)

• Over 30 years (assuming a 7% annual return), that $2,100 could grow to about $16,000

• When you retire, you can withdraw the full $16,000 tax-free, regardless of your tax bracket at that time

Contribution Limits for 401(k)

• Under age 50: $23,500 in 2025

• Age 50+: $31,000 (you’re allowed to contribute $7,500 more as a “catch-up contribution”)

You can split contributions between Traditional and Roth 401(k), but the combined total can’t exceed the limit.

Employer Matching: Free Money

Many companies offer 401(k) matching, and it’s one of the easiest ways to get free money. But not all matches are created equal. Most follow a structure where your employer matches a percentage of what you contribute, up to a limit.

Common Structure: 100% Match up to 3%

​​Here’s how matching typically works: Your employer might offer a 100% match up to 3% of your salary. That means for every dollar you contribute, they contribute a dollar too—up to 3% of your annual pay.

Example:

Other Structures: 50% Match or IRS Cap-Based

Not all employers offer a 100% match. Here are two common alternatives:

50% Match

Your employer matches $0.50 for every $1 you contribute, up to a certain limit.

Example:
If you contribute $3,000, your employer contributes $1,500, for a total of $4,500 in your 401(k).

IRS Cap-Based Match

Some tech companies base the match on the IRS contribution limit rather than your salary. Instead, it’s tied to the IRS contribution limit. For example, a company might match 100% of your contributions up to half of the annual IRS cap. This means that anyone, regardless of salary, can qualify for the full match.

Example:
If the IRS limit is $23,500, your employer might match 100% of your contributions up to half that amount—$11,750—regardless of your salary.

🔔 Important: Employer matching contributions are typically made pre-tax and go into a Traditional 401(k), even if your own contributions are Roth. The SECURE 2.0 Act of 2022 allows Roth matching, but very few companies have adopted it so far.

💡 Remember: Employer matches don’t count toward your $23,500 personal contribution limit. They’re on top of what you’re allowed to contribute yourself.

Bottom Line

Your 401(k) is one of the most important tools in your financial arsenal. At the very least, you should always contribute enough to get the full employer match. It's free money, and over time, it can make a big difference in your retirement.

Disclaimer:
This content is for informational and educational purposes only and should not be considered financial or investment advice. It does not constitute an offer to buy or sell any securities or financial instruments. Always do your own research and consult with a licensed financial advisor before making any investment decisions. Investing involves risk, including the possible loss of principal.

Early Withdrawal: The Basics

If you withdraw from a Traditional 401(k) before age 59½, you typically face:

• A 10% early withdrawal penalty

• Income taxes on the amount withdrawn

However, the situation is more favorable than it seems, especially if your employer offers a 401(k) match.

Why the Match Changes the Equation

If your employer offers a 1:1 match, you're getting an immediate 100% return on your contribution — essentially free money. Even if you have to withdraw early and pay taxes and penalties, you're still likely to come out ahead.

Tax Position After Leaving the U.S.

Once you’re no longer a U.S. resident, you're only taxed on U.S.-sourced income. And, if you wait until the year after you move back to withdraw your 401(k), your U.S. income might be zero, which could put you in the lowest tax bracket of 10%.

Plus, if you've cut ties with your state (like giving up your driver’s license, voter registration, and home), you probably won’t owe state taxes either. And don’t forget that you also got a tax break when you first contributed.

Important: Always check if your home country has a tax treaty with the U.S. to avoid double taxation.

Here’s what that looks like with real numbers:

Let’s say:

• You contribute $5,000

• Your employer matches with $5,000

• You're in a 40% tax bracket, so you get a $2,000 tax break when you contribute

Later, after leaving the U.S., you withdraw the full $10,000:

• You pay a 10% early withdrawal penalty = $1,000

• You pay 10% U.S. income tax (assuming no other U.S. income and you're in the lowest bracket) = $1,000

You're left with $8,000 on a $5,000 investment — a 60% return, plus the $2,000 in tax savings you received when you contributed.

So, Should You Contribute?

