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| 401K, 403(b), SIMPLE IRA's, SEP, huh? | | Date Created: Apr 24, 2005, 04:51 AM |
 Well... here's my first Personal Finance Tip....
If you work for a large company, small company, government, or are self employed, there's a Retirement plan out there for you. Even if you're deep into the red and have loan and credit debt up the wazoo, you should still start contributing to some type of retirement fund.
Easy answer if you are self employed... check out an SEP IRA (or if you make under $100,000 annual, a Roth IRA may work out better for you).
Now for those of us who work for someone else... check out your company's retirement account offerings. For instance, I have a 401k. Smaller businesses may offer SIMPLE IRA's and educational/government institutions may offer something like a 403(b). The concepts are essentially the same. You can contribute a certain percentage of your paycheck. Typically the contribution is Pre-tax meaning that you're Fed and possibly State tax taken out of your pay is calculated after money is taken out for your retirement account. This is a "good thing". This effectively lowers your tax liability meaning you get to keep more of your money. Your take home pay still goes down a bit, but that contribution will be placed into an interest bearing account that will earn you more money as it compounds over time.
The best thing about most companies' retirement plans... they almost always include a company match. This is a matching contribution to your retirement account from the company and is based on a percentage of your contribution. For instance, a company may match your contribution $0.50 to the dollar up to 10% of your gross income. My suggestion is to definitely contribute at least up to the max company match limit to your retirement account. Otherwise, you are giving up FREE MONEY!!! Anything less, no matter what your financial status, is just plain crazy.
Depending on which assets you allocated your contributions in your retirement account (Large Cap, Small Cap, Mid Cap, Foreign Equities, Bonds, other Mutual Funds, or Money Market funds, etc.) your money could grow anywhere from 2% to upwards of 20% annual return tax-free until you have to take a distribution later in life... but I'll leave the age issues and the all-important "Asset Allocation" tips for a later post.
In the meantime, checkout some the Financial sites I linked to on the right (the first few are Personal Finance and Investment related). |
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