Retirement Planning: Start as Early as Possible!

If you are in your twenties or thirties or forties then I can definitely help you out when it comes to choosing your perfect account. Hopefully, you are not a seventy-year-old that is just now starting to become worried about their future because if that’s the case then I have no idea how to help you.

Retirement planning is something you definitely want to start earlier rather than later since the earlier that you start, the less you’ll have to save each month in order to have a stable amount by the time you retire. Now, you don’t want to just stick your retirement fund in a regular savings account. You want to put it into an account that you don’t touch till retirement and one that has compound interest.

Depending on your age, you might have to contribute more in order to have enough for retirement. I recommend that you find a retirement calculator and figure out what you’ll need to contribute to your retirement plan in order to have the retirement fund you want.

Why you want to start as early as possible:
You see, there is this magical little thing called “Compound Interest.” The reason why it’s so magical is because it can turn that 1000 dollars that you’ve got and it can turn it into a million dollars if given enough time. Of course, if you only invested 1000 dollars then it would take 103 years to make a million dollars. But, If it weren’t for compound interest it would take 14,285 years to earn a million dollars. That’s an incredible and noteworthy difference in time!

That means that investing later can mean that you lose out on hundreds of thousands of dollars. By giving compound interest time to grow your money, you can profit heavily and eventually live on the interest that your investments earn.

So now that we’ve gotten that out of the way, here are three of the most common accounts that you could use and should start investing into right away:

1.) 401(k)
This retirement plan is given to employees by their employers as part of employees’ benefits. Not all employers will provide a 401(k) plan but that who do might also put some money into your plan as you put money. This means that the employer will match your contributions so if you put $500 into you 401(k) then your employer will also put $500 dollars into your 401(k), adding up to $1000 dollars in your plan.

If you are self-employed or run a small business then you can get this type of account for yourself and/or your workers. This type of account is extremely beneficial if you are older and need to start saving since it allows you to save up to $18,000 each year.

How is this account affected by taxes?
By putting aside some of your income into the 401k then you can pay less on taxes for that year. However, you will have to pay taxes once you withdrawal it upon retirement at the age of 59 ½ but it will be at your normal tax rate rather than a higher one.

What rates/interest should I expect from a 401k?
Your return is based on the plan you choose and how well your investments perform. It’s best to mix up the type of investments you choose, so have some stock, bonds, etc. keep it varied to ensure that you don’t lose any money.

Should I give my employees a 401k?
If you are a business owner who is trying to decide on whether or not to give your employees a 401k, then you should consider the benefits you could gain. By giving out a 401k and providing your own contributions into their fund, you can be sure that you’ll be able to find highly qualified employees and that your employees will stick around longer especially if you make it so that they must work a certain number of years in order to keep the contributions you provided them. Plus, when employees have to focus less on profits in order to live comfortably now and later, they tend to work harder and in a more autonomous manner.

Should I go after a job that offers a 401k as an employee benefit?
If it’s a job you like then definitely! You might also want to look at your top five jobs that you’re interested in and judge their employee benefits to see which has the better options. This might help you make up your mind if you can’t decide between two jobs.

What if I switch employers?
Based on what your employers’ (both former and new employer) policy is, they may or may not accept rollovers, a transfer between two accounts. If they don’t accept rollovers then what you can do is transfer your 401k earnings to a Roth IRA instead to keep your profits. There should not be any penalties for rollovers and you will not only keep your contributions but depending on the number of years you worked there, you will also keep your former employer’s contribution if any. Make sure to review your company’s policies when it comes to the matter.

2.) Traditional IRA
This type of account is one that you must set up on your own rather than obtaining it by working at a company or being self-employed.

How is this account affected by taxes?
A traditional IRA, or Individual Retirement Account, is a tax –deferred account which means that the earnings made on these accounts will not be taxed now but will be taxed upon withdrawal.

Some Rules/Guidelines:
You can withdrawal your earnings at the age of 59 ½ without penalty and if you don’t withdrawal your earnings by the time your 70 ½ then it will become required for you to do so or you’ll have to face a 50% penalty.

You can contribute up to $5,500 annually. If you are 50 years old or older then you can contribute up to $6,500.

How is an IRA different from a 401k?
A 401k would be given to you by your employer and would be subject to your employer's policies. A 401k can also be gotten for you if you are self-employed. On the other hand, an IRA is gotten by you and is subject to IRS policies.

3.) Roth IRA
This type of account is one that you must set up on your own rather than obtaining it by working at a company or being self-employed.

Some Rules/Guidelines:
In order to be eligible for a Roth IRA, you must fit certain criteria which are based on your income and filing status. If your income is more than the requirement then you will automatically be ineligible.

How is this account affected by taxes?
For this account, you still have to pay taxes on the money you contribute but you don’t have to pay taxes on the payments you withdrawal upon retirement.

How is a Roth IRA different from a 401k?
A 401k would be given to you by your employer and would be subject to your employer's policies. A 401k can also be gotten for you if you are self-employed. On the other hand, a Roth IRA is gotten by you and is subject to IRS policies. They also are subjected to taxes differently; a Roth IRA is a tax-free account while a 401k is tax-deferred.

How is a Roth IRA different from a Traditional IRA?
Just like before, a Roth IRA is a tax-free account while a Traditional IRA is tax-deferred. In order to have a Roth IRA, you must be eligible first but you can get a Traditional IRA as long as you have the minimum initial contribution. Both of these accounts require a minimum initial contribution of $1,000 in order to open then.

Can I have a 401k, Traditional IRA, and Roth IRA?
Yes, you are allowed to have more than one but be aware that if you have both a Traditional and Roth IRA then your contributions to both accounts combined can’t exceed more than $5,500 or $6,500 for 50+ years old. So if you put the maximum amount of contributions into your Roth IRA then you can’t put any money into you Traditional IRA. For this reason, I suggest that you only have either the Traditional or Roth.

Is there any way to take money out before retirement age without any penalties?
Yes, all three of these accounts have certain exceptions to them: first-time home purchase, educational expenses, disability/death, medical expenses, health insurance, scheduled payments, and Involuntary & Reservist distribution.

How can I get one of these accounts?
There are multiple companies, such as banks or the company you work for, who provide retirement accounts such as these. Make sure that you understand their policies and that you are choosing the best option. For these accounts, you will most likely have to make an initial contribution of $1,000 or more so start saving now to get that out of the way.


It’s important to start to contribute as early as possible so that that magical thing that we talked about earlier called “Compound Interest” can take hold and earn you big bucks. These accounts will also help when it comes to interest since they’ll earn more interest than just a regular savings account.

So get to it!

Definitions:
Tax-deferred means that the earnings made on these accounts will not be taxed now but will be taxed upon withdrawal

Tax-free means that you don’t have to pay taxes on the money you withdrawal but you do have to pay taxes on your contributions still. 

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