Roth IRA http://www.wisebread.com/taxonomy/term/8408/all en-US Does Your Kid Need an IRA? http://www.wisebread.com/does-your-kid-need-an-ira <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/does-your-kid-need-an-ira" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/child_piggy_bank_000073782665.jpg" alt="Child needs an IRA and here&#039;s how to set one up" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>It's a big day when you open a savings account for your child, but opening an investment account on their behalf takes the financial conversation to a whole new level &mdash; especially when you <a href="http://www.wisebread.com/4-reasons-why-a-roth-ira-may-be-better-than-your-401k" target="_blank">invest through a Roth IRA</a>. Here are a few reasons why your kid needs one.</p> <h2>1. They'll Learn About Investing &mdash; And More</h2> <p>Investing is arguably the most complicated and intimidating aspect of money management, so the earlier you get your kids acclimated to the process, the better.</p> <p>You could open a plain old investment account for them, but investing through a Roth IRA provides powerful additional benefits by teaching them about (and saving them) taxes.</p> <h2>2. They Start Saving for Big Purchases &mdash; Like College or a House</h2> <p>A Roth IRA is a flexible, tax-efficient way to invest. Contributions can be withdrawn at any time without taxes or penalties. Earnings can be withdrawn on the same basis as well if the account has been open for at least five years and the money is used for qualified college expenses or a first-time home purchase (up to $10,000).</p> <p>Of course, the Roth really shines as a retirement savings vehicle. All of the money &mdash; contributions and earnings &mdash; can be withdrawn tax- and penalty-free after age 59&frac12;, and the benefit of those tax-free earnings really adds up over time. So, if your child has another way to pay for college and a house, all the better to keep adding to the account and let it build for later life. But it's nice to have the flexibility to pull money out earlier if needed for college or a house.</p> <h2>3. They'll Still Be Eligible for Financial Aid</h2> <p>Money held in an IRA, whether owned by a parent or a child, does <em>not</em> impact the financial aid calculation, at least not <em>initially. </em>By contrast, 20% of the money a student holds in a taxable investment account will reduce the financial aid they're eligible for.</p> <p>However, if money is withdrawn from an IRA to pay for college, that money <em>will </em>reduce financial aid. It's treated as income, 50% of which is considered to be available to pay for school. One workaround is to use such money only to pay for the last year of school since no aid will be required the following year.</p> <h2>How to Set Up an IRA for a Minor</h2> <p>Setting up a Roth for a kid is as straightforward as setting one up for yourself, but there are a couple of wrinkles to be aware of.</p> <h3>Qualifying for an Account</h3> <p>A child has to have earned income in order to qualify for an IRA, which can come from a job or their own self-employment efforts, such as babysitting, mowing lawns, shoveling snow, pet walking, and more.</p> <p>As long as the child meets the income qualification, they don't have to contribute their own money; parents or others could make IRA contributions on their behalf. Either way, annual deposits to the account cannot exceed the amount of income earned by the child, and is currently capped at $5,500 per year.</p> <h3>Opening an Account</h3> <p>The account must be set up as a custodial account since you need to be the &quot;age of majority&quot; (18&ndash;21, depending on your state) to have such an account in your own name. Any adult can open a custodial account on behalf of a minor &mdash; a parent, grandparent, other relative, or just a friend of the child. The assets transfer to the young person when he or she reaches the age of majority.</p> <p>Many brokers, including Fidelity, TD Ameritrade, and Schwab, offer custodial IRA accounts with no or very low minimum opening balance requirements.</p> <h3>Funding an Account</h3> <p>As for specific investments to consider after opening an account, mutual funds may not be the best choice since they often require $1,000 or higher minimum investment amounts. You might consider exchange-traded funds (ETFs) instead. They can be purchased one share at a time, offer great diversification, and many brokers, including the ones mentioned above, offer plenty of commission-free ETFs.</p> <p>Opening a Roth IRA for your child is one of the best financial moves you could make. Just be sure to involve them in the process of choosing investments and understanding the tax benefits. That combination of education and hands-on experience will set them on a path toward becoming a knowledgeable, confident, successful investor.</p> <p><em>Have you opened an IRA for a child?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/does-your-kid-need-an-ira">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-ways-the-sandwich-generation-can-get-ahead">6 Ways the Sandwich Generation Can Get Ahead</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-sibling-discounts-that-can-save-you-big">6 Sibling Discounts That Can Save You Big</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-tax-mistakes-new-parents-make">4 Tax Mistakes New Parents Make</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-reasons-why-you-must-open-a-roth-ira-before-april-15">4 Reasons Why You Must Open a Roth IRA Before April 15</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-set-up-an-ira-to-build-wealth">How to Set Up an IRA to Build Wealth</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Family Investment dependents kids retirement accounts Roth IRA saving money taxes Fri, 22 Apr 2016 10:30:06 +0000 Matt Bell 1693266 at http://www.wisebread.com Which Retirement Account Is Right for You? http://www.wisebread.com/which-retirement-account-is-right-for-you <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/which-retirement-account-is-right-for-you" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/retirement_fund_money_000085578577.jpg" alt="Learning if an IRA, 401k, or 40k is right for you" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Saving for retirement is one of the most important things you can do for your future self. With so many options to choose from, how can you decide which type of account to invest your money in? There are a number of differences between an IRA, Roth IRA, and 401K. We've covered some of the most important factors below to get you started.</p> <h2>Roth IRA</h2> <p>Any contributions you make to your Roth IRA are with funds you've already paid taxes on, so your money can grow tax-free from then on. If you make more than $132,000, or $194,000 for married couples filing jointly, then you won't be eligible to contribute to a Roth IRA. There are no required minimum distributions and no age limit for contributions.</p> <p>Maximum contribution amount: $5,500 per year, $6,500 if you're age 50 or older.</p> <p>Tax advantages: Earnings grow tax-free with tax-free withdrawals in retirement.</p> <h2>Traditional IRA</h2> <p>Any contributions you make to your IRA are with funds you haven't been taxed on yet. You will be required to take a minimum distribution at age 70-&frac12;.</p> <p>Maximum contribution amount: $5,500 per year, $6,500 if you're age 50 or older; cannot contribute after age 70-&frac12;.</p> <p>Tax advantages: Contributing to your IRA can lower the amount of income you pay taxes on now. Once you retire, your withdrawals will be taxed at your ordinary income tax rate. If you make withdrawals before age 59-&frac12;, there will be an additional 10% early withdrawal penalty fee added. Certain approved purchases can be withdrawn penalty-free, such as a first home purchase and approved college expenses.</p> <h2>401K</h2> <p>A 401K is a retirement savings plan sponsored by an employer. Any contribution you make to your employer-sponsored deferred contribution retirement plan is made with funds you haven't been taxed on yet.</p> <p>Maximum contribution amount: $18,000 per year, $24,000 if you're age 50 or older.</p> <p>Tax advantages: Contributing to a 401K can lower the amount of income you pay taxes on now. Once you retire, your withdrawals will be taxed at your ordinary income tax rate. If you make withdrawals before age 59-&frac12;, there will be an additional 10% early withdrawal penalty fee added.</p> <h2>Which One Is Best?</h2> <p>If you can only open one account, or only have the funds to contribute to one retirement account, which is the one to go for? Suze Orman is a big proponent of the Roth IRA and calls it &quot;the best retirement investment you can make.&quot; There are also a number of benefits to the Roth IRA.</p> <p>For instance, you can withdraw your contributions (but not the earnings) in emergency situations, without worrying about taxes or penalties. While you don't want to ever withdraw from your retirement accounts, it can provide you with peace of mind knowing that the funds are available to you in an unexpected future emergency situation. (See also: <a href="http://www.wisebread.com/7-surprising-facts-about-roth-iras?ref=seealso">7 Surprising Facts About Roth IRAs</a>)</p> <p>If you believe you are in a lower tax bracket now than you will be in retirement (like you are just starting your career), a Roth IRA is usually the way to go. With a Roth IRA, you will be investing after-tax funds now, which means you won't be taxed later when you are in a higher tax bracket. On the other hand, if you are near your peak income now, then you will likely be at a lower tax rate in retirement, which favors a traditional IRA or 401K plan. (See also: <a href="http://www.wisebread.com/why-roth-iras-are-ideal-for-young-professionals?ref=seealso">Why Roth IRAs Are Ideal for Young Professionals</a>)</p> <p>If your employer offers contribution matching, definitely invest towards that account until you hit the company match limit so that you can benefit from the free money. With both an IRA and 401K, whatever you invest can be deducted from consideration this tax year. This means that you will be taxed on a lower amount, resulting in tax savings now.</p> <h3>Employer-Sponsored Plans</h3> <p>If your employer offers retirement benefits (such as contribution matching), then take advantage of this free money; your future self will thank you for it. You'll want to invest at least as much as the company match.</p> <p>Ask about what sort of 401K, 403(b), 457, or pension plans your employer offers. This will allow you to take advantage of as much of the employer's contribution as possible. (See also: <a href="http://www.wisebread.com/8-steps-to-starting-a-retirement-plan-in-your-30s?ref=seealso">8 Steps to Starting a Retirement Plan in Your 30s</a>)</p> <h3>Self-Employed Options</h3> <p>Did you know that 28% of the nearly 15 million self-employed Americans are <a href="http://www.amtd.com/English/newsroom/research-and-story-ideas/Self-Employed-Survey/">not saving for retirement</a> at all? Sure, it can be difficult to set aside money for retirement when you can barely pay your business expenses as it is. However, it is imperative that you save what you can now to take advantage of compound interest and to ensure you are prepared for retirement.</p> <p>Self-employed individuals have <a href="https://www.irs.gov/Retirement-Plans/Retirement-Plans-for-Self-Employed-People">further retirement savings options</a>, such as the SEP-IRA, SIMPLE IRA, and Individual or Solo 401K. These have higher contribution limits so that you can have a more sizable retirement savings. These accounts will allow you to save for retirement, while enjoying an up-front tax break and tax-deferred saving.</p> <h2>When in Doubt, Ask a Pro</h2> <p>If you aren't sure about which retirement account is right for you, it's time to speak with a financial adviser. They can help you make informed decisions based on your financial situation and retirement goals. (See also: <a href="http://www.wisebread.com/do-you-need-a-financial-planner?ref=seealso">Do You Need a Financial Planner?</a>)</p> <p><em>Do you have other tips for choosing the right retirement plan? Please share your thoughts in the comments!</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/andrea-cannon">Andrea Cannon</a> of <a href="http://www.wisebread.com/which-retirement-account-is-right-for-you">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-warning-signs-youre-sabotaging-your-nest-egg">6 Warning Signs You&#039;re Sabotaging Your Nest Egg</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-reasons-why-a-roth-ira-may-be-better-than-your-401k">4 Reasons Why a Roth IRA May be Better Than Your 401(k)</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-sep-ira-is-how-the-self-employed-do-retirement-like-a-boss">The SEP-IRA Is How the Self-Employed Do Retirement Like a BOSS</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/does-your-kid-need-an-ira">Does Your Kid Need an IRA?