Cash On The Blog

There are several options available to you if you are looking to save for retirement. Assuming that you are going to want to retain the current lifestyle that you live or possibly a better one when you retire, it is necessary to start saving money now. The money that you put back will earn interest giving you even more for your retirement. There are 401k contribution limits however; there are also tax exemptions to go with it.

A 401k is a more traditional type retirement account. Anyone who is self employed or their employer offers the retirement account can invest in one. Contributions, money put into the account, can be setup with a specific amount to automatically be taken out of your paycheck. Some employers offer matching contributions.

There are limits as to how much you can invest each year. These limits apply to all 401k plans, including Roth 401k. An individual under the age of 50 can contribute up to $16, 500. People over 50 are allowed to contribute $22, 000. These are the 2010 401k Limits for the coming tax year.

There are limits on withdrawals from these accounts as well. If you make a withdrawal and you are at least 59 1/2, remember that if you take too much out it will put you in a higher tax bracket. Other than that, you can withdrawal as much as you like.

When you make a contribution to a 401k, it is not taxable until you withdrawal the money. This is one of the major benefits of this type of plan compared to other investment plans.

When you invest money in a 401k, it is not taxable. The money invested also accrues interest the longer it is there. The only time you pay taxes is upon withdrawal of funds. So in the long haul, investing in a 401k plan is more beneficial to you.

401k plans earn compound interest. In other words, you earn interest on the interest. This allows you to save more money over a period of time. Again, contributions to this plan are exempt.

Choosing a safe investment is popular with 401k plans. In most cases, the person can choose which mutual funds, bonds or stocks to invest in. Slow and steady growth is what a 401k offers you.

The final decision for how you invest is up to you. There are companies available to help you with investing for your future. They are more than willing to show you the different options as well as offer advice on what to invest in and how.

There is a 401k plan that lets you make after tax contributions as well; the Roth 401k. The Roth 401k offers this. In addition, any withdrawals made from the account are tax free.

It is advisable that you take full advantage of the 2010 401k Limits and contribute as much as you can to this plan. If possible try to get as close to maximum allowable amount as possible. Not to contribute as much as possible is detrimental to you. The government offers the tax breaks on these plans in order to help out consumers.

About the Author

In addition to the many retirement plans like the 401k there is a kind of pension called the 412(i), which has some pros and cons. You can find more on it by visiting the site.

Hopefully you have a financial road map in place and are not expecting to embark on your financial journey without knowing two important point-where you stand and where you want to go. We have discussed the roadmap in another article and here we will consider the actual roads we take-the longer and safer ones, the shorter and more risky ones or a combination.

Your goals will be of mainly three types-short term, medium term and long term. Short term goals, such as building up a cash buffer for emergencies, may need a year or two to achieve. Medium term goals need three to seven years approximately and include things like college costs, a new car and so on. Longer term goals will take more than ten years and normally includes things like your retirement plan.

We will now match these goals with the available investment strategies which are also three in number for the most part: risk free, low risk and high risk. These strategies have one guiding principle: the more risk you take, the more return you can expect. But this comes with an equally important caveat: the shorter your time frame the less risk you should take. The shorter the term over which we hold an investment the higher the risk and the longer the term the lower the risk. The strategies we have available to us are: Cash and risk less investments: these are like savings accounts in the bank and CDs. We should use thest to fund our short term goals like building up a cash emergency buffer. These investments have the lowest returns.

Low risk investments like bonds and large company stocks: over a five to ten year horizon, these investments are likely to stay stable in value and give us reasonable returns that are usually much higher than risk less returns. High risk investments like small company and foreign stocks: these investments are very risky over the short or medium term but the longer we hold them the less the risk becomes. These investments typically have the highest returns over a ten or more year horizon. So how do we match up the investments to the goals? It depends on how much time and money we have to fund them. If we have the time to meet a medium term goal with low risk investments, then it makes sense to do that. If we don’t have enough to meet those goals with low risk returns, we need to look at either going for higher risk investments or lengthening the time horizon. This is why we typically find that things like college funds are invested in lower risk investments like bonds and large company stocks and retirement funds are invested in much riskier investments like foreign and small company stocks. Knowing where we are and where we want to go gives us the opportunity to plan our investments in the most efficient way. We owe our hard earned money the most help we can give it to meet our goals.

About the Author

Jay has spent over two decades in the investment industry and is now retired, doing what he loves to do-playing with computers and the Internet. Visit his latest diversions at www.CherryBookcases.org and www.BarristerBookcase.net.