Individuals often have a number of options when it comes to investing and saving for retirement. One of the only alternatives to 401k retirement plans which provides a guaranteed return on investment is that of a Certificate of Deposit, also known as a CD. While this is the case, a CD incurs interest over a specific period of time during which no withdrawals are allowed. Once a CD reaches maturity, most individuals cash out the money and put the funds into an existing retirement portfolio.
Starting in the 1980s, 401ks became the definitive retirement plans for Americans. The name 401k comes from the IRS code by the same name. In most cases, setting up this type of retirement is simple and straight forward.
The upside to a 401k is that people can often allow the account to operate on autopilot once the plan is in place. As individuals contribute money to the plan on a monthly basis, most employers match employee contributions as long as there is no decrease in salary. Most often, individuals cash out the full amount of contributions and matched funds at the specified retirement age. Although, some companies will allow individuals to withdraw voluntary contributions if and when leaving the company.
Just as there are upsides to this type of retirement account, there are also downsides. One major downside is that individuals can not really set up and forget about a 401k. For, if the salary of an individual doubles, the increase puts the individual at a disadvantage.
One of the best alternatives to a 401k is that of an Individual Retirement Account or Roth IRA. When an employer does not provide a 401k as part of a benefit package, individuals can join entrepreneurs and small business owners in setting up this type of retirement account. For, these accounts offer advantages when it comes to taxation on withdrawals from the account during retirement.
In some cases, individuals have multiple types of retirement accounts in a portfolio. Depending on the value of the holdings, contributions may not be tax deductible when it comes to filing income tax. Although, when having more than one holding, monies in the portfolio will continue to grow on a tax free basis.
One other alternative is that of a basic investment account. In this case, an individual obtains a broker with a cashier's check in hand, opens an account and contributes as much as one can to the account. After which, any profit, whether from appreciation of interest or dividends will likely be considered capital gains and will be taxed accordingly on an annual basis. Still, the individual will pay a much lower tax rate than on ordinary income.
The most important thing to keep in mind when investing in any retirement account is that the plan is for funds to grow over time. As such, individuals need to make deposits on an ongoing basis to any of these plans to assure the account continues to grow during years leading up to retirement. After which, individuals will most likely have enough in the account to accompany Social Security or other benefits to live a happy and healthy life during retirement.
Starting in the 1980s, 401ks became the definitive retirement plans for Americans. The name 401k comes from the IRS code by the same name. In most cases, setting up this type of retirement is simple and straight forward.
The upside to a 401k is that people can often allow the account to operate on autopilot once the plan is in place. As individuals contribute money to the plan on a monthly basis, most employers match employee contributions as long as there is no decrease in salary. Most often, individuals cash out the full amount of contributions and matched funds at the specified retirement age. Although, some companies will allow individuals to withdraw voluntary contributions if and when leaving the company.
Just as there are upsides to this type of retirement account, there are also downsides. One major downside is that individuals can not really set up and forget about a 401k. For, if the salary of an individual doubles, the increase puts the individual at a disadvantage.
One of the best alternatives to a 401k is that of an Individual Retirement Account or Roth IRA. When an employer does not provide a 401k as part of a benefit package, individuals can join entrepreneurs and small business owners in setting up this type of retirement account. For, these accounts offer advantages when it comes to taxation on withdrawals from the account during retirement.
In some cases, individuals have multiple types of retirement accounts in a portfolio. Depending on the value of the holdings, contributions may not be tax deductible when it comes to filing income tax. Although, when having more than one holding, monies in the portfolio will continue to grow on a tax free basis.
One other alternative is that of a basic investment account. In this case, an individual obtains a broker with a cashier's check in hand, opens an account and contributes as much as one can to the account. After which, any profit, whether from appreciation of interest or dividends will likely be considered capital gains and will be taxed accordingly on an annual basis. Still, the individual will pay a much lower tax rate than on ordinary income.
The most important thing to keep in mind when investing in any retirement account is that the plan is for funds to grow over time. As such, individuals need to make deposits on an ongoing basis to any of these plans to assure the account continues to grow during years leading up to retirement. After which, individuals will most likely have enough in the account to accompany Social Security or other benefits to live a happy and healthy life during retirement.
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