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/you-dont-need-a-retirement-plan-you-need-a-financial-independence-plan">You Don&#039;t Need a Retirement Plan — You Need a Financial Independence Plan</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401k Roth IRA saving money self-employment traditional ira Thu, 21 Apr 2016 09:30:24 +0000 Andrea Cannon 1691583 at http://www.wisebread.com 6 Warning Signs You're Sabotaging Your Nest Egg http://www.wisebread.com/6-warning-signs-youre-sabotaging-your-nest-egg <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/6-warning-signs-youre-sabotaging-your-nest-egg" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/man_breaking_piggybank_000048408258.jpg" alt="Man learning signs he&#039;s sabotaging his nest egg" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Depending on how old you are, retirement may seem like a vague, distant goal. Still, <em>even if</em> it's many years off, it's important to pay attention to your retirement savings because the decisions you make now &mdash; whether good or bad &mdash; will be magnified by the power of time. Review the list below to see if you're making any of these mistakes.</p> <h2>1. You Haven't Calculated How Much You Will Need</h2> <p>If you don't know how much you'll need to retire, you probably also don't know how much you'll need to invest right now. There are many simple-to-use, free online retirement planning calculators that can help you calculate these figures easily. Fidelity's <a href="http://personal.fidelity.com/planning/retirement/content/myPlan/index.shtml">myPlan Snapshot</a>, for example, requires just five bits of information to generate a rough estimate of your retirement needs and the monthly contributions needed to achieve your goal.</p> <h2>2. You're Not Saving Enough</h2> <p>If you work for a company that matches some of your 401K plan contributions, you absolutely must take advantage of what basically amounts to free money. (In fact, it's likely the easiest money you'll ever make.) And yet, about 25% of workers who are eligible for a match do not take full advantage of the benefit.</p> <p>Many of today's large employers also use various forms of automation with their retirement plans &mdash; automatic enrollment, automatic investment selection, and more. Having to opt-<em>out </em>if you don't want to participate has proven to generate higher participation levels than opt-<em>in </em>programs. The problem is, those programs tend to use relatively low contributions to start, and most workers never increase that amount.</p> <p>Don't be lulled into a false sense of confidence by automated contributions. Base your contributions on what you feel capable of contributing &mdash; it's likely higher than the automatic contribution amount.</p> <h2>3. You're Not Investing Wisely</h2> <p>The most common investment choice in 401K and similar plans is a target-date retirement fund (TDF). Their popularity is understandable since TDFs take care of some of the most complicated investing decisions for you. Investors simply choose a fund with the year closest to their intended retirement date as part of its name (the Fidelity Freedom 2055 fund, for example, is designed for people who plan to retire between 2053 and 2057). The fund is invested in a way the mutual fund company believes is best for someone with that much time until retirement. Another benefit of target-date funds is that they automatically alter how they invest over time, becoming more conservative as the investor nears retirement age.</p> <p>Still, not all TDFs intended for similar target retirement dates are the same. Some are more aggressive than others. During the financial crisis of 2008&ndash;2009, many people who were invested in 2010 target-date funds, those intended for people right on the cusp of retirement at the time, <a href="https://www.soundmindinvesting.com/articles/view/how-well-do-target-date-funds-perform-in-a-downturn">lost a lot of money</a>. Allocating all of your retirement contributions to a single fund can be risky. At the very least, understand how the target date fund you're considering is designed and make sure you're comfortable with its assumptions.</p> <h2>4. You Haven't Chosen the Right Tax-Advantaged Plan</h2> <p>If you're eligible to participate in a 401K plan, you may have a choice between a traditional or a Roth 401K. If you don't have access to a workplace plan, you probably qualify for an IRA. Again, you'll have your choice between a traditional or a Roth IRA.</p> <p>The key difference has to do with taxes. With a traditional 401K or IRA, the money you contribute is immediately tax-deductible. If you make $50,000 and contribute $5,000, your taxable income becomes $45,000. When you take money out of the account in retirement, you'll owe taxes.</p> <p>With a Roth, it works the other way around. Money you contribute is not tax-deductible. If you make $50,000 and contribute $5,000, your taxable income remains $50,000. However, when you take the money out in retirement, no taxes are due.</p> <p>Choosing the best approach comes down to trying to pay taxes when your income is lowest. So, if you're in the early stages of your career, your income is probably relatively low. Paying taxes on the contributions now by using a Roth would likely make the most sense. If you're at a stage in your career when you are earning a lot, gaining a tax deduction now may make the most sense, pointing you toward a traditional 401K or IRA.</p> <h2>5. You've Taken a Loan, Hardship Withdrawal, or Early Distribution</h2> <p>The main point of building a nest egg is to have to have enough money to live on when you're older. However, IRS rules make it surprisingly easy to take money out of retirement accounts well before retirement.</p> <p>Participants in a 401K plan can typically borrow against their balance or may qualify for a hardship withdrawal. Those using a Roth IRA can withdraw their contributions at any time without penalty, and they can access their earnings if their account has been open for at least five years and the money is used for certain purposes, such as a first-time home purchase or education.</p> <p>However, accessing retirement account money early can be harmful to your financial health. If you have a loan from your 401K and you leave your employer &mdash; whether by your choice or your employer's &mdash; you'll have to repay the full amount of the loan very quickly. And taking money out of any retirement account for any reason other than retirement means that's less money that can avail itself of the <a href="http://www.wisebread.com/2-investing-concepts-everyone-should-know">power of compound interest</a>.</p> <h2>6. You Haven't Named Beneficiaries</h2> <p>Failing to name a beneficiary for your 401K account or IRA means that money will become part of your estate upon your death, costing your heirs needless time and money. Simply naming a beneficiary will get the proceeds where you want them to go without the need for probate. Name your beneficiaries properly and your heirs could even turn your account into <em>a </em><a href="https://www.soundmindinvesting.com/articles/view/stretching-your-iras-benefits"><em>stretch IRA</em></a> or 401K, which can greatly maximize the value of your account while minimizing taxes.</p> <p>Even if you're young and retirement is set somewhere in the distant future, when that day comes, you will be glad to have taken care of these details <em>way back when.</em></p> <p><em>Are you making any of these retirement investing mistakes?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/6-warning-signs-youre-sabotaging-your-nest-egg">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-reasons-why-a-roth-ira-may-be-better-than-your-401k">4 Reasons Why a Roth IRA May be Better Than Your 401(k)</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/which-retirement-account-is-right-for-you">Which Retirement Account Is Right for You?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-to-strengthen-your-finances-before-retirement">5 Ways to Strengthen Your Finances Before Retirement</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-questions-to-ask-before-you-borrow-from-your-retirement-account">5 Questions to Ask Before You Borrow From Your Retirement Account</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-important-things-to-know-about-your-401k-and-ira-in-2016">5 Important Things to Know About Your 401K and IRA in 2016</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401k IRA nest egg retirement calculators Roth IRA Tue, 08 Mar 2016 11:00:13 +0000 Matt Bell 1666378 at http://www.wisebread.com 9 Tax-Friendly Ways to Save Beyond Your Retirement Fund http://www.wisebread.com/9-tax-friendly-ways-to-save-beyond-your-retirement-fund <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/9-tax-friendly-ways-to-save-beyond-your-retirement-fund" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/piggy_bank_cash_000005176239_2.jpg" alt="Learning tax-friendly ways to save beyond retirement fund" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>So you've been taking advantage of your company's 401K plan and have also been placing money in an individual retirement account (IRA). In fact, you've been such a great saver that you've now hit the limit on what you can contribute annually to these tax-advantaged accounts. What to do now?</p> <p>Well, first off, give yourself a huge pat on the back. You've been saving a ton, and have managed to avoid paying too much tax along the way.</p> <p>If you still have money you'd like to stash away, but don't want to give too much to the tax man, there are other investment opportunities for you. Take a look at these nine options for super savers like yourself.</p> <h2>1. 529 Plans</h2> <p>If you have children who may one day attend college, it's a great idea to save for their education using a 529 college savings plans. These plans, which are offered by individual states, have a variety of tax benefits. In most cases, you can place money in an investment account and allow it to grow tax free as long as you use the funds to pay for college. You can also often get a tax deduction on contributions.</p> <h2>2. ESA Coverdell Accounts</h2> <p>These work in similar fashion to 529 plans and Roth IRAs, in that money can be invested and then withdrawn tax free. Coverdell accounts have lower account maximums than 529 plans, but often have more investment options and the money can be used for any education expense, including grade school and high school. The maximum annual contribution per beneficiary is $2,000.</p> <h2>3. Municipal Bonds</h2> <p>It's good to have some bonds in your investment portfolio, and here's a way to help out your state, city, or county raise money for its capital expenditures. &quot;Muni&quot; bonds are usually exempt from taxes, so you get to keep more of your investment. These days, you can buy bonds directly, or get a mix of bonds through a bond mutual fund or ETF.</p> <h2>4. Real Estate</h2> <p>When you buy a house or other piece of property, mortgage interest is often tax deductible. If you sell a home, there is often an exclusion on capital gains up to $500,000 if you're a married couple filing jointly.To take advantage of these breaks, the property must be used as a first or second home in most cases. Also, be sure to itemize your deductions when filing your taxes.</p> <h2>5. Annuities</h2> <p>The idea behind an annuity is that you make investments, and then the annuity makes payments to you at a later date, or a series of dates. The investments grow tax-deferred, and earnings are taxed at your regular income rate. So if you think you'll be in a lower tax bracket upon retirement, you'll save money. Unlike 401K and IRA plans, there are no contribution limits to annuities.</p> <h2>6. Master Limited Partnerships</h2> <p>More experienced investors may find some great tax savings and solid income from MLPs. An individual can buy shares of an MLP just like a stock. Most MLPs are related to energy production, and allow investors to essentially buy &quot;units&quot; of a gas pipeline, or something similar. Income from MLPs are taxed as &quot;return of capital,&quot; so taxes can be deferred. (In essence, you only pay tax when you sell your units.) The taxes on MLPs are complex, but if you are okay with the mountain of paperwork, you may save some money. It's wise to talk to an accountant to get a full understanding of the tax implications before investing in an MLP.</p> <h2>7. Whole Life Insurance</h2> <p>I am not a big fan of whole life insurance as an investment, but there can be some tax advantages to having a policy. It's also an okay option for high earners who have maxed out other accounts. Whole life policies pay a death benefit, which is not usually taxed. Many policies also offer tax-free dividends. If you're interested in whole life insurance, make sure you're capable of paying the annual premiums. And do your homework to make sure that the dividends and growth potential outweigh many common downsides, such as high fees and commissions.