Open a Retirement Planning Account
When it comes to financial planning and money management
, most Americans tend to postpone two things: opening up a savings account and planning a retirement account.
While opening up a savings account is a simple process of creating a budget, deciding how much to set aside each paycheck, and choosing between different types of savings, from a basic plan to a money market account, it takes much more than a day of decision-making and simple execution to open a
retirement planning account.
How to plan your retirement in 3 steps:
The reason there is a proclivity to postpone planning for retirement is that it can appear overwhelming. However by breaking down the process into steps, you will learn how to go about researching your options. You can design the right plan for you.
The first step: Consider a savings account
If there is a secret to simple wealth creation, it's this: think more about saving than spending. When the topic of opening up a savings account comes up, most people think of it as a financial strategy that allows you to have money in the bank to help out when your available funds are low. But there is much more value to savings than an umbrella to help you out on a rainy day.
Savings, due to the magical power of compound interest, can bankroll your retirement. The sooner you start saving, and the better your savings account vehicle, the more you will accumulate in your account. Thus, start today with a money market account, as you will earn higher interest than a basic savings account. The account is structured for people who are serious about saving and want to keep their money in an interest-accruing account for a long time. There are penalties for too many check withdrawals and for falling below the minimal balance. Conversely, if you have a tiered interest account, the higher your balance, the higher your interest rate. Moreover, interest rates are compounded daily and monthly.
The second step: Consider A 401(k), a 403(b) or a 457 Plan.
Although not everyone who works has the opportunity to get a 401(k) plan, those who do work for a company that offers it should take advantage of it. In fact, it's hard to think of a more profitable retirement planning instrument than a 401(k).
There are 3 reasons why you should look into your company's 401(k) plan or 403 (b) or 457 plan if it is available.
You'll enjoy the tax-deferred benefits. This means your account balance will grow faster.
Your saving plan is on autopilot. This means that it will much more difficult for you to fly off course.
You'll face penalties for early withdrawals. This means that you will think twice before spending the money on a blowout vacation to Las Vegas or buying the latest Mustang edition.
Many employers offer a matching program which works with your 401(k) plan. When you think about it, this is "free money."
The next best thing to a 401(k) plan is a 403 (b) plan or a 457 plan. These are similar.
If you can't get any of these plans, don't despair as we will discuss the benefits of an IRA next.
The third step: Consider An IRA
A benefit of an IRA is that it allows you to grow your money because it is tax-deferred, and this depends on income, tax filing category, and the ability you and your spouse to contribute to your IRA.
Although there are numerous benefits to a traditional IRA, there are other types of IRAs that give you even more advantages. There is the traditional IRA, an education IRA, a SEP IRA (simplified employee pension), a simple IRA, and a Roth IRA.
A traditional IRA will allow you to contribute $2000 a year. All you need to be eligible is to prove that you can make contributions.
An education IRA will allow you to contribute $500 a year. The money will grow tax-free. There is also preferential tax consideration when distributed to a beneficiary who uses it for an education expense.
A SEP IRA is established by an employer and funded by a Simplified IRA. The employer puts 15% of your income into an IRA account.
A SIMPLE IRA is sponsored by an employer and your retirement plan is managed by an administrator. You can contribute up to $6,500 a year.
A ROTH IRA allows you to accumulate tax-free money, and this remains tax free when you ask for distribution.
Open a Retirement Planning Account
By: Gracie Hyde
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