Retirement Accounts and Woodchucks
In this edition of the Flying Point Update, we're going to talk about why the retirement system is so confusing, a high level map of the major retirement account types, and woodchucks.
Top of Mind
I'm in the middle of the October 15th push, the final deadline for individual returns on extension. Every year around this time, I notice the same thing: the questions that come up most often are about retirement accounts. Did my contribution go to an IRA or a 401(k)? What is this 1099-R, and why did I get one? Was that distribution qualified? Do I need to take an RMD?
People are confused, and with good reason. The retirement system in this country is a patchwork. Account types are named after sections of the tax code. The rules for each one change depending on your age, your income, your employer, and whether you checked the right box in 2019. If you set out to design a system for saving for retirement, I doubt you'd end up here. You'd also probably choose better acronyms.
I've been doing this work for years, and I still find parts of it confusing. I still look things up. I still occasionally read a rule twice, and then a third time, to make sure it says what I think it says.
It is the system we have, though, so I'd like to spend the next few issues untangling it. By the time we get to year end, my hope is that we're all looking at a clearer picture of what's what.
Worth Knowing
This week is a high level overview, a map and not a manual. I cannot stress this enough. There are books and college courses about these topics. Over the next few issues, we'll dig into the most relevant accounts in more detail, but no quick newsletter is going to cover every rule and nuance. For now, the goal is simply to help you tell them apart.
The most useful starting question is: who set up the account? That gives you three buckets.
Bucket one is accounts through your job. This is the 401(k) at a private company, the 403(b) at schools and nonprofits, the 457(b) for state and local government, and the TSP for federal employees. Small employers sometimes offer a SIMPLE IRA or SEP-IRA instead. Different letters, same basic idea. Contributions generally come out of your paycheck, and there may be an employer match. Because the money goes in through payroll, the deadline is generally the end of the calendar year.
Bucket two is accounts you open on your own. This means the traditional IRA and the Roth IRA. You can open one at any brokerage, whether or not you have a plan at work. You move the money yourself, and you generally have until April 15 of the following year to make a contribution for the prior year.
Bucket three is accounts for your own business. If you own the business, you’re the one who chooses and sets up the plan, such as a Solo 401(k), SEP-IRA, or SIMPLE IRA. The names are misleading here. The SEP and SIMPLE have “IRA” in the name but are employer plans, and in a Solo 401(k) you are the employer. If you work for a small business that offers a SEP or SIMPLE, that’s a bucket one account for you. Business owners often have the most options and the most confusion, and the deadlines vary by plan.
Layered on top of all three is the traditional versus Roth question. With traditional contributions, you get a tax break now and pay tax when you withdraw. With Roth contributions, you get no break now, but qualified withdrawals are tax-free later. Roth is a tax treatment rather than a type of account, which is why a Roth 401(k) exists alongside the Roth IRA. Which one fits depends largely on your tax bracket today versus your expected bracket in retirement, and we'll run the math in a future edition.
One mix-up I see often: if the money came out of your paycheck, it's almost certainly a workplace plan and not an IRA you opened yourself. When someone tells me they contributed to a Roth IRA and they actually meant their 401(k) or 403(b), it matters at tax time. Workplace plan contributions show up on your W-2, while IRA contributions are reported separately. Having a plan at work can also affect whether a traditional IRA contribution is deductible. It's worth knowing which one you actually did.
We've intentionally left out contribution limits, income phaseouts, required distributions, and Roth conversions. Those are coming. In the meantime, Year-End Checklist and Dunlins covers year-end contribution timing, and Year-End Business Checklist and Snowshoe Hares covers business owner plans. Just remember that both issues were written for tax year 2025. Numbers and dates change each year, but the general concepts remain the same.
Mark Your Calendar
Thursday, October 15th: Extended individual returns are due. If we filed an extension for you this spring, this is the real deadline.
Thursday, December 31st: Last day for 401(k) and other workplace plan contributions through payroll, and for Roth conversions. Also the deadline for required minimum distributions if you're already taking them.
Friday, January 15th, 2027: Q4 2026 estimated tax payments are due.
From a tax perspective, it's a quiet few months on the calendar, which makes it a good time to get your retirement accounts sorted before year end.
Maine Wildlife Facts
Woodchucks have been on our radar lately. There's a stretch of road on the way to school where we frequently see them, and a culvert on our dog walking route that's usually home to one. Luna and Rambo (our two idiot dogs) have done a good job keeping them out of our yard, sometimes aggressively... To no great surprise, a University of Maine Cooperative Extension bulletin lists domestic dogs among their most common predators, along with coyotes and foxes. Luna and Rambo haven't read the bulletin, but they seem to have gotten the gist.
Woodchucks go by a lot of names. Groundhog is the other common one, and whistle pig is a nod to the loud, high-pitched whistle they give when they spot a predator. They're a kind of marmot, which makes them a very large ground squirrel.
They're also one of the few true hibernators. All summer they eat heavily and put on fat, and by the time they head underground in the fall, they can double their weight from the spring. Once they're down, their heart rate drops from around 80 beats per minute to about 5! Also, their body temperature falls to somewhere near 40 degrees. They don't come back up until late winter or early spring, sometimes tunneling through deep snow to do it.
That timing means the woodchucks we're seeing in October may still be packing on weight before the cold sets in. Juveniles get a later start on growing, so they're the last to go underground. Our guess is that these are the ones we're seeing on the way to school.
One more thing that explains our culvert resident: woodchuck burrows have multiple entrances, which work as escape hatches, and they rarely forage more than about 65 feet from one. It would explain why we see them on the side of the road.
We have a soft spot for woodchucks, even if Luna and Rambo disagree. They're cute, they're fat, and they just want to go back to sleep.
These Maine wildlife facts have been brought to you by Will (8), Frank (4), and Catherine (2), Flying Point Advisors' on-staff naturalists.
Questions about any of this? Just reach out - I read every email and love hearing from you.
Thanks for reading. You'll hear from me again in about two or three weeks.
-Mike
Disclaimer
The Flying Point Update is provided for general educational and informational purposes only. The content in this newsletter reflects my thoughts and observations on tax, accounting, and financial planning topics, but should not be considered personalized tax, accounting, or investment advice for your specific situation.
Tax laws are complex and change frequently. The information presented here is based on current tax law as of the publication date and represents general concepts that may not apply to your circumstances. Every individual and business has unique factors that affect their optimal tax and financial planning strategies.
Before making any financial decisions or implementing any tax strategies discussed in this newsletter, please consult with a qualified tax professional, CPA, or financial advisor who can evaluate your specific situation. If you'd like to discuss how any of these topics might apply to your circumstances, I'm always happy to chat.