</p> <h2>8. Index Funds</h2> <p>If you maxed out the contributions to your retirement plans, any additional investments you want to make will probably have to go into a taxable brokerage account. But that doesn't mean you can't find ways to keep your tax burden relatively low. Index funds are mutual funds that track a specific index, such as the S&amp;P 500. Generally speaking, index fund managers don't have to do a lot of buying and selling, so they aren't passing on a lot of capital gains to you. You'll still have to pay tax when you cash out, so they aren't really &quot;tax advantaged&quot; in the classic sense. But you'll be saving money along the way.</p> <p>See also: <a href="http://www.wisebread.com/3-steps-to-getting-started-in-the-stock-market-with-index-funds?ref=seealso">How to Get Started with Index Funds</a></p> <h2>9. ETFs</h2> <p>Exchange-traded funds are like mutual funds, in that they usually track a specific index or market sector. But they are more tax efficient than mutual funds, because investors only pay capital gains when they sell the ETF. You won't avoid tax altogether unless the ETF is part of a retirement plan, but your liability will be as low as possible. (See also: <a href="http://www.wisebread.com/8-ways-etfs-can-put-more-money-in-your-pocket-than-mutual-funds?ref=seealso">8 Ways ETFs Are a Smart Investment</a>)</p> <p><em>Where are you stashing your savings?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/9-tax-friendly-ways-to-save-beyond-your-retirement-fund">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-financial-moves-you-will-always-regret">9 Financial Moves You Will Always Regret</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/optimize-your-ira-and-401k">Optimize Your IRA and 401(k)</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/11-finance-tips-you-wish-you-could-tell-your-younger-self">11 Finance Tips You Wish You Could Tell Your Younger Self</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-surprising-ways-the-rich-get-richer">5 Surprising Ways the Rich Get Richer</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/contributing-to-a-roth-versus-paying-down-debt">Contributing to a Roth Versus Paying Down Debt</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance 401k 529 plans ETFs investing MLPs real estate Roth IRA taxes Tue, 03 Nov 2015 13:15:45 +0000 Tim Lemke 1603574 at http://www.wisebread.com This One Thing Will Get You to $1 Million (Tax-Free!) http://www.wisebread.com/this-one-thing-will-get-you-to-1-million-tax-free <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/this-one-thing-will-get-you-to-1-million-tax-free" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/retirement-savings-163904331-small.jpg" alt="retirement savings" title="retirement savings" class="imagecache imagecache-250w" width="250" height="146" /></a> </div> </div> </div> <p>We're surrounded by financial advice, often in the form of lists containing 10 (or 25! or 50!) things you can do to help solve a particular problem. While much of this information is useful, it can also be overwhelming. Where do you begin? On what things should you focus your efforts?</p> <p>I'd suggest starting with the end in mind &mdash; with your ultimate goal &mdash; and let that guide you to the highest priority activities to help you achieve it. For most of us the end goal is financial independence, and that requires accumulating enough wealth to no longer rely on income from a job. (See also: <a href="http://www.wisebread.com/just-saving-isnt-enough-how-cash-flow-allocation-helps-you-retire?ref=seealso">How Cash Flow Allocation Helps You Retire</a>)</p> <p>Okay, here's where focusing on the highest impact activities comes in. For most Americans, only two financial items generate around 80% of their wealth: real estate and retirement savings. Let's tackle one of them, retirement savings. If you get that one thing right then hundreds of other, lower impact activities won't matter much.</p> <h2>Retirement Savings</h2> <p>So let's begin. What are some typical sources of retirement savings?</p> <ul> <li>Your employer (in the form of a 401(k), 403(b) or similar program, or in rare instances a pension).<br /> &nbsp;</li> <li>The government (Social Security retirement payments).<br /> &nbsp;</li> <li>Yourself.</li> </ul> <p>Unfortunately, the first two sources are becoming increasingly uncertain, so let's narrow our focus even further, on the one retirement savings source where you have complete control: Yourself.</p> <p>IMPORTANT! Before proceeding, I would strongly suggest that if your employer offers a matching 401(k) or similar program that you contribute an amount that gets you the maximum match. What we're addressing in this article will <em>supplement</em> that 401(k) savings plan, if you're lucky enough to have one.</p> <p>Alright, so what one thing that you have control over can get you to $1 million in retirement savings, tax free? Drum roll, please&hellip;.</p> <h2>It's a Roth IRA</h2> <p>Contribute $200 per month into a Roth IRA (where earnings on the account and withdrawals after age 59&frac12; are tax-free).</p> <p>That's it! Simple, isn't it?</p> <p>Actually, yes, it is simple. That's the beauty of it. But it does require meeting a few conditions.</p> <h3>1. Invest the Money in Stocks</h3> <p>You have the option of putting your Roth IRA contributions to work in one or a combination of investments such as bonds, treasuries, CDs, money market funds, and stocks. Unlike bonds, treasuries, and especially CDs or money market funds, stock market returns have historically outpaced inflation by a comfortable margin. Over the past 50 years stock funds invested in large companies have yielded a return of 9.2%. Over the past <a href="http://usatoday30.usatoday.com/money/perfi/columnist/krantz/story/2011-10-17/rate-of-return-for-stocks/50807868/1">20 years it's been 7.9%</a>. For our purposes, to be conservative I will assume an average return of 7.5%.</p> <h3>2. Stick With It!</h3> <p>Religiously. Even obsessively, if that's what it takes. Make that $200 contribution without exception every month until it becomes automatic. In fact, setting it up as an automatic transfer from each paycheck is the best way to go. That way you never see the money and therefore never miss it.</p> <h3>3. Wait</h3> <p>This is where the magic occurs. After contributing long enough you'll reach a threshold, where your total saved amount starts to achieve a dramatic upward trajectory due to compounding.</p> <h2>The Power of Compounding</h2> <p>To illustrate the magical power of compounding, consider the story of the king and the court jester. Legend has it that a long, long time ago a court jester's heroic act saved his king. The king was so moved by the jester's bravery that he offered to give the jester anything he wanted. The jester asked for one cent, doubled each day for a month. &quot;That's all?&quot; said the king. The wish was granted. (See also: <a href="http://www.wisebread.com/10-easy-ways-to-supercharge-your-retirement?ref=seealso">10 Easy Ways to Supercharge Your Retirement</a>)</p> <p>Halfway through the month the balance grew to only $164. But during the final week it started its rapid rise &mdash; it passed the threshold &mdash; and spiked upwards, ending the month at over $5.3 million.</p> <p><img width="605" height="303" src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/Whelan Chart.png" alt="" /></p> <p>As you can see in graph, it took some time for the small initial amount to grow. Eventually, though, the balance grew large enough so that with each doubling it started shooting up very rapidly. That's the threshold you want to reach. But to do so you need to start early &mdash; i.e. NOW!</p> <h2>How Long Will It Take?</h2> <p>So, how long are we talking about to reach this magic threshold? If you start at age 21 and your $200 monthly Roth IRA contributions grow at 7.5%, then you will reach $1 million, tax-free, at age 67, which is the current target age for receiving full Social Security retirement benefits if you were born after 1960.</p> <p>What if you were to start saving at age 31 instead of 21? Then your total will only be $360,000. Big difference. That's because you didn't quite reach the threshold where compounding really starts to kick in. But still not bad.</p> <p>Now I'm guessing that not everyone who reads this is 21 years old, so you're probably thinking &quot;What can I do to make up for lost time?&quot; Here are some ideas:</p> <ul> <li>At $200 per month your total annual contribution will be $2,400 but for most households the maximum annual Roth contribution is $5,500, so if you can afford it double your monthly contribution until you're caught up.<br /> &nbsp;</li> <li>If you have money in a savings account, consider transferring up to $3,100 from it to supplement your $2,400 annual amount.<br /> &nbsp;</li> <li>You can reach your annual contribution limit by transferring money from a tax-deductible account (such as a traditional IRA) to a Roth in the same year. (Check with a financial or tax professional to be sure you understand the rules for this kind of transfer.)<br /> &nbsp;</li> <li>Getting a tax refund? Put all or a portion of it into the Roth account.<br /> &nbsp;</li> <li>Take advantage of the Roth IRA &quot;float&quot; period, which allows you to count contributions made until April 15th towards the previous year's total.<br /> &nbsp;</li> <li>Over time, as your earnings grow and you can afford more than $200 per month, increase that monthly contribution by $50 or $100 or more. Consider having all or part of your annual raise in salary automatically added to your monthly Roth contribution.</li> </ul> <p>At a time when a slew of financial information and advice seems to be coming at us from all directions it's easy to feel overwhelmed. You don't need to be. Take back control by keeping things simple and focusing on this one activity. As you approach your golden years and reach the threshold, you'll be glad you did.</p> <p><em>Have you taken this one simple step toward putting aside money for retirement?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/keith-whelan">Keith Whelan</a> of <a href="http://www.wisebread.com/this-one-thing-will-get-you-to-1-million-tax-free">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-valid-reasons-not-to-contribute-to-your-401k">6 Valid Reasons Not to Contribute to Your 401(k)</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/you-may-be-putting-your-retirement-money-in-the-wrong-place">You May Be Putting Your Retirement Money in the Wrong Place</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-dumb-401k-mistakes-smart-people-make">5 Dumb 401(k) Mistakes Smart People Make</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/intimidated-by-retirement-investing-get-professional-help">Intimidated by Retirement Investing? Get Professional Help!</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-silly-reasons-people-dont-invest-but-should">9 Silly Reasons People Don&#039;t Invest (But Should)</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement 401(k) compound interest investing Roth IRA saving Mon, 14 Jul 2014 09:00:05 +0000 Keith Whelan 1157120 at http://www.wisebread.com 4 Reasons Why You Must Open a Roth IRA Before April 15 http://www.wisebread.com/4-reasons-why-you-must-open-a-roth-ira-before-april-15 <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/4-reasons-why-you-must-open-a-roth-ira-before-april-15" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/cash-469987685.jpg" alt="cash" title="cash" class="imagecache imagecache-250w" width="250" height="164" /></a> </div> </div> </div> <p>It's that time of year again. While tax season can bring a lot of stress, there are some things you can do to make it pay off for you.</p> <p>One of them is to open a Roth IRA, which is a little <a href="http://www.irs.gov/Retirement-Plans/Traditional-and-Roth-IRAs">different than a traditional IRA</a>. The key difference is that contributions to traditional IRAs are pre-tax, while Roth IRA contributions are after tax. There are a few other differences with respect to withdrawals, but rather than focus on all of that, let's look at four reasons you should consider funding a Roth IRA this year. (See also: <a href="http://www.wisebread.com/how-to-set-up-an-ira-to-build-wealth?ref=seealso">How to Set Up an IRA to Build Wealth</a>)</p> <h2>You Can Double Your Annual Contribution</h2> <p>If you open up a Roth IRA by April 15, you get a great opportunity &mdash; you're still allowed to make a contribution for the previous (2013) tax year.</p> <p>How much?</p> <p>The most you can contribute in 2013, depending on your income and filing status, is $5,500 if you're 49 years old or younger in 2013. But if you're 50 years old or older in 2013, then you're allowed to contribute an additional $1,000, bringing your total to $6,500.</p> <p>But that's just for 2013.