Thursday, November 02, 2006
Max your employers retirement “donations”
Max your employers retirement “donations”
Most businesses have some sort of retirement plan in place for their employees, usually 401ks. The average 401k plan offers a 50% match on 6% of your income. Some offer more and some offer less.
I encourage everyone to invest the most they need to get the full benefit from their employer. Maxing out a 401k with the specifications above will be essentially and instant 3% pay raise. I do not recommend putting more than the amount needed to reap full benefit in your 401k. I do think you should invest the money but rather put it in an IRA account.
401ks often contain a poor selection of funds and the investment opportunities are certainly limited by law. A self directed IRA can be invested in virtually anything under the sun from houses and real estate to artwork. While adding anything over the benefit into your 401k is a sound investment you get far more opportunities by putting that money in your IRA.
Everyone should have an IRA, whether 1 or 100, you need to have a retirement account. IRAs help shield your returns from taxes to keep your money growing. You can open an IRA at every financial planning or brokerage company.
Some establishments charge high fees for maintaining your accounts. Shop around and bargin for the best price possible. Some trading firms will hold your account for free with a little haggling if you have a sizeable portfolio or they believe you will use their investments in your IRA.
The key is this: your employer is handing out free money for your retirement. All you have to do to claim it is invest like you normally would into the 401k plan offered at work. The second you invest into your 401k you get an instant 50% added to it.
You’ve already made money with your first deposit. Managing your 401k usually takes little work. Just select the type of mutual funds you would like to invest into. Companies will automatically take your 401k investments out of your salary and into your account. You probably won’t even miss the money, but after a few years of growth you’ll be sure you invested. 