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3 Ways to Explain Retirement Funds and How to Start One Today

Did you know you can start a retirement fund from the minute you are born?

Before you rush into starting one for your kids and yourself, let’s see which retirement funds are for you and how they actually work.

Related Read: Can You Start Day Trading With $500?

Retirement Funds To Choose From and How to Use Them

Simple facts to get you started on the right track to retirement funds:

  • You can do almost anything you do with your regular portfolio – Buy/sell stocks, funds, bonds, and treasury bills. CD’s, money market account. Whatever you want to do with it.
  • You can only access your money when you turn 59 1/2 years old without penalty
    However, the money can stay in the fund as long as you want after you turn 59 1/2 (Only Roth IRA’s)
  • Penalties anywhere between 10% to 20% if taken out before 59 1/2 (except for Roth IRA’s)
  • Each fund has a limit to the amount of money you can put in yearly
  • Decide if you want to be taxed today or when you turn 59 1/2
  • You can have as many IRA or Roth IRA funds as you want
  • The sooner you start the better for you

3 Retirement Funds – Which One Works For You?

401K Plan – This is only attained through an employer. No job no 401K.  If you change jobs, or quit completely, you need to roll over your plan either to a new 401K plan with your new employer or into a IRA account. Totally up to you.

Limit to invest yearly – $17,500

The Trader Chick’s Suggestion – When you are done with your employer (for whatever reasons) rollover your 401K account – DO NOT – cash it out. You will lose 20% in penalties. All you need to do is fill out some paperwork and it is as easy as that. 

IRA (Individual Retirement Account) – Easy Peasy – before you get taxed on your money take out the max you can put in to the IRA account. It is actually tax deductible for the year you are investing.  When you withdraw it at the ripe age of 59 1/2 you get taxed on money then.

Limit to invest yearly – $5,500 under the age of 50. $6,500 over the age of 50

Roth IRA – This is my favorite choice. The money you invest is after-tax income. This way when you take it out after 59 1/2 it’s all yours.  Funny tidbit, the name Roth is actually after the Congressmen who proposed the after tax fund back in 1997.

Related Read: Source Of Income For Retirees

Huge Benefits

The list of why this is the way to go can go on and on, but here are a couple to convince you:

1. You can cash out before 59 1/2 years old without penalties

2. No limit for keeping the money in the retirement account. Some accounts actual start either penalizing you or making you take out a limit after you turn 70 1/2 years old.

3. Contribute as long as you are earning. It doesn’t matter if you’re 60, 70, 80 if you are still earning money you can continue putting money into this account.

Limit to invest yearly – $5,500 under the age of 50. $6,500 over the age of 50

The Trader Chick’s Suggestion – Roth IRA’s are the only true fund you need, when you go at it alone. Meaning without the employer. Why do you want to be taxed when you are 59 1/2. Do the tax thing now, and don’t worry about it when you’re ready for it. 

retirement funds retirement dreams

How to Open An IRA Account

I won’t go into the details about the 401K since that is handled directly with your employer. But I will simplify your IRA experience quickly and easily.

As for IRA’s and Roth IRA’s there are so many options that can literally make your head spin. I won’t be telling you those options.

The simplest and quickest way to start, especially if you want to handle the portfolio yourself, is contact a discount broker and just get started.

Here are some of the top discount Brokers I recommend, including full-service brokers. 

There should be absolutely no fee for opening an account. The only fees you will be charged will be the commissions for whatever you buy. And those commissions should be set, they do not vary with the price.

If you need help, find a financial manager that comes highly recommended. Financial managers don’t ever charge you directly. You will be charged through higher commission fees or funds that the manager directly handles. I would really do your homework on this one, and come into the conversation having a really good idea of what you want to start with. Otherwise, you can be steered the wrong way. And trust me on this one, I’ve been there and done that.