</p> <p>In 2014, you can contribute another $5,500 if you're 49 years old or younger in 2014. Similarly, if you're 50 years old or older in 2014, then you're allowed to contribute an additional $1,000 &mdash; again bringing your total to $6,500. (Check out the<a href="http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits"> IRS page</a> for more details on contribution limits.)</p> <p>This means that this year, you can potentially put a total of $13,000 towards your Roth IRA to build a financially secure retirement.</p> <p>Don't think that the extra $5,500 for 2013 will make a big difference?</p> <p>If you put the $5,500 in an investment that grows 7% each year, then in 30 years it'll be worth over $41,800. Best of all, if you obey the rules in withdrawing the money, you get to keep all of it and won't have to pay any taxes.</p> <p>What could you do with an extra $41,800?</p> <h2>You'll Have Better Investment Options</h2> <p>A lot of people have employer-sponsored retirement plans, such as a 401(k). Many, however, complain that the investment fund options available to them are poor. Specifically, these funds tend to have high expense ratios, which are the fees that go toward managing the fund. (See also: <a href="http://www.wisebread.com/4-reasons-why-a-roth-ira-may-be-better-than-your-401k?ref=seealso">Why a Roth IRA May Be Better Than Your 401(k)</a>)</p> <p>Even though all funds have these fees, they tend to be much higher in employer plans. With a Roth IRA, on the other hand, you can invest with a company that offers funds with much lower costs.</p> <p>For instance, it's not uncommon that funds from employer plans cost around 0.9% each year. If you open up a Roth IRA, however, you can invest with a company that offers funds that cost about 0.2% each year.</p> <p>That small amount makes a big difference over time.</p> <p>Let's say you invest $5,500 each year in a fund that grows by 7% each year. If the fund costs 0.9%, in 30 years you'll have just under $439,000. That's not bad.</p> <p>On the other hand, what if you invest in a lower-cost fund? If you invest $5,500 each year in a fund that grows by 7% each year, but that fund costs only 0.2%, then in 30 years you'll have over $499,000.</p> <p>In other words, a difference of over $60,000. How much would it hurt you to lose $60,000?</p> <h2>You'll Have Tax-Free Money</h2> <p>With a Roth IRA, you contribute money that's already been taxed. But if you follow the withdrawal rules (the main one being to wait until you're 59 &frac12; years old), then you get a huge benefit. That benefit is the pleasure of spending the money &mdash; including the money earned via investments &mdash; without paying taxes. (See also: <a href="http://www.wisebread.com/one-simple-trick-to-get-the-best-tax-benefit-from-your-retirement-portfolio?ref=seealso">Get the Best Tax Benefit From Your Retirement Portfolio</a>)</p> <p>Let's say you invest $5,500 in a regular, taxable investment account each year, and your money grows by 7% each year. If you're in the 25% tax bracket, in 30 years you'll have just under $402,000.</p> <p>But if you contribute $5,500 in a Roth IRA each year, and your money grows by 7% each year, in 30 years you'll have over $555,000. (Check out<a href="http://www.retiresimply.com/roth-vs-taxable.html"> this calculator</a> to run your own numbers.)</p> <p>In other words, taxes would eat up over $154,000 of your retirement money.</p> <h2>You'll Have Emergency Access to Your Money</h2> <p>Lastly, your contributions (that is, the money that you put into your Roth) can be taken out at any time, free of taxes and penalties. This is not true, however, of earnings on your contributions, which have more complex rules. (See also: <a href="http://www.wisebread.com/how-to-balance-saving-for-retirement-emergency-fund-and-paying-off-debt?ref=seealso">Balancing Retirement Savings, Emergency Fund, and Paying Off Debt</a>)</p> <p>Of course, since this a retirement account, you should only do this in the event of a true emergency. But it's nice to know that some of your money is available if you really need it. This is not the case for most other retirement investments you could put your money in.</p> <p>Remember, tax time doesn't have to be associated only with stress. With opening a Roth IRA, there's a bright side to the season.</p> <p><em>What other reasons for opening up a Roth IRA can you think of?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/darren-wu">Darren Wu</a> of <a href="http://www.wisebread.com/4-reasons-why-you-must-open-a-roth-ira-before-april-15">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-set-up-an-ira-to-build-wealth">How to Set Up an IRA to Build Wealth</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-reasons-why-a-roth-ira-may-be-better-than-your-401k">4 Reasons Why a Roth IRA May be Better Than Your 401(k)</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/should-you-choose-a-roth-401k-or-a-regular-401k">Should You Choose a Roth 401k or a Regular 401k?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/if-you-want-your-401k-to-grow-stop-doing-these-6-things">If You Want Your 401K to Grow, Stop Doing These 6 Things</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-important-things-to-know-about-your-401k-and-ira-in-2016">5 Important Things to Know About Your 401K and IRA in 2016</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement investment IRA Roth IRA taxes Tue, 25 Mar 2014 09:36:14 +0000 Darren Wu 1132830 at http://www.wisebread.com 6 Valid Reasons Not to Contribute to Your 401(k) http://www.wisebread.com/6-valid-reasons-not-to-contribute-to-your-401k <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/6-valid-reasons-not-to-contribute-to-your-401k" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/6370170341_55c3507a97_z.jpg" alt="stop sign" title="stop sign" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>You&rsquo;ve heard that you should contribute to your company&rsquo;s 401(k), almost always. Don't feel bad or question your financial judgment if you've decided to invest elsewhere. There are valid reasons to be an exception to this general rule. (See also: <a href="http://www.wisebread.com/is-it-time-to-starve-your-401k">Is It Time to Starve Your 401(k)?</a>)</p> <h2>1. Your Company Doesn&rsquo;t Match Your Contributions</h2> <p>If your company doesn't match your contributions, then 401(k) participation is not especially attractive. When I worked for large corporations, I contributed to my retirement through 401(k) plans but never received an employer match. Although I enjoyed the automatic savings feature and reduced tax liability, I didn't get <a target="_blank" href="http://www.wisebread.com/6-ways-to-get-paid-for-saving-money">bonus money from my employers for saving</a>.</p> <p>Many advisors emphasize that you should set aside enough money to get the employer match. However, <a target="_blank" href="http://20somethingfinance.com/401k-match/">they often don&rsquo;t mention that nearly half of employers don't provide this incentive</a>.</p> <p>Not getting a match shouldn't automatically dissuade you from contributing to your 401(k) plan at work. But this scenario should encourage you to consider other <a target="_blank" href="http://www.wisebread.com/choosing-a-retirement-account-whats-available-and-what-s-best-for-you">retirement account options</a>.</p> <h2>2. You Plan to Leave the Company After a Couple of Years</h2> <p>Even if you are eligible for the company match, you may not receive this money when you quit your job. Generally, you need to work for your employer for a while to become fully vested and receive the matching dollars. A notable exception is the <a target="_blank" href="http://www.dol.gov/ebsa/publications/401kplans.html">Safe Harbor 401(k) plan</a>, which requires all employer contributions to be fully available to employees regardless of tenure.</p> <p>Vesting schedules vary. Typically, you&rsquo;ll need to be an employee or participate in the plan for several years. Often, you&rsquo;ll get ownership of the match over time or at the end of a specified term (for example, you'll gain access to 20% every year for five years or get nothing for the first six years and then become 100% vested in year seven). Look at <a target="_blank" href="http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics---Vesting">your 401(k) plan documents</a> to determine when ownership of the employer match is transferred to you. Note that you always have ownership of your contributions.</p> <p>Just as not getting a match doesn't negate the value of the 401(k), having to wait to become fully vested doesn't mean that you should definitely skip enrollment. However, it's helpful to consider your career plans and vesting schedules when making this decision.</p> <h2>3. You Want to Pay Off High Interest Debt</h2> <p>If you are carrying thousands of dollars in high interest debt, then you may want to focus on paying off loan balances at home instead of contributing to your 401(k) plan at work. Diverting money from retirement funding to debt payoff for a couple of years could make sense, especially if you are burdened financially and psychologically by credit card debt.</p> <p>Company matching percentages, loan interest rates, loan balances, <a target="_blank" href="http://www.wisebread.com/tax-brackets-explained">tax brackets</a>, and investment returns play a role in calculating what is best for your situation. For a discussion of this topic, see Philip&rsquo;s post on <a target="_blank" href="http://www.wisebread.com/funding-your-401k-when-youre-in-debt?wbref=readmore-5">funding your 401(k) when you&rsquo;re in debt</a>.</p> <p>Your goal should be to establish a habit of financial discipline, whether contributing to your 401(k) plan or paying off loans. Consider your financial priorities and inclinations; if you opt to pay off credit card balances, commit to spending less than you earn and building your retirement account as soon as your high-interest balance hits zero.</p> <h2>4. Your Employer Offers a Lousy 401(K) Plan</h2> <p>You may choose to invest on your own rather than put money in your employer's 401(k) if the plan has undesirable investment options and unreasonably high costs.</p> <p>Look at the disclosures to gain insight into the worthiness of your company's 401(k) plan. According to the <a target="_blank" href="http://www.shrm.org/hrdisciplines/benefits/articles/pages/nohide.aspx">Society for Human Resource Management (SHRM)</a>, you should receive information on mutual fund performance compared to benchmarks as well as administrative, investment, and service expenses. See this <a target="_blank" href="http://www.401khelpcenter.com/401k/401k_fee_infographic.html#.UUdOAta7N14">infographic</a> for an explanation of the differences in these types of fees. In addition, check <a target="_blank" href="http://www.brightscope.com/">BrightScope</a> ratings to see how your employer&rsquo;s plan compares with its peers.</p> <p>Certified financial planner <a target="_blank" href="http://thechicagofinancialplanner.com/2013/02/06/4-signs-of-a-lousy-401k-plan/">Roger Wohlner gives tips on the types of mutual funds that may indicate a lousy plan</a>. For example, if your choices are limited to proprietary funds associated with the plan provider, one fund family (only T. Rowe Price funds in all asset classes, for example), or expensive share classes, then your plan may not be designed for the optimal benefit of employees.</p> <p>Examine your 401(k) to figure out if your employer is offering an excellent, average, or subpar plan. Based on your discovery, you may decide to <a href="http://www.wisebread.com/how-to-set-up-an-ira-to-build-wealth">open and fund an IRA</a> to build wealth instead of participating in your company's plan.</p> <h2>5. You Need Cash to Make a Down Payment on a House</h2> <p>While you can tap your retirement funds by taking a hardship distribution or borrowing on your balance, there is a simpler way to get money for the purchase of a primary (or principal) residence. Forgo 401(k) plan contributions for the moment, save in a regular account, and earmark funds for this purpose.</p> <p>If you <a target="_blank" href="http://www.wisebread.com/tax-penalties-for-early-retirement-withdrawals">withdraw money from a traditional 401(k) account prior to retirement age</a>, <a target="_blank" href="http://www.irs.gov/Retirement-Plans/Plan-Sponsor/401(k)-Resource-Guide---Plan-Sponsors---General-Distribution-Rules">you will owe taxes on the distribution amount plus a 10% penalty in most cases</a>. Also, you won&rsquo;t be able to contribute to the plan for several months. Alternatively, you could borrow from the account; however, a loan detracts from your long term ability to save plus requires you to pay outstanding balances immediately if you leave your employer.</p> <p>So, rather than funding your plan at work, consider setting aside a certain amount to accumulate a down payment. Then, after you purchase the house, you can start (or restart) contributing to your 401(k).