Wednesday Websites #4: Retirement Accounts

Since this is National Save for Retirement Week, today's websites will feature online companies that allow you to create and maintain retirement savings accounts.

Before I launch into a list of links, I'll give a quick background of the different types of accounts. I'll go into each in more detail later this week, but for now, lets say there are two major types of retirement accounts.

The first is the 401k. This is a tax advantaged account that is generally an 'employer-sponsored' plan. That means, when you leave one job for another, you have to transfer your 401k account to your new employer. Many employers also offer matching contributions, say for 3% of salary. Employer contributions are free money - make sure you are taking advantage of it!

The second type of account is the IRA, or Individual Retirement Account. Like it's name implies, this account is tied to you, not your employer. You can change jobs every week if you'd like, but you don't have to change your account information for an IRA. You do not get employer matching for this type of account.

There are limits as to how much money you can put in each account during the year, since they are "tax advantaged" accounts. That means that there are tax benefits associated with saving for retirement.

If you choose the 'traditional' IRA or 401k, you put money in pre-tax, and are only taxed when you make withdrawals in retirement. This type of account is good if you think your tax bracket is higher now than it will be when you retire. It also serves to decrease your current taxable income, so you will pay fewer taxes in the present.

If you choose the "Roth" IRA or 401k, your money is put in after taxes have already been taken out, but you never have to pay tax on the gains that investment makes. So if you manage to turn $10,000 into $100,000 by the time you retire, you will have been taxed on the original $10,000 at your current tax rate, but you will not be taxed on the $90,000 your money earned. This type of account is best if you think your tax rate now is lower than what it will be when you retire. So if you are starting out at an entry level job in one of the lower tax brackets, this may be the best account for you currently.

You can also have both. I currently do - I put money into both a Roth IRA and Roth 401k, but my employer's contribution gets directed to a Traditional 401k.

Now that you get the basic idea of what types of accounts there are, here is a listing of websites that allow you to create and fund your own account.

ING Direct
Bank of America

Note: You should check out the list of potential fees before opening any account. Some of these sites will charge an annual fee, but not charge for trades, while others will charge for trading but not have an annual fee. You need to determine how you will most likely handle your money, and pick the one that suits your personal investment style.


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