You know you need to save for retirement but where should all this savings go? There are many types of accounts available and you are not limited to just one. Here we will look at the pros and cons of your choices to help you determine what account types may be best for you. This guide can help you check on some basic decisions as to where you should be placing your nest eggs.
Marcella Salazar, a Television Producer in Washington, DC said “I had a hard time understanding all of the options when it comes to retirement savings until I understood the separate pieces of the decision like what account types I should use, what types of investments, and how much I am willing to risk…”
This list is in order, to help you take full advantage of the top choice before moving on to your next available option. You will likely not be able to take advantage of all of the options we will cover. When you reach an option not available to you just skip to the next option as if you were already fully taking advantage of it.
Employer Matching Funds – Whenever your employer offers to match your savings in your retirement plan, take the money. This gives you an immediate return of up to 100% before you invest. Then your investments are held in a tax differed account. Once you get to the maximum that your employer is willing to match take a step back and look at the next option.
Individual Retirement Account (IRA or Roth IRA) – IRAs offer tax protection with an enormous number of investment options. You are much more likely to find investments best suited to you here than in most workplace plans. The limits for IRA contributions in 2011 are $6000 for those 50 and older and $5000 if you are younger. In true IRS fashion these rules are augmented by your taxable income. For the details look here if you are not covered by a plan at work and here if you are.
Employer Plan without Match – To continue getting the benefit of tax deferral the next best place to turn is back to your employer’s plan. They may not have the world of options and your contributions are no longer being matched but you don’t have to pay taxes on the earnings each year.
Annuities – Insurance companies have a special type of contract that allows you to save on a tax deferred basis without worrying about income limits. An annuity is a special type of life insurance policy that allows you to collect income from the policy as retirement income. The insurance companies even offer special guarantees, for a price. There are a few worries. The investments are backed by the insurance company not the underlying assets, fees tend to be higher and the complicated contracts are often difficult to understand.
Taxable Accounts – Banks and brokerage companies offer taxable investment accounts that can help you grow the value of your savings but once you’ve reached this point you have to start paying taxes on your earnings.
Mattress – If you still have money left over with nowhere to put it you can try your mattress. Just realize that it probably isn’t covered over a certain amount if your house burns down or you get robbed. Not to mention that you get no return.
There are more options not covered here and account types are only one of many decisions you need to make when it comes to your retirement savings so seeking the advice of a professional is important. Next we’ll take a look at what to do when leaving a job. See if you’ve done the right things.
If you want to make changes while still with your employer check out this article. Break free from your workplace retirement plan