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401k plans, IRAs, Roth accounts, pensions, annuities, Social Security, and withdrawal planning. Build the balance you need and make it last.
Required minimum distributions (RMDs) stack on top of Social Security and any pension. The share you must withdraw rises every year, so a big traditional IRA or 401(k) can move you up a tax bracket in your 70s. Use the lower-income years before your first RMD to draw it down at lower rates.
Money you invest at 25 compounds for 10 more years than money you invest at 35, and that head start can outweigh decades of later saving. Start now with an amount you can automate, even if it’s small, and raise it every time your pay goes up instead of waiting until you earn more.
Open Stash only if you’ll use its 3% IRA match or its Stock-Back card enough to cover the $108 annual fee, which takes about $300 a month into a self-directed IRA or $900 a month on the card. A managed IRA also charges 0.25% of its balance a year. Otherwise, Fidelity offers fractional shares and a no-fee IRA.
A solo 401k lets a self-employed person with no employees contribute twice, once as the employee and once as the employer, for a combined cap nearly 10 times the IRA limit. If your business earns more than you can shelter in an IRA, open one and fund the employee side first.
If your income is over the Roth IRA limit, you can still fund one through the back door. Put after-tax money into a traditional IRA and convert it to a Roth, since conversions have no income limit. First move any pre-tax IRA money into a 401(k) that accepts it, or part of the conversion becomes taxable.
A fund takes its expense ratio out of your balance every year, whether it gains or loses. That’s the one piece of your return you can predict. Compare each fund’s ratio with an index fund covering the same market, and replace any that charge several times more inside your IRA or 401(k), where switching triggers no tax.
When you start investing from scratch, your savings rate moves your balance far more than the return you earn, so raise what you contribute before you hunt for a better fund. At a 7% return, a year’s gains don’t overtake a year’s savings until about a decade in, and then returns take over.
If your kid earns money from a job, open a custodial Roth IRA and put in as much as they earned, up to the annual IRA limit. The money can come from you. Decades of tax-free growth can turn one summer paycheck into serious retirement money, and the contributions stay available if they need them sooner.
An employer 401(k) match adds money to your account for every dollar you contribute, up to a cap, and it’s a return no investment can promise. Find the formula and check that your contribution rate reaches the cap, even if you were enrolled automatically, are paying off debt, or aren’t sure you’ll stay.
Americans are increasingly responsible for planning their own retirements as pensions gradually go extinct. Combine that with longer life expectancies and weaker Social Security benefits, and many Americans worry they’ll run out of money in retirement. Although retirement has changed…
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