Even if you're unsure how long you'll stay in the U.S., contributing at least enough to get the full employer match in your Traditional 401(k) is typically a smart move.

• The employer match is free money

• Even if you withdraw early, you’re likely to come out ahead

• A Traditional 401(k) gives you an immediate tax deduction, which is even more valuable if you're in a high tax bracket now.

What about Roth 401(k)?

A Roth 401(k) can also be a good option, but only if you’re staying long-term.

• You’re likely in a higher tax bracket now than you will be after leaving the U.S., you're paying taxes upfront at a rate that may be higher than what you'd owe later.

• If you plan to cash out earlier rather than hold the account long-term, the tax-free growth benefit of the Roth is limited, since your investments may not have had enough time to grow significantly.

• Just like with a Traditional 401(k), you’ll still owe a 10% early withdrawal penalty on earnings.

Reminder: Employer match almost always goes into a Traditional 401(k), and is taxable upon withdrawal, even if your own contributions were Roth.

First, you need to understand what a carry trade is.

Simply put, carry trade is when you borrow money in a country where interest rates are low and invest it in another country where interest rates and investment returns are higher.

For most of the last 25 years, the favored country to borrow money from is Japan, which has kept interest rates close or to zero. While inflation posed concerns in most other countries like the US and Europe, leading them to raise interest rates to combat it, Japan had the opposite problem. It kept borrowing rates low to encourage economic growth.

You could borrow money for next to nothing in Japan and invest it in US Treasury Bonds, which yielded a 5% return. Kind of a no brainer. And that’s the conservative route; you could also invest in other securities which had even higher returns.

However, this isn’t risk free. Imagine if you borrow 1000 yen when the exchange rate is 200 yen to 1 USD, effectively borrowing $5. However, the yen suddenly appreciates significantly against the USD, making it much more expensive to pay back the loan. If the new exchange rate is 100 yen to 1 USD, we would need to pay back $10 now for the same loan.

This is exactly what happened. Last week, the Bank of Japan raised interest rates for the second time since March, which pushed the yen higher. ^[1] Additionally, the Fed strongly hinted last week that it would cut interest rates soon, which weakened the dollar.

This meant carry trading wasn’t as lucrative anymore, and if you were a carry trader, you would try to unwind these positions. Problem was, so was everyone else.

We must also keep in mind that carry trade involves borrowing money, which means it's a leveraged position.^[2] When losses start to accrue, lenders will demand that you provide additional cash to cover potential losses. This is known as a margin call.^[3] This means investors start selling stock to raise cash, or closing out on their position entirely.

This leads to a trickle-down effect. The riskiest investors will start liquidating, which creates losses for others, and as a result, those people have to sell their assets to cover their margin calls, and so on, and the stock market plummets.

^[1] Why does raising interest rates appreciate currency?

Short answer is that when interest rates increase, bonds and savings accounts, which now offer higher yields, become more attractive to investors. To invest in these higher-yielding Japanese assets, investors need to purchase yen, thus increasing demand for the currency, and since there’s only a fixed supply of yen, the price of yen increases.

^[2] What is a leveraged position?

Leverage position means borrowing money to amplify your potential returns on an investment. For example, you believe that a stock is going to increase 50% in the next year, but you only have $100k to invest. Without leverage, your profit would only be $50k.

Instead, you decide to use leverage and borrow $900k. Now, you can invest $1 million in this stock, yielding a $500k profit (minus interest rates on that loan), which is 10x what you you could make by yourself.

However, this also works in the opposite direction if the stock decreases. If the value of your stock drops by 50% instead, the value of your investment is now worth $500k. You still owe the lender $900k (plus interest), so even after selling all the stock you have, you are now over $400k in debt.

High risk, high reward.

^[3] What is a margin call?

A margin account is a type of brokerage account that consists of securities bought with a combination of the investor's own money and borrowed funds. When the value of the account falls below a certain threshold, usually due to a losing trade, the lender will require you to deposit more money or securities to bring the account's value back above the specified threshold.