</p> <h2>6. You Want to Fund a Roth IRA</h2> <p>If you have a healthy balance in traditional retirement accounts (and your employer doesn't offer the Roth designated account within its 401(k) plan), you may want to skip contributions at work and put money into a Roth IRA.</p> <p>While traditional retirement plans give you a tax break now, the Roth allows you to withdraw funds tax-free when you reach 59&frac12; (or earlier in certain circumstances). Also, unlike regular IRAs and traditional 401(k)s, you can take money out of the Roth at your leisure rather than according to a certain schedule in retirement.</p> <p>To be clear, you don&rsquo;t have to <a target="_blank" href="http://www.wisebread.com/4-reasons-why-a-roth-ira-may-be-better-than-your-401k">choose between a Roth IRA and your employer&rsquo;s 401(k) plan</a> (however, there are income-based limits on Roth contributions). But if you meet income standards and have limited amounts of money to save for retirement, then you may want to stop participating in the 401(k) plan in order to fund the Roth IRA.</p> <p>Certainly, there are many reasons you should participate in a 401(k) plan, including the ease of setting aside money for your retirement on a regular and automatic basis plus the ability to save a large amount each year within this retirement account (more than $17,000 per year in a 401(k) plan versus just $5,500 in an IRA). But you shouldn't feel uneasy if you decide to take a different route, particularly for a year or two, depending on your circumstances.</p> <p><em>Have you decided not to participate in your company's 401(k) plan? Have you still been able to save for retirement?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/julie-rains">Julie Rains</a> of <a href="http://www.wisebread.com/6-valid-reasons-not-to-contribute-to-your-401k">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/this-one-thing-will-get-you-to-1-million-tax-free">This One Thing Will Get You to $1 Million (Tax-Free!)</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-surprising-facts-about-roth-iras">7 Surprising Facts About Roth IRAs</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-it-time-to-starve-your-401k">Is It Time to Starve Your 401(k)?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-set-up-an-ira-to-build-wealth">How to Set Up an IRA to Build Wealth</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-to-boost-your-odds-of-retiring-early">5 Ways to Boost Your Odds of Retiring Early</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement 401(k) credit card debt loan payoff Roth IRA Mon, 25 Mar 2013 09:48:38 +0000 Julie Rains 971346 at http://www.wisebread.com How to Set Up an IRA to Build Wealth http://www.wisebread.com/how-to-set-up-an-ira-to-build-wealth <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-set-up-an-ira-to-build-wealth" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/6881496274_b0d1973e75_c.jpg" alt="cash" title="cash" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>Here's some food for thought &mdash; if you save just under $11 a day in an investment that grows 8% each year, and in 40 years you'll have $1 million.</p> <p>What would you do with a million dollars? Would you travel the world, visiting a new country every month? Support a cause that's dear to your heart?</p> <p>How would you feel? More secure, knowing that you accomplished the goal of being able take care of most of your expenses?</p> <p>To put this in perspective, you'll put in less than $150,000 of your own money, yet you'll end up with over six times that amount. That demonstrates the time value of money and the incredible power of compound interest.</p> <p>And it gets even better. An IRA is a great place to do all your saving, because you'll get some <a href="http://www.wisebread.com/16-great-tax-deductions-you-may-have-overlooked">nice tax benefits</a> &mdash; benefits that'll put even more money in your pocket.</p> <p>Let's get started. Here's how to set up a wealth building IRA in four simple steps. (See also:&nbsp;<a href="http://www.wisebread.com/choosing-a-retirement-account-whats-available-and-what-s-best-for-you">Choosing a Retirement Account:&nbsp;What's Available, and What's Best for You?</a>)</p> <h2>Step 1: Traditional or Roth?</h2> <p>There are two types of IRAs, and the first step you need to take is to decide which one of the two you want to open &mdash; a Traditional or Roth IRA.</p> <p>What's the difference between the two?</p> <p>With a Traditional IRA, your withdrawals at retirement are taxed, but your yearly contributions are tax deductible. This means that if you contribute $5,500 every year and you're in the 25% tax bracket, you'll also save $1,375 in taxes every year.</p> <p>With a Roth IRA, you contribute with after-tax money, but your withdrawals at retirement are tax free. This means that if you retire with $1 million, you won't have to pay taxes on a single penny of that $1 million.</p> <p>Which one should you choose?</p> <p>If you're <a href="http://www.wisebread.com/14-proven-strategies-for-landing-jobs">just starting out in your career</a> and have a relatively low salary, it may make more sense to pay taxes now while you're still in a low tax bracket. In this case, choose the Roth IRA.</p> <p>But if you're making the big bucks and you're at the height of your earnings potential, you'll probably be in a lower tax bracket in retirement. In this case, choose the Traditional IRA.</p> <p>There may be other factors that come into play when deciding between the two, but the guidelines above provide a good starting point. If you want help making a more informed decision, check out the <a target="_blank" href="http://www.irs.gov/Retirement-Plans/Individual-Retirement-Arrangements-(IRAs)-1">IRS's guide to IRAs</a>.</p> <h2>Step 2: Which Company?</h2> <p>Once you decide which type of IRA is best for you, the next step is to decide which company you want to invest with. The main things you want to look for in a company are:</p> <ol type="1" start="1"> <li>The availability of good mutual funds</li> <li>Low fees</li> <li>Low minimum opening requirements</li> </ol> <p>Several reputable companies meet these three criteria. Two of the well-known ones are Vanguard and Fidelity. As such, they're the ones I'll be referring to in more detail below.</p> <h2>Step 3: Which Fund?</h2> <p>After you decide which company you want to invest with, the next step is to choose your investment. There are several ways to invest, and several types of investments to consider.</p> <p>But I'll share with you the two methods that experts in the personal finance community suggest. These methods will save you money and build more wealth.</p> <p><strong>Hands-Free Funds</strong></p> <p>The first method is for those of you who want to stay hands-off, yet still earn a good return on your money. If you don't want to actively monitor your investments, then target date retirement funds are for you. Just pick the fund with the year closest to the time you want to retire, and you're good to go. Set it, and forget it.</p> <ul type="disc"> <li><a target="_blank" href="https://www.fidelity.com/mutual-funds/asset-allocation-funds/freedom-funds/overview">Fidelity Freedom Funds</a> have a $2,500 minimum in order to open an account. They come with expense ratios between 0.44% and 0.76%.<br /> &nbsp;</li> <li><a target="_blank" href="https://personal.vanguard.com/us/funds/vanguard/TargetRetirementList">Vanguard Target Retirement Funds</a> have a lower minimum, requiring just $1,000 in order to open an account. They're also cheaper to own, with expense ratios just between 0.16 % and 0.18%.</li> </ul> <p><strong>Hands-on Funds</strong></p> <p>The second method is for those of you who want to be more hands-on and pay less in fees. If you want to reduce your costs of investing, consider building a portfolio that you manage yourself.</p> <ul type="disc"> <li>Most Fidelity index funds have a $2,500 minimum, and expense ratios between 0.10% and 0.34%.<br /> &nbsp;</li> <li>Most Vanguard index funds have a $3,000 minimum, and expense ratios between 0.18% and 0.24%. By buying a few different funds at different dollar amounts, you'll end up paying less in fees.</li> </ul> <p>If you'd like to see an example of how I do it, check out the <a target="_blank" href="http://moneytobless.com/simplify-your-investing-with-the-core-four-portfolio/">Core Four Portfolio</a>.</p> <h2>Step 4: Contribute Regularly</h2> <p>After you've chosen your investment, the last &mdash; and most important &mdash; step is to contribute to your IRA on a consistent basis.</p> <p>Remember that million dollar example at the beginning of this post? For the time value of money and the <a href="http://www.wisebread.com/the-false-allure-of-compound-interest">magic of compounding</a> to work for you, you need to invest regularly. Fortunately, this is simple to do.</p> <p>Just like you can invest in your 401k automatically every two weeks through direct deposit from your paycheck, you can also automatically invest in your IRA in the same way. By setting up automatic transfers from your checking account to your IRA, you'll build wealth with much less effort.</p> <p>Remember, just $11 a day can deliver a million dollars your way.</p> <p><em>When will you set up an IRA and begin building wealth?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/darren-wu">Darren Wu</a> of <a href="http://www.wisebread.com/how-to-set-up-an-ira-to-build-wealth">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-reasons-why-a-roth-ira-may-be-better-than-your-401k">4 Reasons Why a Roth IRA May be Better Than Your 401(k)</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-reasons-why-you-must-open-a-roth-ira-before-april-15">4 Reasons Why You Must Open a Roth IRA Before April 15</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/does-your-kid-need-an-ira">Does Your Kid Need an IRA?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-warning-signs-youre-sabotaging-your-nest-egg">6 Warning Signs You&#039;re Sabotaging Your Nest Egg</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-important-things-to-know-about-your-401k-and-ira-in-2016">5 Important Things to Know About Your 401K and IRA in 2016</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement IRA retirement accounts Roth IRA Tue, 19 Mar 2013 10:00:42 +0000 Darren Wu 969859 at http://www.wisebread.com Best Money Tips: The Retirement Edition http://www.wisebread.com/best-money-tips-the-retirement-edition <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/best-money-tips-the-retirement-edition" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/1519834253_c94a914076_z-1.jpg" alt="The Retirement Edition" title="The Retirement Edition" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Welcome to Wise Bread's <a href="http://www.wisebread.com/topic/best-money-tips">Best Money Tips</a> Roundup! Today, we found many great articles relating to retirement!</p> <h2>Top 5 Articles</h2> <p><a href="http://www.girlsjustwannahavefunds.com/retirement-planning-how-to">5 Basic Steps for Retirement Planning</a> &mdash; When you plan for retirement, don't forget to periodically rebalance your portfolio. [Girls Just Wanna Have Funds]</p> <p><a href="http://www.freemoneyfinance.com/2012/07/youll-need-11-times-your-salary-for-retirement.html">You'll Need 11 Times Your Salary for Retirement</a> &mdash; Delaying your retirement from age 65 to 67 can reduce the amount of money you need to retire to 9.4 times your salary. [Free Money Finance]</p> <p><a href="http://www.savvysugar.com/How-Invest-Retirement-22553330">Everything You Need To Know About Retirement</a>&nbsp;&mdash; In 2012, anyone can change an IRA over to a Roth IRA. [SavvySugar]</p> <p><a href="http://steadfastfinances.com/blog/2012/07/30/4-advantages-and-4-disadvantages-of-early-retirement/?utm_source=feedburner&amp;utm_medium=feed&amp;utm_campaign=Feed%3A+SteadfastFinances+%28Steadfast+Finances%29">4 Advantages and 4 Disadvantages of Early Retirement</a> &mdash; While retiring early can be good for your health and increase your life expectancy, it also means a reduction in your future savings. [Steadfast Finances]</p> <p><a href="http://parentingsquad.com/retirement-account-vs-college-fund-should-we-really-put-ourselves-before-our-kids">Retirement Account vs. College Fund: Should We Really Put Ourselves Before Our Kids?</a> &mdash; There are many ways to cover your child's college education expenses, so go ahead and fund your retirement account first! [Parenting Squad]</p> <h2>Other Essential Reading</h2> <p><a href="http://christianpf.com/important-changes-coming-to-your-401k-statement-soon/">Important Changes Coming Soon To Your 401(k) Statement</a>&nbsp;&mdash; The new 401(k) statement law requires employeers to make employees aware of fees that are being applied to their accounts. [Christian Personal Finance]</p> <p><a href="http://www.smartonmoney.com/3-things-to-consider-when-investing-during-retirement/">3 Things to Consider When Investing During Retirement</a> &mdash; When investing during retirement, reconsider the 60/40 stock/bond allocation. [Smart On Money]</p> <p><a href="http://www.getrichslowly.org/blog/2012/06/07/the-retirement-outlook-for-20-somethings/">The Retirement Outlook for 20-Somethings</a> &mdash; 20-somethings need to redefine their image of retirement. Things aren't the same as they were for their parents or grandparents! [Get Rich Slowly]</p> <p><a href="http://www.goodfinancialcents.com/can-you-roth-ira-rollover-rules-from-401k/">Can You Rollover Your 401k to a Roth IRA?