Retirement Savings Account Types: 7 Things To Remember!
1. Investment Choices Can Vary Significantly- Most retirement savings account choices will offer a list of investments that can be made for the account. IRAs, 401k plans, and other retirement savings plan options will usually have different groups of investment choices that you can choose from. Some will be conservative while others may be higher risk, and it is up to you to choose the investments made with the capital in the account.
2. CDs Can Be Safe Or Risky- In general the best certificate of deposit rates will come from banks and other financial institutions that may carry a high degree of risk. This is not always true, and if you have a large amount of money to deposit you can get better than average rates from almost any institution. Make sure that you understand the specific risks involved for the higher interest rate offered.
3. Risk And Return Are Connected- It is critical that you remember that risk and return are connected with investments. A common reaction for many who have a retirement savings account is to try and get the highest return possible without even considering the risks involved with an investment. Since the funds in the account are intended for retirement it may be a bad idea to put everything you have into a high risk option such as penny stocks or emerging market bonds even though these investments may pay off better if successful.
4. Employer Matched Funds Should Not Be Ignored- If you have access to a plan that includes employer matching funds you should contribute the maximum contribution possible each year. An employer match is free extra money for later on, and a retirement savings calculator can show you how fast these additional retirement funds can add up to a significant amount of money.
5. Research All Of Your Options- A retirement savings account can be found in many different types, and you need to research all of the options you have available to determine which type of account works best for your specific situation and circumstances. There are many popular types of accounts and others that may not be as well known but that may be a good choice in your situation. Knowing all of your options will help you make the best possible choice.
6. Determine The Tax Considerations- Each type of account can have different tax considerations. With a Roth IRA account taxes are deducted before contributions are made and withdrawals are on a tax free basis. Most retirement accounts work in the opposite way, with contributions taken on a pre tax basis and then taxed when the funds are withdrawn.
7. Know The Contribution Limits And Rules- Every type of retirement savings account will have specific income limits, contribution limits, and rules concerning withdrawals, and these can be different for each account type. Make sure you understand the limits and rules in place for any account type before you open the account. With some types of accounts if your income is over a certain annual threshold then you can not contribute for the year, while other plan and account types are designed for high income earners.