OPEN MENU

OPEN MENU

Retirement Accounts Explained

When it comes to retirement, things can get stressful! Let’s walk through your retirement options and break them down to see what fits for you! The three most common types of retirement accounts include a 401k or 403b, a traditional IRA, and a ROTH IRA.  The first step is to check with your employer and […]

When it comes to retirement, things can get stressful! Let’s walk through your retirement options and break them down to see what fits for you!

The three most common types of retirement accounts include a 401k or 403b, a traditional IRA, and a ROTH IRA. 

The first step is to check with your employer and see if they offer a 401k or 403b. Many employers will offer to match up to a certain percentage of your deposit, so this could be a great way to boost your retirement a little! 

Something that’s helpful with employer offered 401ks is they have someone there that can help you get your money invested, or this may just be a call center where you can speak with someone. If not, check out this video about investing inside your 401k.

It’s also set up so you can’t really get burned if you go with the investment options your employer gives you to choose from. You also don’t have a limit to how much you can put in each year. 

If your employer doesn’t offer a 401k, you can open a traditional IRA.

You can only set aside a limited amount of money each year, but you will not be taxed on any money you deposit! For anyone under 50 years old, the yearly limit is $6k. For anyone over, the limit bumps up to $7k. So instead of being taxed for $50k in income, you could only be taxed for $44k. That savings can add up! Take advantage of this, even if that means just $5 every paycheck! Building the habit of investing and saving is one of the most important parts!

If you think you might want a Roth IRA, the main difference is you are taxed on deposits now but you are not taxed when you withdraw later on! If you think you’ll be in a high-income tax bracket later, it may make sense to pay the tax now and not have to pay later. Remember the limits are a collective limit, meaning its $6k total for any IRA accounts you have open, not for each account.

Once your money is in an investment account, you have to decide how to invest! Listed below are some commonly used options when choosing investments.

A target-date fund is a super easy option, you simply choose your ideal retirement date and the fund manager will pick the best way to allocate funds depending on the time! 

One common mistake people make is opening more than one target-date fund. This is called over-diversifying yourself. You don’t need more than one target-date fund, it is designed to diversify accordingly as you get closer to your retirement goals! You should be able to find low-cost funds with rates around .2% or lower. You shouldn’t pay anything that is 1% or over. 

Another common approach is to put everything in the S&P 500. This is going to be a more aggressive approach and you’ll do exactly as the fund does.

With ETFs, when the money is deposited you will actually have to go in and buy either weekly or monthly. If you find this annoying (as it can be for some people), consider using a roboadvisor! They take the money that is deposited and automatically invest it! There are some super low-cost options available. 

Don’t get caught up in paralysis by analysis, just get invested! As long as you don’t make any super risky moves with your investment, you’ll be fine! All investments move with time, so try not to stay too focused on day-to-day changes. Here’s to gaining your financial freedom!

Leave a Reply

Your email address will not be published.

need help investing?

Let's Get Started Investing, Together.

Browse my best selling courses to get a solid foundation on how to start investing and preparing for your future!

check it out