Common retirement investment options

You must plan your after retirement years in advance to secure yourself financially. Your retirement investment options must take into consideration factors such as how to save enough to meet your daily requirements and still have something for emergencies. This advance planning should help you have a sound financial life so that you do not have to consider how to beat debt collectors.

401k ira nest egg Two of the most common types of retirement investment options follow. These options have their own advantages and disadvantages and you should consider both of them to diversify your investments.

401(k) Retirement fund

This option of retirement investment is usually offered by an employer. This fund allows you to contribute a certain percentage of income every month from your paycheck.

Advantages of 401(k)
  • Employers match funds.
  • You control how your money is invested.
  • You choose from a spread of investment options that are usually mutual funds.
  • This is a a tax-deferred account.
Your company may or may not provide you with information about the funds but the choice remains yours.

Restrictions of a 401 (k)
  • There are limits set on the contribution that you can make. If you are under 50, then you can contribute $16,500 and if you are above 50, then you can contribute $22,000.
  • You have to pay taxes on your contributions.
  • You will face costly penalties if you withdraw funds before you reach the age of 59.
In any case the 401(k) plan is a very good option for saving. Thus if you are offered this option by your employer, take full advantage by investing enough to get the full amount that your company has to offer.

IRAs or Individual Retirement Accounts

IRAs are not offered by employers. You have to open an IRA account all by yourself and must also decide yourself how to make contributions towards it. An IRA is also a tax-deferred retirement savings account, just like a 401(k) plan. It is made up of a fund of stocks, mutual funds, bonds and other assets. There are many types of IRAs. The two most important are a Traditional IRA and a Roth IRA.

Traditional IRA: If you have earned income, you can contribute towards this IRA. When you retire and withdraw money, then you have to pay taxes on your funds. You should also keep in mind that depending on how much you earn and whether or not your workplace offers a retirement plan, the amount that you contribute may be tax deductible. If you are below 59 and you have already started withdrawing funds, then apart from paying the regular income taxes you also have to pay off penalties. You have to start making withdrawals without being charged a penalty after you reach the age of 70.

Roth IRA: In this case you pay with money that has already been taxed, so when you withdraw money in retirement, you do not have to pay any taxes on your funds. One advantage that these IRAs offer is that you can withdraw some of the money before retirement. The Roth IRA is very flexible when it comes to withdrawals. This plan also lets you leave your money in the plan as long as you want it to stay. You do not need to start making withdrawals at a certain age. This helps your funds to keep growing. One disadvantage that you will face when opting for a Roth IRA is that there are limits set on how much you can contribute.

When you have freed up dollars to save for your retirement years can consider these two important options. Try to diversify as much as possible.

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