</a> &mdash; In order to roll over your 401k to a Roth IRA, you have to be separated from your employer. [Good Financial Cents]</p> <p><a href="http://retirehappyblog.ca/lifestyle-choices-in-retirement/">Lifestyle Choices in Retirement</a> &mdash; Some retirees choose to be busy homebodies while others choose to volunteer. Which lifestyle will you live in retirement? [Retire Happy Blog]</p> <h2>News &amp; Events</h2> <p><a href="http://www.wisebread.com/top-100-most-popular-personal-finance-blogs/news/2012/07/wise-bread-tweetchat-wbchat-2">Wise Bread's Tweetchat (#WBChat)</a> &mdash; Don't miss our weekly #WBChat at 12pm PST! We will be giving away prizes!</p> <p><a href="http://www.wisebread.com/top-100-most-popular-personal-finance-blogs/news/2012/08/the-plutus-awards-voting">The Plutus Awards Voting</a>&nbsp;&mdash;&nbsp;Be sure to vote in the 3rd annual Plutus Awards! Voting closes on August 14th.</p> <p>Be sure to check out our&nbsp;<a href="http://www.wisebread.com/top-100-most-popular-personal-finance-blogs/news">News &amp; Events Calendar</a>&nbsp;to see all the awesome upcoming events in the personal finance world!&nbsp;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/ashley-jacobs">Ashley Jacobs</a> of <a href="http://www.wisebread.com/best-money-tips-the-retirement-edition">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/this-is-why-you-cant-postpone-planning-for-your-retirement-and-how-to-start">This Is Why You Can&#039;t Postpone Planning for Your Retirement (And How to Start)</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/if-you-want-your-401k-to-grow-stop-doing-these-6-things">If You Want Your 401K to Grow, Stop Doing These 6 Things</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-step-by-step-guide-to-rolling-over-your-401k">The Step-by-Step Guide to Rolling Over Your 401(k)</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/you-may-be-putting-your-retirement-money-in-the-wrong-place">You May Be Putting Your Retirement Money in the Wrong Place</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-valid-reasons-not-to-contribute-to-your-401k">6 Valid Reasons Not to Contribute to Your 401(k)</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) best money tips IRA retirement Roth IRA Thu, 09 Aug 2012 10:00:42 +0000 Ashley Jacobs 947049 at http://www.wisebread.com Step-By-Step Guide to Rolling Over Your Old 401(k) http://www.wisebread.com/step-by-step-guide-to-rolling-over-your-old-401k <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/step-by-step-guide-to-rolling-over-your-old-401k" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/6087387101_b593dd86cc_z.jpg" alt="401k" title="401k" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Last year, I left my job at a bank holding company in the Midwest, packed my things, and headed to law school on the East Coast. There&rsquo;s one thing I forgot, though &mdash; my 401(k). Well, I didn&rsquo;t exactly <em>forget</em> it; I just left it hanging for the past year. But no more! It&rsquo;s summertime, I&rsquo;m out of school, and I&rsquo;m ready to get my finances in order. It&rsquo;s time to roll over my 401(k) &mdash; and tell you how you can, too. (See also: <a href="http://www.wisebread.com/4-reasons-why-a-roth-ira-may-be-better-than-your-401k">4&nbsp;Reasons Why a Roth IRA May Be Better Than Your 401(k)</a>)</p> <p>Before we get into the step-by-step guide of rolling over a 401(k), though, let&rsquo;s go over some basics.</p> <h3>What Is a 401(k)?</h3> <p>Sure, you probably know that a 401(k) is a retirement investment vehicle that allows you to put away pre-tax money, and that your contributions are often matched (if not dollar-for-dollar, then at least at some proportion) by your employer. You may not know, however, that there&rsquo;s generally a waiting period before new employees are allowed to invest in the funds (ours was two months). You might also be unaware that while employers may offer matching funds, they also often require you to remain with the company for a certain number of years before you&rsquo;re eligible to receive those funds. At my company, that period was five years. If you move on earlier than that, you forfeited all employer contributions to your 401(k).</p> <h3>Why You Should (Almost Always) Roll Over Your 401(k)</h3> <p>Why should I roll over my 401(k) in the first place, you ask? Well, here&rsquo;s a post we did a while back covering the considerations you might look at in <a href="http://www.wisebread.com/left-a-job-do-a-rollover">deciding whether to roll over your 401(k)</a>. In general, it is a good idea to move your 401(k) because plan administrators charge a fee for managing the account. While the fee is worth it when you&rsquo;re receiving employer contributions and contributing with pre-tax money, that benefit goes away as soon as your employment ends. What&rsquo;s more, if your 401(k) balance is less than $5,000, you&rsquo;re <a href="http://money.msn.com/retirement-investment/5-things-to-know-about-your-401k-smartmoney.aspx">required to cash out or roll over your account</a> upon leaving the company.</p> <h3>What Exactly a 401(k) Rollover Is</h3> <p>When you leave a job, you have several options regarding your 401(k):</p> <ol> <li>Leave it where it is (if it&rsquo;s over $5,000)</li> <li>Cash it out</li> <li>Roll the account into your new employer&rsquo;s plan</li> <li>Roll the account into an IRA or a Roth IRA</li> </ol> <p>The fourth option, rolling over your account into an IRA or Roth IRA, is what is traditional meant by a 401(k) &ldquo;rollover.&rdquo;</p> <p>We&rsquo;ve already established that it&rsquo;s rarely a good idea to leave your 401(k) with your former employer. It&rsquo;s also generally a very bad idea to cash out your 401(k) (you&rsquo;ll end up paying 30% or more in taxes &mdash; check out <a href="https://www.wellsfargo.com/investing/retirement/tools/401k-early-withdrawal-calculator-results">Wells Fargo&rsquo;s 401(k) Early Withdrawal Costs Calculator</a> to find out exactly how much you&rsquo;ll be paying). There&rsquo;s also no real benefit to rolling over your old 401(k) to your new employer. Your investment options are limited, there are other limitations that don&rsquo;t exist with IRAs, and your employer doesn&rsquo;t match those old funds in any way. The bottom line is this &mdash; if you&rsquo;ve left your job and you&rsquo;re not in dire financial straits, roll over your 401(k).</p> <h3>Choosing a Traditional or Roth IRA</h3> <p>Characteristics of a <a href="http://www.investopedia.com/terms/t/traditionalira.asp#axzz1zDR9Xx87">traditional IRA</a> are:</p> <ul> <li>Individuals can contribute pre-tax money to investments that grows tax-free</li> <li>Distributions taken after retirement are taxed as ordinary income</li> <li>There are no income limits</li> <li>Individuals must start taking minimum distributions by age 70&frac12;</li> </ul> <p>Characteristics of a <a href="http://www.investopedia.com/terms/r/rothira.asp#axzz1zDR9Xx87">Roth IRA</a>, on the other hand, are:</p> <ul> <li>Individuals cannot contribute pre-tax money (i.e., you pay with after-tax income)</li> <li>Qualified distributions taken after retirement are tax free</li> <li>There are income limits (you can&rsquo;t contribute if you make over $105,000 per year if single or $167,000 if married filing jointly)</li> <li>Individuals do not need to start taking minimum distributions at any point</li> </ul> <p>In general, if you&rsquo;re eligible for both a traditional and Roth IRA, you should go for the Roth <em>unless</em> you expect to be in a lower tax bracket when you retire. It can also be smart to go the route of diversifying and have one of each type of account. If you&rsquo;re like me (eligible for both but expecting to be ineligible for a Roth IRA as my income rises), you&rsquo;ll stick with the Roth for now and open a traditional IRA later. Check out CNNMoney&rsquo;s guide on <a href="http://money.cnn.com/retirement/guide/IRA_Roth.moneymag/index7.htm?iid=EL">which type of account is right for you</a> for more guidance.</p> <p>Importantly, note that if you&rsquo;re moving your money from a 401(k) (funded with your <em>before-tax</em> contributions) to a Roth IRA (funded with <em>after-tax</em> contributions), you will owe taxes at the time of conversion. After 2011, though, you can spread this over two years. For me, the benefit letting my money grow tax-free in a Roth IRA account outweighs the relatively small amount I&rsquo;ll owe in taxes.</p> <p>Last note &mdash; prior to 2010, if you wanted to convert your 401(k) to a Roth IRA, you had to go through an irritating two-step process of rolling over your 401(k) to a traditional IRA and immediately converting it to a Roth IRA. After 2010, all plans are <em>supposed</em> to offer the direct-to-Roth IRA option. Be aware, however, that some still do not offer this.</p> <h3>And Now, A Step-By-Step Guide to Rolling Over Your 401(k)</h3> <p>Once you&rsquo;ve decided that you should roll over your 401(k), there are four basic steps you&rsquo;ll need to take to actually move your money.</p> <p><strong>1. Open Your IRA or Roth IRA</strong></p> <p>Find and open an IRA/. Check out <a href="http://www.kiplinger.com/basics/archives/2002/03/story28.html">this article from Kiplinger</a> or <a href="http://www.getrichslowly.org/blog/2007/06/07/how-to-start-a-roth-ira-and-where-to-do-it/">this article from Get Rich Slowly</a> on how to choose the right Roth IRA for you.</p> <p><strong>2. Contact Your Old 401(k) Plan Administrator</strong></p> <p>For me, this one involves digging around in my records to find the retirement plan website and login information. From there, I can find the forms I&rsquo;ll need to fill out to make the transfer. Then I&rsquo;ll just need to fill them out and submit them.</p> <p><strong>3. Confirm That Your New IRA Is Able to Receive Your 401(k) Funds</strong></p> <p>Just in case, you&rsquo;ll want to confirm with your new IRA account provider that everything is in place to receive a direct transfer from your old 401(k).</p> <p><strong>4. Confirm Direct Transfer From Your 401(k)</strong></p> <p>While filling out paperwork and verifying transfers, make sure you go with the direct transfer option &mdash; that way, your old plan simply sends your money to your new IRA account. Your other option is to have your 401(k) plan cut you a check, which will be for 80% of the fund balance (20% is temporarily withheld for taxes). You&rsquo;ll need to deposit the full 100% old balance in your new IRA, though, (meaning you&rsquo;ll need to make up that withheld 20% from personal funds) within 60 days. If you do deposit the full amount, you&rsquo;ll get the 20% withheld when you file your taxes the following year. If not, you&rsquo;ll be subject to <a href="http://www.wisebread.com/tax-penalties-for-early-retirement-withdrawals">early withdrawal fees</a>.</p> <p>So there you have it &mdash; the guide to rolling over your 401(k), and how I&rsquo;m planning on rolling mine over in the next few weeks. Good luck!</p> <p><em>Had any experience with rolling over your 401(k) or thoughts on the matter? Share your thoughts in the comments!</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/janey-osterlind">Janey Osterlind</a> of <a href="http://www.wisebread.com/step-by-step-guide-to-rolling-over-your-old-401k">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-4"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-valid-reasons-not-to-contribute-to-your-401k">6 Valid Reasons Not to Contribute to Your 401(k)</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-surprising-facts-about-roth-iras">7 Surprising Facts About Roth IRAs</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-set-up-an-ira-to-build-wealth">How to Set Up an IRA to Build Wealth</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/this-one-thing-will-get-you-to-1-million-tax-free">This One Thing Will Get You to $1 Million (Tax-Free!)</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/opening-a-roth-ira-for-your-kid">Opening a Roth IRA for Your Kid</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement 401k rollover changing jobs IRAs Roth IRA Wed, 25 Jul 2012 10:24:37 +0000 Janey Osterlind 942736 at http://www.wisebread.com Investing 101: 5 Essential Steps http://www.wisebread.com/investing-101-5-essential-steps <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/investing-101-5-essential-steps" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/6976093174_f5d642a9ec_z.jpg" alt="happy woman" title="happy woman" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>For many people, investing is the toughest part of personal finance. It can be confusing, intimidating, and with the recent recession still vivid in our memories, scary.