Another great investment vehicle for your retirement savings will be an an IRA (aka Individual Retirement Account). If you don’t have one, go open one asap!
There are two kinds; Traditional & Roth IRA’s.
The main difference between the two is the tax implications; Traditional IRA’s are similar to 401k’s in that they’re tax deferred. If you are already involved in a 401K with your employer a Roth IRA may be another way to diversify your retirement accounts.
Roth IRA’s use your post tax money to contribute, the advantage is that when you cash out (after 59 ½) there is no tax implications! You can watch the money grow over time and even when you shuffle investments you won’t be taxed on you gains within in your IRA! If you need to withdraw from the fund before 59 1/2 you are allowed to for certain situations.
Max salary to be able to contribute to IRA for 2016:
- Filing as Single: $117K – $132K
- Filing as Joint: $184K – $194K
$5,500 contributions per year
If you wanted to max the $5,500 over 12 months you’d need to save $458/month
*(you can deposit prior year funds through April 15th of the following year)
You can open an IRA with any brokerage account with a minimum investment (usually $500 to $1,000) such as E-Trade, Fidelity, TD Ameritrade, Vanguard etc. All of these will be able to offer you a variety of ways to invest in stocks, bonds, ETF’s and mutual funds.
I’m not endorsed by any of these sites but do have my IRA through Vanguard, as you’re able to buy/sell Vanguard funds & ETF’s with ZERO transaction fees (most sites are $6.99 – $9.99 a trade) so this can be beneficial in the long run.