Retirement -

There are a variety of ways to save money for retirement, these days. In this article, I will be discussing five different ways to save or create money for your retirement.

These five ways to save or create money for retirement are the Roth IRA, Traditional IRA, 401k, a regular brokerage account, and running your own business. First, the Roth IRA. The Roth allows anyone with earned income to stash away a maximum of four thousand per year into a tax free account.

This is extremely useful for someone who wants to invest in high dividend stocks, funds; etc. The Roth allows your interest to compound, which will dramatically increase your investment's capital over time. It's also nice that you have the option to pick your own stocks or funds, if you wish.

One other advantage is that unlike the Traditional IRA, you don't have to start withdrawing your balance when you turn seventy and a half. A final reason to utilize a Roth is that you can withdraw all of your contributions anytime without penalty. However, don't withdraw the earnings or you will pay a fine. So if you're in a cash crisis, your Roth can help you out.

The disadvantage to the Roth is that you're limited to four thousand per year to invest(five thousand if you're over fifty). It would be nice if the maximum amount was more like ten thousand per year. Sigh. Of course, over the years, the government will probably increase the IRA amount to compensate for inflation, so that's a good thing.

Also, you can not contribute to the Roth if you make too much money. Once your salary passes ninety five thousand or so dollars, the amount you can contribute to your Roth starts to dwindle.

Now, for the Traditional IRA. A Traditional IRA also has contribution limits of four thousand per year(again, five thousand if you're over fifty), but allows you to sometimes deduct the amount you contribute on your taxes at the end of the year. Unfortunately, you will still have to pay taxes on this when you start withdrawing from it in your retirement years.

Also, as I mentioned above, you will have to start withdrawing from your balance when you turn seventy and a half. Of course, the government could always change the rules albeit and up the withdrawing age to seventy three or so. Who knows. Fortunately you will still have compound interest, so it's not a complete waste.

Obviously, I prefer the Roth to the Traditional IRA. And now for the 401k. The main advantage to this type of retirement account is that you can contribute up to fifteen thousand per year(twenty thousand if you're over fifty). That's a lot of money to contribute.

If you have a job that pays really well then by all means contribute to the 401k. Most companies will also match you for whatever you contribute to your 401k. It just depends on the company. Some companies will match you two percent and some might match seven percent and so on.

Unfortunately, mutual funds are the only types of investments that you can choose from. So with the 401k you can't choose individual stocks or whatever you normally pick, but if you don't like choosing your own individual stocks or funds then the 401k is fine for you.

Most people, however, do not have ten to fifteen thousand to put away in a 401k, so it really isn't necessarily the way to go. Plus, you will still be taxed on the contributions when you start withdrawing from them in retirement.

There is also something new called a Roth 401k. It's basically the same thing as a Roth IRA with the exception being that you can contribute fifteen thousand instead of just four thousand dollars. You're still stuck with just being able to pick mutual funds, though.

What about a normal brokerage account? A regular brokerage account is nice, but you will have to pay taxes on the dividends. If you buy a stock, and sell it for a profit then you will have to pay taxes on that too. You don't have to have earned income to open a brokerage account, though. And you can choose whatever type of investments you like to pick.

Of course, if you choose a stock that doesn't pay a dividend then you will not have to worry about paying taxes on dividends. Let's say you buy a hundred shares of a non-dividend paying stock that is worth ten dollars per share. So you spent a thousand bucks on this stock.

This stock then jumps to fifty dollars a share and splits five times over the course of three years. You could end up with a hundred and sixty thousand dollars, before taxes. It does happen.

You will not have to pay tax on this type of investment until you cash in the stock(you don't pay tax on stock splits). Also, the longer you hold onto a stock the less you will pay in taxes. So while you may not have the advantage of compound interest, a regular brokerage account is a good way to save.

A business? Well, when you're older you will not be as spry as you once were, but you can still run a business. For example, you could write articles(like I'm doing right now) or maybe a book. I know a lady who's around sixty five and is a maid.

It takes her about three hours to clean the average house, and she's paid sixty bucks. I know another guy who's a fishing guide, and he's paid about three to four hundred dollars for each fishing trip. It may be more then that sometimes; it just depends on who his client is. So pick a hobby you love, and create a business from it.

Probably the best thing you can do is a combination of all of the above. Remember, thanks to inflation, thirty to forty years from now a million dollars will no longer be enough to retire on. The buying power of a million dollars goes down to around two hundred thousand dollars after inflation in thirty to forty years.

And then, depending on the type of retirement account you chose, you may or may not have to pay taxes on your withdrawals. So I would say have around three million or more put away by then. Or a successful business or two. Or both.

I know that's an insane number to some of you, but that could be what you need to live out your golden years comfortably. Of course, you could always move somewhere(like another country) that has a lower cost of living. That might work. And then there is Social Security, but I doubt that will be around in thirty years. So plan well and good luck!

More Information:

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