</p> <p>But it doesn&rsquo;t have to be. Here are five steps everyone can take to invest well. (See also: <a href="http://www.wisebread.com/5-killer-free-investment-tools">5 Killer Free Investment Tools</a>)</p> <h3>1. Make Sure You&rsquo;re Ready to Invest</h3> <p>You&rsquo;re ready to invest once you&rsquo;re <a href="http://www.wisebread.com/how-to-start-fighting-debt-today">out of debt</a> except for your mortgage (of course, it&rsquo;s fine to have paid off your mortgage as well, but you don&rsquo;t have to wait until then) and have <a href="http://www.wisebread.com/figuring-the-size-of-your-emergency-fund">an emergency fund</a>.</p> <p>I also make an exception to my no-debt suggestion if your employer provides a 401(k) match. That&rsquo;s such easy money, I&rsquo;d hate for you to miss out. So if you can make accelerated payments on any debts you carry, have an emergency fund, <em>and </em>can contribute enough to your 401(k) to get the match, great. If not, get out of debt and build an emergency fund. Then start investing.</p> <h3>2. Figure Out How Much to Invest</h3> <p>There are lots of free online calculators available that can help you estimate how much you'll need to have in an investment account by the time you retire, and how much you'll need to invest each month in order to hit that goal.</p> <p>One of the easiest-to-use calculators is on <a href="https://www.fidelity.com/retirement/calculators">Fidelity&rsquo;s web site</a> (click on &ldquo;myPlan Snapshot&rdquo;). You may need to register on the site, but you won&rsquo;t need to open an account.</p> <h3>3. Open an Account</h3> <p>If your employer offers a 401(k) or other type of retirement plan, this step should be easy enough. If not, consider opening a Roth IRA with an investment company like Vanguard, Fidelity, or T. Rowe Price.</p> <p>With a Roth, there's no tax break for the money you put in, but any interest earned is tax free. Plus you can withdraw the money you contribute at any time with no penalty. You can even withdraw the earnings before you hit retirement age under <a href="http://www.wisebread.com/7-surprising-facts-about-roth-iras">certain circumstances</a>.</p> <h3>4. Diversify Properly</h3> <p>You&rsquo;ve probably heard that it&rsquo;s important to diversify &mdash; spreading out the money you invest into different types of investments &mdash; and that&rsquo;s true. It&rsquo;s a way of managing risk. When one type of investment isn&rsquo;t doing so well, chances are another type will be doing just fine.</p> <p>One of the easiest ways to diversify is to invest in mutual funds instead of individual stocks. Mutual funds are inherently diversified because one fund typically invests in many different stocks, bonds, or other mutual funds.&nbsp;</p> <p>But here&rsquo;s the key point about diversifying your investments: <em>How</em> you diversify &mdash; how you divvy up your investment dollars between mutual funds that invest in bonds vs. those that invest in stocks, for example &mdash; is incredibly important. This is known as asset allocation, and it&rsquo;s been found to be <em>the single most important factor</em> that determines your investment success.</p> <p>In general, when you&rsquo;re young, you can afford to take more risk, so your ideal asset allocation might call for 90-100% equity investments (i.e., stock-based mutual funds) and 0-10% bond funds.</p> <p>One of the easiest ways to invest based on the proper asset allocation is to put your money in a <a href="http://www.mattaboutmoney.com/2011/07/13/investing-made-simpler/">target-date mutual fund</a>. Such funds set the asset allocation for you based on your intended retirement age. They then automatically make the allocation more conservative as you get older.</p> <p>Most of the big brokerage houses offer such funds, as do many workplace programs like 401(k) plans.</p> <p>If you prefer a more hands-on approach, determine <a href="http://www.mattaboutmoney.com/resources/links/">the right asset allocation for you</a> (scroll down to &ldquo;Investing&rdquo; and click on &ldquo;Asset Allocation Guidelines&rdquo;). Then you could either choose your own mutual funds within the various asset classes and in the right percentages or work with <a href="http://www.wisebread.com/do-a-background-check-before-hiring-your-financial-advisor">an investment advisor</a> to choose the right funds.</p> <h3>5. Get Started</h3> <p>Time is one of the most important ingredients for successful investing because it's what allows you to take the fullest advantage of compound interest.</p> <p>In essence, compound interest is interest earning interest. Let&rsquo;s say you invest $400 per month and get a 7% return. After 10 years, you will have invested $48,000, but it will have turned into over $69,000. Not bad.</p> <p>Now let's give it more time. After 40 years, you will have invested $192,000, but your account will be worth nearly $1,050,000! That's the power of compound interest. Clearly, it&rsquo;s important to start investing as soon as possible.</p> <h3>You Can Do It</h3> <p>Hopefully, this brief tutorial has taken away some of the confusion or fear that often surrounds investing. If you follow the steps above, you&rsquo;ll be headed in the right direction</p> <p><em>Have you taken these steps with your investments? What investment-related questions do you have? Let me know in the comments section.</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/investing-101-5-essential-steps">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-reasons-why-a-roth-ira-may-be-better-than-your-401k">4 Reasons Why a Roth IRA May be Better Than Your 401(k)</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/does-your-kid-need-an-ira">Does Your Kid Need an IRA?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/which-retirement-account-is-right-for-you">Which Retirement Account Is Right for You?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-warning-signs-youre-sabotaging-your-nest-egg">6 Warning Signs You&#039;re Sabotaging Your Nest Egg</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/should-you-pay-down-debt-first-or-invest">Should You Pay Down Debt First or Invest?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment 401k Beginning Investor diversification emergency fund Roth IRA Wed, 20 Jun 2012 10:36:08 +0000 Matt Bell 935182 at http://www.wisebread.com Is It Time to Starve Your 401(k)? http://www.wisebread.com/is-it-time-to-starve-your-401k <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/is-it-time-to-starve-your-401k" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/6793810655_5092d1476a_z.jpg" alt="basket of eggs" title="basket of eggs" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>In the early 1990s, I worked for a benefits consulting firm that managed retirement plans for employees of various companies. Though barred from providing direct investment or tax advice, my coworkers and I gave the standard 401(k) spiel that outlined the benefits of pre-tax contributions. It was a song-and-dance that was pretty much true at the time &mdash; &ldquo;contribute funds pre-tax during your working years; the investments grow tax-free (based upon market performance, of course), and when you withdraw upon retirement, your tax rate is likely to be lower.&rdquo;</p> <p>While the logic still makes sense, I&rsquo;m not so sure the root of that statement applies any longer, or that I could parrot it without some serious reservations now. Newly enrolled 401(k) participants probably still hear it, and I know it echoes in the minds of long-term investors who haven&rsquo;t looked up from their 9-5 (or 9-9) jobs long enough to consider the game may be changing. But as the U.S. faces staggering debt with two parties that seem intent only upon one-upping the other, and as the ripples of economic instability continue to wash over Europe, the only sure bet seems to be that taxes will go up eventually. (See also:&nbsp;<a href="http://www.wisebread.com/deciding-what-you-want-out-of-retirement">Deciding What You Want Out of Retirement</a>)</p> <h2>The 401(k) Problem<o:p></o:p></h2> <p>Focusing solely on 401(k) plans may create a trifecta of financial trouble for future retirees:</p> <ol> <li>A generation or two of savers who may not be considering the possibility that their tax bracket in retirement may be equal to (or potentially higher) than during their working years. <br /> &nbsp;</li> <li>Investors who have bought hook, line, and sinker the idea that 401(k) plans are a sure bet for retirement security.<br /> &nbsp;</li> <li>Employees who have maxed out their 401(k) contributions to the point that other potentially more valuable savings vehicles can&rsquo;t be properly funded.</li> </ol> <p>What&rsquo;s more, the convenience and hands-off approach that make 401(k) plans so popular tend to lull investors into auto-pilot mode where critical thinking and active investment strategies are replaced by <a href="http://www.wisebread.com/pay-yourself-first-what-it-means-and-how-to-do-it">automatic paycheck deductions</a> and only reevaluating investment funds once every blue moon. Are we setting ourselves up for a hard-fall later in life when the bill on all that pre-tax money finally comes due and our tax rate is less-than-optimal?</p> <h2>Another Retirement Savings Option</h2> <p>Though it may sound blasphemous, I think it&rsquo;s time to put our 401(k) plans on a diet &mdash; if not begin to starve them outright. But I make this assertion with two critical caveats. First, if your 401(k) plan offers a company match, don&rsquo;t walk away from free money. Contribute just enough to get those matching dollars. Second, don&rsquo;t starve one investment plan without fattening up another. Depending on your current tax situation and age, strongly <a href="http://www.wisebread.com/4-reasons-why-a-roth-ira-may-be-better-than-your-401k">consider a Roth IRA</a>. The money you put in a Roth goes in after-tax, but your investments grow tax-free and any withdrawals after age 59.5 are not taxed. You can learn more specifics about Roth IRAs by visiting <a href="http://www.rothira.com/">RothIRA.com</a>.</p> <p>Regardless of what side of the political fence you&rsquo;re on, the reality is that taxes must (and will) go up. The only real questions are how soon will it happen and how hard will it hit? If you want to be a defensive investor, it&rsquo;s time to shake off the old notion that a fat 401(k) balance alone will keep you in dancing in Florsheims and dining on steak in your golden years. More likely, a healthy 401(k) plan will become a smaller and smaller part of a broader strategy that&rsquo;s centered on one important truth &mdash; the tax man is coming.</p> <p><em>Do you have a plan B (or C) in place for retirement savings? What do you think will happen with income tax rates over the next 10 or 15 years?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/kentin-waits">Kentin Waits</a> of <a href="http://www.wisebread.com/is-it-time-to-starve-your-401k">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-valid-reasons-not-to-contribute-to-your-401k">6 Valid Reasons Not to Contribute to Your 401(k)</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/this-one-thing-will-get-you-to-1-million-tax-free">This One Thing Will Get You to $1 Million (Tax-Free!)</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/dont-despair-over-small-retirement-savings">Don&#039;t Despair Over Small Retirement Savings</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/which-retirement-account-is-right-for-you">Which Retirement Account Is Right for You?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-surprising-facts-about-roth-iras">7 Surprising Facts About Roth IRAs</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) income tax Roth IRA Mon, 04 Jun 2012 09:48:08 +0000 Kentin Waits 932657 at http://www.wisebread.com Ask the Readers: Have You Ever Heard of IRAs or Roth IRAs? http://www.wisebread.com/ask-the-readers-have-you-ever-heard-of-iras-or-roth-iras <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/ask-the-readers-have-you-ever-heard-of-iras-or-roth-iras" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000011250544Small-1.jpg" alt="Have you ever heard of IRA or Roth IRA?" title="Have you ever heard of IRA or Roth IRA?" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p><em>Congratulations to </em><a href="http://www.wisebread.com/ask-the-readers-have-you-ever-heard-of-iras-or-roth-iras#comment-530523"><em>KelR1</em></a><em>, </em><a href="http://www.wisebread.com/ask-the-readers-have-you-ever-heard-of-iras-or-roth-iras#comment-530442"><em>Alissa A</em></a><em>, and </em><a href="http://www.wisebread.com/ask-the-readers-have-you-ever-heard-of-iras-or-roth-iras#comment-530024"><em>Peg Mooers</em></a><em> for winning this week's contest!