Want to boost your retirement and savings knowledge? Here are a few brief descriptions of the most common types of retirement and investment accounts you should know about.
Individual Retirement Accounts (IRAs)
An IRA is an account where you contribute money every year and then withdraw it after you retire or reach a certain age--ideally after the funds have grown for a while. There are two main types of IRAs: Traditional, where you pay taxes on the money after you withdraw, and Roth, where you pay taxes on the money initially and withdraw funds tax-free. Most IRAs require a minimum amount to open, and a maximum amount each year that you're allowed to contribute. Also, the government may assess a penalty if you withdraw funds before you're a certain age.
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Named for a section in the US tax code, a 401(k) plan is an investment plan offered by some employers as a way to save through automatic deductions from your paycheck. Some employers may offer to match contributions up to a certain dollar amount, depending on the type of plan. Similar to an IRA, there are rules governing how much an employee can contribute each year and when they can withdraw the funds.
These accounts let savers invest money through a broker or brokerage firm by buying and selling stocks, bonds, mutual funds, and other types of investments. Often the company will charge commissions on each transaction. In general, this type of account requires a high level of knowledge about the financial world.
A little knowledge goes a long way
That was just a short introduction to the many ways you can save and invest in the future. Working with an independent financial advisor can really help you make the right investments for your future--and might be a great second step.