A Smart Way to Invest
Many people wait until their late 30s to begin thinking about saving for retirement. We spend time planning the day-to-day moments of our lives and give little or no thought to the future. Studies show that for the majority of people, it is fear that keeps them from addressing the needs of the future. It seems strange to me. You would think that fear would be a great motivator, that fear would spur people to max out their 401k account and contribute the maximum to an IRA or Roth IRA. But in this case, it is a paralyzing fear.
If you work for a company, that company offers a 401k plan and you should take full advantage of it. Each company can set the maximum amount to be contributed to a 401k, but most set it at 10% of your salary. Employees over 50 can contribute extra as a “catch up”. The average worker, however, contributes a little over 6% of his wages to a 401k account.
If you are self employed, you have a couple of retirement plan options. First, there are IRAs, of course. Individual Retirement Accounts, which function like a 401k. There is also an Individual 401k account option open to you. One of the nicest things about the solo 401k plan is that you can choose to fund it with pre-tax dollars (like a traditional 401k) or with post-tax dollars (like a Roth 401k). I know that experts can make convincing arguments on both sides of the debate. I’m more practical — yes I will be in a lower tax bracket when I retire, but I would rather not have to factor taxes in then. So I go with the post-tax contribution.
I also like the the maximum allowed for an Individual 401k plan is set at $46,000. That is much higher than in regular 401ks because the government thinks of you as both employer and employee, so you get to contribute more.
There are two major drawbacks to mention. First, there is a lot more paperwork involved in setting up and keeping the solo k account. And second, there are fees. Of course, you pay fees in a traditional 401k, but they are mitigated by the fact that your whole company is sharing the burden of those fees.
If you are serious about funding your future do not let these drawbacks stop you from opening an Individual 401k account. The benefits far outstrip any problems with the plan. Piling up cash in one of these accounts will help ensure a bright and sunny retirement.
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Many people wait until their late 30s to begin thinking about saving for retirement. We spend time planning the day-to-day moments of our lives and give little or no thought to the future. Studies show that for the majority of people, it is fear that keeps them from addressing the needs of the future. It
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Many people wait until their late 30s to begin thinking about saving for retirement. We spend time planning the day-to-day moments of our lives and give little or no thought to the future. Studies show that for the majority of people, it is fear that keeps them from addressing the needs of the future. It