</em></p> <p>Jeff Rose at Good Financial Cents is starting a movement: <a href="http://www.goodfinancialcents.com/roth-ira-account-movement/">The Roth IRA Movement</a>! Many people have never heard of an IRA or a Roth IRA, nor have they begun planning for retirement. Getting educated about saving for retirement is one of the most financially savvy things anyone can do. It is important to start saving for retirement today because without proper planning and saving, your dreams of retirement will never become a reality.</p> <p><b>Have you heard of an IRA or a Roth IRA?</b><span style="font-weight:normal">&nbsp;Are you procrastinating on your retirement planning or are you already taking steps to ensure you will be able to retire?</span></p> <p>Tell us if you have heard of an IRA or a Roth IRA and we'll enter you in a drawing to win a $20 Amazon Gift Card!</p> <h2>Win 1 of 3 $20 Amazon Gift Cards</h2> <p>We're doing three giveaways &mdash; one for random comments, one for random Facebook &quot;Likes&quot;, and another one for random tweets.</p> <h3>Mandatory Entry:&nbsp;</h3> <ul> <li>Post your answer in the comments below&nbsp;</li> </ul> <h3>For extra entries (1 per action):</h3> <ul> <li>Go to our <a href="http://www.facebook.com/pages/Wise-Bread/26830741467?ref=ts">Facebook page</a>, &quot;Like&quot; us, and leave a comment on this article telling us you did, or</li> <li><a href="http://www.twitter.com/">Tweet</a> your answer. You have to be a follower of our <a href="http://twitter.com/wisebread">@wisebread account</a>. Include both &quot;@wisebread&quot; and &quot;#WBAsk&quot; in your tweet so we'll see it and count it. Leave a link to your tweet (click the timestamp for the individual URL) in a separate comment.</li> </ul> <p><strong>If you're inspired to write a whole blog post OR you have a photo on flickr to share, please link to it in the comments or tweet it.</strong></p> <h4>Giveaway Rules:</h4> <ul> <li>Contest ends Monday, April 2nd at 11:59 pm Pacific. Winners will be announced after April 2nd on the original post. Winners will also be contacted via email.</li> <li>You can enter all three drawings &mdash; once by leaving a comment, once by liking our Facebook update, and once by tweeting.</li> <li>This promotion is in no way sponsored, endorsed or administered, or associated with Facebook.</li> <li>You must be 18 and US resident to enter. Void where prohibited.</li> </ul> <p><strong>Good Luck!</strong></p> <div class="field field-type-text field-field-blog-teaser"> <div class="field-items"> <div class="field-item odd"> Tell us if you have heard of an IRA or a Roth IRA and we&#039;ll enter you in a drawing to win a $20 Amazon Gift Card! </div> </div> </div> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/ashley-jacobs">Ashley Jacobs</a> of <a href="http://www.wisebread.com/ask-the-readers-have-you-ever-heard-of-iras-or-roth-iras">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-6"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/ask-the-readers-would-you-relocate-for-the-perfect-job-chance-to-win">Ask the Readers: Would You Relocate for the Perfect Job? (Chance to win!)</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/ask-the-readers-200-giveaway-what-volunteer-experience-had-the-deepest-impact-on-you">Ask the Readers $200 Giveaway: What Volunteer Experience Had the Deepest Impact on You?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/ask-the-readers-200-giveaway-what-does-corporate-social-responsibility-mean-to-you">Ask the Readers $200 Giveaway: What Does Corporate Social Responsibility Mean to You?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/ask-the-readers-do-you-look-forward-to-tax-time-your-chance-to-win-20">Ask the Readers: Do You Look Forward to Tax Time? (Your Chance to win $20!)</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/ask-the-readers-how-do-you-watch-your-movies">Ask the Readers: How Do You Watch Your Movies?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Giveaways Ask the Readers IRA Roth IRA Tue, 27 Mar 2012 10:36:23 +0000 Ashley Jacobs 913175 at http://www.wisebread.com Opening a Roth IRA for Your Kid http://www.wisebread.com/opening-a-roth-ira-for-your-kid <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/opening-a-roth-ira-for-your-kid" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/566087174_4b0055634f_z.jpg" alt="smiling mother daughter" title="smiling mother daughter" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>My parents have done a lot for me. But one of the things I am the most grateful for is that they opened up a Roth IRA for me when I was in high school, the first year that the account was available.</p> <p>Like many people, I didn't think much about long-term savings when I was younger. Most of my goals were relatively immediate, saving for things like a video camera, travel, or the security deposit for my first apartment. And I remained similarly short-sighted at my first couple of jobs post-college. Convinced I wouldn't be at my first job long enough for them to start matching my contributions, I&nbsp;passed on contributing to my 401(k). I felt extra sour about that particular company's retirement plan when I discovered that my holiday bonus &mdash; a deposit into my 401(k) &mdash; disappeared when&nbsp;I quit because I hadn't vested. So what did I do? I said &quot;screw it&quot; to retirement savings, and ignored the 403(b) at my next job, too.</p> <p>Flash forward to now &mdash; after several years of freelancing and learning about finances, I wish that I had the foresight to set up a 401(k) when I could have. But that also makes me extra thankful for the retirement account I do have, and have had since my teens &mdash; my Roth IRA. (See also: <a href="http://www.wisebread.com/why-roth-iras-are-ideal-for-young-professionals">Why&nbsp;Roth&nbsp;IRAs Are Ideal for Young Professionals</a>)</p> <h2>Some Roth IRA Benefits</h2> <p>Anyone who has earned income can set up a Roth IRA, and the accounts are generally very easy to open.</p> <p>Roth IRA account holders can withdraw any funds they contributed to their account, tax-free, at any time. While I don't think it's good practice to encourage people to tap into their retirement savings early, this can be helpful. For example, I once removed a couple thousand dollars from my Roth IRA so that I could buy an inexpensive used car without resorting to a loan.</p> <p>Even some Roth IRA earnings can be withdrawn before retirement time under certain circumstances, such as when you're <a href="http://www.wisebread.com/what-it-really-costs-to-own-a-home">buying your first home</a>.</p> <h2>Setting Up Roth IRAs for Kids</h2> <p>As I mentioned above, who has earned income can set up a Roth IRA. You can't pay your kid to do work, but if he has a summer or part-time job, he's eligible. Even cash jobs like babysitting can count. According to Janet Bodnar at <a href="http://www.kiplinger.com/columns/drt/archive/2008/dt080130.html">Kiplinger's</a>, if your child mows lawns for the summer, you just need to &quot;keep careful records of each job...And it would make a stronger case if he mowed lawns not just for you but for other customers as well.&quot;</p> <p>If your child has spent part (or, well, all) of her money, you can also kick in cash on her behalf &mdash; but the maximum contribution is $5,000 or the total of your child's earned income, whichever is smaller.</p> <p>Bodnar also notes in her piece that some companies will not open accounts for children under 18. Others, do, however; just know you might have to search around a little bit to find one.</p> <p>Did you set up a Roth&nbsp;IRA for your child? If so, what was your experience?</p> <p><em>The post is part of the </em><a href="http://www.goodfinancialcents.com/roth-ira-account-movement/"><em>Roth IRA Movement</em></a><em>.</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/meg-favreau">Meg Favreau</a> of <a href="http://www.wisebread.com/opening-a-roth-ira-for-your-kid">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-7"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-valid-reasons-not-to-contribute-to-your-401k">6 Valid Reasons Not to Contribute to Your 401(k)</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-surprising-facts-about-roth-iras">7 Surprising Facts About Roth IRAs</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/tax-penalties-for-early-retirement-withdrawals">Tax Penalties for Early Retirement Withdrawals</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-set-up-an-ira-to-build-wealth">How to Set Up an IRA to Build Wealth</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/this-one-thing-will-get-you-to-1-million-tax-free">This One Thing Will Get You to $1 Million (Tax-Free!)</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement children and money early retirement withdrawal investing for kids Roth IRA Tue, 27 Mar 2012 10:00:32 +0000 Meg Favreau 913196 at http://www.wisebread.com 7 Surprising Facts About Roth IRAs http://www.wisebread.com/7-surprising-facts-about-roth-iras <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/7-surprising-facts-about-roth-iras" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/grandparents_roth_IRA.jpg" alt="Grandparents" title="Grandparents" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>Roth IRAs are a great way to build a nest egg for your retirement. If you&rsquo;re already contributing to your company&rsquo;s 401(k), adding a Roth IRA can give you added tax flexibility when you start withdrawing. Since you&rsquo;ve already paid the taxes on the money you contribute, you can take money out tax-free, and that will help minimize taxes from your 401(k). (See also: <a href="http://www.wisebread.com/optimize-your-ira-and-401k">Optimize Your IRA and 401(k)</a>)</p> <p>That&rsquo;s just one of the many benefits &mdash; here are seven surprising things you may not know about the Roth IRA.</p> <h3>You Can Take Your Money and Run</h3> <p>Retirement accounts have all kinds of rules and regulations, right? Well, the Roth IRA lets you take your money out whenever you want &mdash; with no penalties. Any investment gains are subject to different rules, but the money you put in is yours whenever you want it. So if you&rsquo;re worried that you might need the money, worry not &mdash; unless your investment goes down, of course.</p> <h3>A Roth IRA Can Fund Your First Home</h3> <p>If you want to take out some of those investment earnings, you can do so one time. You&rsquo;re allowed to take up to $10,000 of your earnings to put towards buying a home IF you&rsquo;re a first-time homebuyer.</p> <h3>Dividends Aren&rsquo;t Taxed</h3> <p>Any dividends you&rsquo;re paid on a stock or security you own in a Roth IRA account aren't taxed. This is a HUGE deal if you own a dividend-paying stock for many years. It can add up to thousands and thousands of dollars that you won&rsquo;t ever have to pay taxes on. Can&rsquo;t beat that.</p> <h3>It's Not for Everyone</h3> <p>Not everyone can contribute to a Roth IRA. These rules change annually, but for 2012 if you&rsquo;re single and make more than $125,000 or married (filing jointly) and make more than $183,000, then you can&rsquo;t contribute.</p> <h3>You Can Contribute After January 31</h3> <p>You have until tax day (April 15) to contribute towards to the previous year&rsquo;s limit. For example, you have until <a href="http://www.wisebread.com/15-surprising-facts-about-income-tax">April 15</a> to contribute towards your 2011 limit of $5,000 (or $6,000 if you&rsquo;re over 50).</p> <h3>Death Isn&rsquo;t the End</h3> <p>If you or your spouse dies, he/she can combine the two Roth IRAs into one without any penalty.</p> <h3>You&nbsp;Can Pass It On</h3> <p>The money in a Roth IRA can be passed on to an heir without any kind of <a href="http://www.wisebread.com/tax-penalties-for-early-retirement-withdrawals">penalty</a>. It&rsquo;s a really good way to pass money down to someone else.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/carlos-portocarrero">Carlos Portocarrero</a> of <a href="http://www.wisebread.com/7-surprising-facts-about-roth-iras">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-11"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-reasons-why-a-roth-ira-may-be-better-than-your-401k">4 Reasons Why a Roth IRA May be Better Than Your 401(k)</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-reasons-why-you-must-open-a-roth-ira-before-april-15">4 Reasons Why You Must Open a Roth IRA Before April 15</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/step-by-step-guide-to-rolling-over-your-old-401k">Step-By-Step Guide to Rolling Over Your Old 401(k)</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-valid-reasons-not-to-contribute-to-your-401k">6 Valid Reasons Not to Contribute to Your 401(k)</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-set-up-an-ira-to-build-wealth">How to Set Up an IRA to Build Wealth</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement buying a house Roth IRA tax free Tue, 17 Jan 2012 11:00:29 +0000 Carlos Portocarrero 867709 at http://www.wisebread.com