Find out which retirement accounts you can use to grow a nest egg.
Money Girl
310 MG 6 Retirement Accounts You Should Know About, Part 1
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A different future is closer than you think, with Capella University. Learn more at Capella.edu. [MUSIC] Hi, friends. I'm Laura Adams, and you're listening to the Money Girl podcast. [MUSIC] You know that you should be saving for retirement, but retirement accounts can be really difficult and time-consuming to figure out. Well, we're going to cut the confusion. This is the first episode in a two-part series that will give you the basics of six different retirement plans. Created for individuals, employees, and businesses. It's time to use them to turbocharge your savings so you have a secure, happy financial future. [MUSIC] You probably know that a retirement plan is a special account created by the IRS that allows you to save for the future and get money-saving tax breaks. However, you may not know that you could qualify for several of them, depending on your work and financial situation. Here are three of the most common types of retirement plans that you should know about. Type number one, a traditional IRA. IRA is short for individual retirement arrangement, which means it's a plan for individuals only. You can't own it with another person, not even a spouse. You manage every aspect of an IRA, such as opening the account, sending contributions, and deciding how to allocate your money. It's important to understand that an IRA itself is not an investment, it's simply an account. Once you contribute money to it, you might choose to invest in things like stocks, bonds, or mutual funds. Or you could keep money in non-investment accounts, like a savings or CD. You can move money and buy and sell investments within an IRA without paying a penalty. Your contributions, including all earnings and investment gains in the account, are never taxed until you make a distribution. However, if you take money out of the account before age 59 and a half, you're typically subject to income tax plus an additional 10% early withdrawal penalty. Another rule is that if you or a spouse participate in a retirement plan at work, some or all of your contributions to a traditional IRA may not be tax deductible. For 2013, the most you can contribute to any type of IRA is $5500 or $6500 if your age 50 or older. Here's how an IRA cuts your taxes. Let's say you earn $45,000 and you contribute $5,000 to a traditional IRA. You'd have to pay income tax on $40,000 only, not on $45,000. That's why a traditional IRA is a great way to set aside money for retirement and cut your taxes in the current year. Type number two, a Roth IRA. The second type of retirement account you should know about is the Roth IRA. It's subject to all of the major rules that apply to a traditional IRA except when it comes to taxes. Your contributions to a Roth IRA are taxed up front, but all your withdrawals during retirement are completely tax free. And speaking of withdrawals, you don't have to take any money out of a Roth IRA as long as you live. With a traditional IRA, on the other hand, you're required to start drawing down the account after you reach age 70 and a half. Additionally, you can withdraw contributions you've made to a Roth IRA before retirement without triggering tax or penalties. However, this doesn't apply to growth in the account. Earnings withdrawn before the age of 59 and a half would be fully taxable and subject to the 10% early withdrawal penalty. For 2013, the same combined contribution limit to all of your Roth or traditional IRAs is $5,500 or $6,500 if you're age 50 or older. However, the Roth IRA has limits based on your income and filing status. Therefore, if you make too much money, you might not qualify to make new Roth IRA contributions. To find out if you qualify for a Roth IRA, be sure to listen to podcast number 272 called "Your Guide to the Roth IRA Part 1." September is a great month for planning. 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Go to policygenius.com or click the link in the description to get your free life insurance quotes and see how much you can save. That's policygenius.com. We could try to explain what it's like to get your work done on a John Deere mower, compact tractor, or Gator SUV. But to really understand the feeling, you just have to get in the seat. Learn more at johndeere.com/getintheseat or visit a dealer near you. I love learning and anything that makes learning easier. If you're a parent and your child needs some homework help, then Ixcel is right for your family. Ixcel is an online learning program for kids covering math, language arts, science, and social studies. Ixcel has interactive practice problems for topics from pre-k to 12th grade, and everything is organized by grade and subject. As kids practice, they get positive feedback, awards, and explanations for wrong answers. Ixcel figures out what