IRA

An Individual Retirement Account (IRA) is a common tool for saving toward retirement. Your investment into the IRA offers tax savings not offered by other forms of retirement accounts. Since there are several IRA accounts to choose from, here is an explanation of the different accounts. Remember, you are currently limited to contributing up to $5,000 to an IRA each year.

Traditional IRAs have several advantages over other types. Contributions can be made with pre-tax dollars; it lowers your taxable income, and the amount of money you pay in taxes each year. Taxes are not collected until you make a withdrawal which isn’t allowed until you reach 59 1/2. You will be charged your current tax rate when the withdrawal is made and will have to pay penalties for early withdrawals.

Roth IRAs use after tax dollars and will not reduce your taxable income. Your earnings, however, grow tax free and any withdrawals are also tax-free. This type of account also is not available for withdrawal until you reach 59 1/2 and will result in penalties for early withdrawal. The benefit is you will not be charged taxes when you retire.

401K

401k plans are offered through many, but not all, employers. Funds are withdrawn from your paycheck pre-taxed and placed into a savings account for you. Contributions to a 401k savings plan are limited to $15,500 per year. When you reach the age of 50, that limit rises to $20,500 per year. There is a penalty for early withdrawals, however you may borrow against it should you have a financial emergency. Failure to repay the loan of 401(k) funds will also be penalized.

Many employers match their employees’ contributions to their 401k accounts, so the opportunity to grow your account is greater than if you were funding it alone. There may be some requirement as to which level you must participate in order to receive the matching funds, but the choice is simple. Free money is hard to turn down!

How do you know which mutual funds to include in your 401k portfolio? Here are some guidelines that may make the decision easier:

* Look for mutual funds based on commodities rather the in a company. These traditional trade well even if the traditional market is down. Gold, wheat, sugar, and silver are great choices. The healthcare industry is also a good choice because people want to live longer, healthier lives.

* Ask your fund manager which mutual funds have low management fees and higher returns.

* Ask yourself what type of risk taker you are. If you’re not willing to take some risk, mutual funds might not be a good choice for you. However, if you’re willing to take a chance on riskier investments, you could stand to increase your portfolio quicker than choosing safer mutual funds.

* Be prepared to take a loss. When the market is headed down rather than up, don’t give up on your mutual funds. Choose to leave the funds in one place for a minimum of ten years no matter what the market does. You may find leaving things alone will end up helping you win in the end.

* Do your own research concerning possible mutual funds. You can check how they’ve fared over the past ten years. If it’s made money the majority of the time, you can hardly go wrong. If it’s lost more than it’s gained, you might want to let that one go.

You may not know about the various retirement options available to you or even given it much thought so far, especially if you’re young. Have you thought about your future? Or are you waiting to see where life takes you before you begin planning for it? Quite often many teens have the mistaken impression that they’re invincible. They may think nothing bad can happen to them and that they have all the time in the world. Because they often have this idea, they don’t really think very far ahead into the future and most definitely don’t plan for retirement at this age.

When you’re in your twenties, you may be new to working. You’re may be fresh out of college and just beginning your career. Perhaps your employer offers you the option of signing up for a 401 (k) or other retirement program. Absent mindedly you sign up for it but don’t really worry about retirement since its years in the future. As you get a little older, and wiser, you begin to realize that retirement isn’t that far in the future any longer. You start thinking about how important it is to begin planning now so you’ll have the funds you need when time for you to retire arrives. Now is the time to actively save or invest to build a nest egg.

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Read More About Investing For Retirement

Mutual Funds For Retirement

Retirement For Women

IRA

Roth Ira