Stock Investing Basics: Making the Best of Your 401(k) & IRA



Two of the most common investment accounts for retirement are the 401(K) and the IRA. Knowing which account to use in various investment situations can be tricky. Here are some simple investment account tips that might point you in the right direction to maximize your returns and minimize your future tax burden. There are several main advantages in contributing to a 401(K). 1. You can deposit a lot of money each year compared to other plans. 2. Your employer can match funds that you deposit up to a set maximum. 3. Nobody can touch the money, even if you go bankrupt. 4. Most employers allow you to borrow your own money, paying back the loan over time. and 5. Contributions come from pre-tax income, so you don't get taxed on the money going in. The downside is that: 1. Most plans are very limited in the investment choices that you have. You are typically limited to a few mutual funds and bonds. 2. The average 401(K) fees are 1.5 percent off the top every year. This small amount ends up reducing your potential gains by 40 - 60 percent over time. So how do we maximize our profitability in our 401(K) accounts? If your employer is matching your contributions, then it stands to reason that you should contribute money to your plan up to the set maximum for matching funds. It also stands to reason to choose either a low-cost Index Fund that mirrors a broad index like the S & P 500 and to get some bond exposure. Avoid actively managed mutual funds, since the management fees will erode your profit potential substantially over time. After you have maxed out your 401(K) matching contributions, the next strategy is to make contributions to an Individual Retirement Account or IRA. An IRA provides you with several key advantages, namely: 1. You have greater flexibility as to what investments you can hold within your account, especially with individual stocks. 2. It allows almost anyone who has earned income to invest. and 3. The contributions to a Traditional IRA come from pre-tax income, so under most conditions you don't get taxed on the money going in. Given the choice of different types of IRA accounts, consider opening up a Roth IRA instead of a traditional one. The two major advantages are that: 1. The earnings are tax-free instead of tax-deferred. This can be significant 10, 20 or even 30 years down the road. and 2. You can take out your original contributions any time you want, regardless of your age, without taxes and penalties. It is in your IRA account that you will benefit the most from building a portfolio of stocks, especially if the capital appreciation is able to grow tax-free until you need it in retirement. There you have it, a few simple strategies to incorporate into your overall investment plan. I encourage you to get started today in finding those great stocks that have the potential to produce consistently high returns for you. Disclaimer: Any information shared on Stock Investing Simplified does not constitute financial advice. Stock Investing Simplified is not a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities readers or customers should buy or sell for themselves. The Website is intended to provide general information only and does not attempt to give you advice that relates to your specific circumstances. You are advised to discuss your specific requirements with an independent financial adviser.

Comments

  1. Gold's Special Risks All investments come with risks and rewards, gold IRAs included. “In many ways, gold IRAs have the same risks that any investment has,” says Moy. “The price of gold can go up or down and have volatility. No one can accurately predict its future.” But despite the risk, Moy says there is a reason to invest some of your retirement funds in gold. “Gold has a 5,000-year history of being a store of value. Stocks can go to zero as we’ve seen with Lehman Brothers, bonds can default like in Argentina or get big haircuts like in Greece. The value of the dollar has steadily gone down. But gold will never be worth zero,” says Moy. If the price of gold does dip, Moy says that likely means your paper assets will be doing well. So if your portfolio is balanced with both gold and paper-based funds, a loss on the gold side will be balanced by the gain experienced by other IRAs and investments. “Many of these risks exist for traditional IRAs, too. And traditional IRAs have risks that gold IRAs do not have,” he adds. Read more: http://GoldAndSilverForLife.com/partner?p=romeoicq&w=webinar
  2. My pleasure. To your ongoing success as an investor. Randall
  3. Thank you


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