your kids need more help with and recommends more topics to practice. They're videos, lessons, sample problems, and learning games too. One subscription to Ixcel gets you all subjects and all grade levels. Membership started just $9.95 a month. It's no wonder Ixcel is used in 95 of the top 100 school districts. I think the positive feedback that Ixcel gives is really crucial when it comes to learning. So make an impact on your child's learning, get Ixcel now, and money girl listeners can get an exclusive 20% off Ixcel membership when they sign up today at Ixcel.com/moneygirl. Visit Ixcel.com/moneygirl to get the most effective learning program out there at the best price. If you are eligible, making Roth contributions is a smart way to avoid paying tax on decades of earnings and growth on investments held in the account. Even if you make too much money, you may still be able to convert money into a Roth IRA. Find out how, in podcast number 309, called "What is a Backdoor Roth IRA?" Type number 3, the 401(k) plan. The third retirement account that many employees can use is a 401(k). It's a workplace plan that can be offered by an employer as a benefit to employees. Eligible workers have the option to contribute a portion of their wages to an individual account. And if you work for a school, church, or nonprofit organization, you may have a variation on this plan, which is called a 403(b). Your contributions to a 401(k) or 403(b) are also known as elective salary deferrals, and they're taken directly out of your paycheck on a pre-tax basis. You choose how to allocate money in the account based on a menu of available investment and savings options. Just like with a traditional IRA, your contributions and earnings in a 401(k) are never subject to tax until you take distributions during retirement. But if you take money from the plan before age 59 and a half, you're also subject to taxes plus that 10% early withdrawal penalty. However, some employers may offer 401(k) loans. The best part about a 401(k) is that many employers make contributions on your behalf, or match your contributions, or do both. For instance, they could match what you contribute each year up to 3% of your salary. That means if you're not contributing enough to max out an employer's match, you're ignoring a really nice benefit and leaving money on the table. Contributions that your employer makes can be subject to a vesting schedule, which means you have to remain employed for a certain period of time before you own them. However, you always own 100% of the money you contribute from your paycheck, in addition to the earnings on your contributions. When you leave an employer, you can take your vested 401(k) or 403 money with you. You have the option to cash out the plan and pay income taxes on the full amount. However, a better option is to roll over your money into another retirement account, such as a traditional IRA or a 401(k) at a new employer. Doing a rollover allows you to skip paying tax and keep your money growing for the future. In part two of this series, we'll cover three more types of tax-advantaged accounts that you can use to grow a healthy nest egg for retirement. For more money tips, tools, and advice, be sure to follow me on Facebook, Twitter, or Google+, also sign up for the free Money Girl newsletter. You'll find links to everything I've mentioned, and also see a transcript of this show on the MoneyGirl page at quickanddirtytips.com. Just look for episode number 310, called "Six Retirement Accounts You Should Know About Part One." I'm really glad you're listening to Ching. That's all for now. Courtesy of MoneyGirl, your guide to our richer life. [Music] Betterment LLC is an SEC registered investment advisor, brokerage services are offered by Betterment Securities, an SEC registered broker dealer and member FINRA SIPC. Investments are not FDIC insured and have no bank guarantee. They may lose value. Investing in securities involves risks, and there's always the potential of losing money when you invest in securities. Before investing, consider your investment objectives and Betterment's charges and expenses. Not an offer, solicitation of an offer, or advice, to buy or sell securities and jurisdictions where Betterment and Betterment Securities are not registered. [Music] At Credit Union of Colorado, banking doesn't have to be like this. Big National Banker here to let you know we are increasing fees. Again, now some people will say they are hidden fees, and if I had my choice, I'd hide them. But I guess that's not legal. So for now, please reference line 572 on page 36 for all new fees this month. At Credit Union of Colorado, we have better interest rates, seamless mobile banking, and no hidden fees ever. Credit Union of Colorado, honestly good. Learn more at honestlygood.org, federally insured by NCUA. At Capella University, learning the right skills could make a difference. 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