With the iffy future of the Social Security system constantly in the news, people are becoming more concerned about their retirement accounts. They want to know what the best retirement plans are for people in their position. Should they stay with their company sponsored 401K plan; or opt for an individual IRA account?

If they choose an IRA, should it be a traditional account or a Roth account? And, if the opt for an IRA where should they invest their money? This article will provide you with the information you need to decide which account is best for you. Then, with the help of your financial counselor, you will be able to make the right choice.

Let’s talk a little about the retirement plans that are offered by employers. In the distant past, these were traditionally pension plans. But, today most companies choose to offer 401k plans. Both employee contributions and employer matching are put into these accounts. There are limits on the amount that contributed each year and all of the money is put in tax-deferred.

This means that you do not pay taxes until the money is withdrawn. Usually, the employer supplies a list of possible investment choices and then the employee makes their choice from this list. The list is made up of a selection of stocks, bonds and municipal funds and usually provides a person with an 8% rate of return annually depending on the choice and on the market.

But some people aren’t covered by their employers or they work for themselves so an employer backed 401k is not an option for them. These people also want to know about the best retirement plans available for them. For individuals, the choice is usually found in either a traditional IRA account or a Roth IRA. There are advantages and disadvantages to both of these types of account.

Traditional IRA’s are available to people within certain income guidelines. In 2008, for a married couple filing jointly this would mean up to $108,000 per year. The money put into and the income earned by the investments is tax deferred. What this means is that you do not have to pay taxes until you take the money out. However, if you withdraw the funds before you are 59

In the big world of investing, it seems we hear a lot about what securities to invest in, but not as much about what types of accounts to invest in. There are so many different types of investment accounts, each covering a different purpose, and new types of accounts seem to be created weekly. What are some of the basic types of investment accounts and what can they do for you? This article covers some of the accounts that are available currently and why you would use each one.

Retirement Accounts

IRA stands for Individual Retirement Account. An IRA is meant for those who do not have access to employer sponsored retirement plans such as 401(k) plans or those who would like to contribute more than the maximum allowed by their employer plans. Why choose an IRA? Tax-deferred growth is the answer. With a standard savings account, you have to pay taxes on the interest or earnings that the account makes each year. An IRA, on the other hand, doesn’t require you to pay taxes until the money is taken out in retirement, thus leaving more money in the account to grow each year. In many instances you can also deduct your IRA contributions on your taxes, giving you further tax savings. It seems like a small thing especially when the account balance is still small, but over time it makes a big difference. Investing $10,000 for 30 years in a regular savings account with a 28% tax bracket and a 6% average growth rate will give you $35,565 whereas that same amount put into a tax-deferred account will give you $57,435. Eventually, however, you do have to pay taxes on the earnings in your IRA, but you are still left with $44,153 after taxes are paid. Your net gain for tax-deferred growth is just over $8500.

Another individual plan is a Roth IRA. It is somewhat similar to a traditional IRA but the difference is that you cannot deduct the contributions and the earnings grow tax-free instead of tax-deferred. This type of plan is good for someone with a longer timeframe to invest or those whose tax bracket in retirement will be close to or higher than their current tax rate. Tax-free growth means that you don’t have to pay taxes on any of the earnings in the account. If we start with $10,000 and invest it for 30 years at 6% growth like our example above, you would be left with $57,435. None of that money has to have taxes paid on it since the initial $10,000 already had taxes taken out and the earnings grew tax-free. Before you wonder why anyone would not automatically use a Roth IRA, consider the fact that the initial $10,000 investment wasn’t tax deductible like it was for the traditional IRA above. With a 28% tax bracket, the Roth paid $2,800 on its initial $10,000 investment. If we look at the growth potential of $2,800 for 30 years in a tax-deferred account, it grows to $16,082. So, in this person’s situation where their tax bracket is the same in retirement as it is while working with a 6% rate of growth, a Roth wouldn’t be the best option. The Roth would only grow to $57,435 – $16,082 = $41,353 when all taxes are taken into consideration while the traditional IRA would grow to $44,153. There are several online calculators that can estimate which type of IRA would be to your advantage. Search under Roth vs. Traditional IRA for more information and calculators to determine the best account for you.

In addition to individual plans there are also employer-sponsored plans. SEP IRA, SIMPLE IRA and Keogh plans are in between Traditional Individual Retirement Accounts and the standard employer sponsored plans such as 401(k)’s. SEP’s, SIMPLE’s and Keogh’s are for self employed individuals or small companies that need to put aside more money than a standard IRA allows but aren’t large enough to warrant the expense of a 401(k) plan. Each plan allows both employee and employer contributions. Each has set maximums between $6,000 and $30,000, depending on the plan and the contributor, and each has tax incentives for both the employer and the employee. These plans are great for small businesses to be able to set aside money for themselves and their employees and not have to go through the time and expense of larger employer sponsored plans.

The last type of retirement plans are employer sponsored plans. When it comes to retirement, it seems everyone knows the term 401(k). This is because a 401(k) is the retirement plan of choice for medium and large companies. In 2006, the maximum contribution to a 401(k) is $15,000. If you are over fifty and your employer offers the 401(k) “catch-up” contribution, you can contribute up to $5,000 more, so $20,000 total. Your employer may also contribute to your 401(k) plan which generally doesn’t decrease your contribution allowance. Originally, 401(k) plans were only offered to for-profit companies. Those who worked for non-profit companies such as charities, schools, universities and hospitals weren’t able to contribute to 401(k) plans but were able to open 403(b) plans which allowed most of the same contribution limits as a 401(k). Government or public employees often used 457(b) plans for their contributions and for highly compensated employees there are 457(f) plans. This eventually changed to where 401(k) plans are now available to non-profit companies so more and more of the non-profit sector are opening 401(k) plans for their employees. Taxes on these types of plan can vary from one plan to another, so it is best to consult your plan director or talk with the investment company that manages your employers plan.

Education Savings Plans

Education plans have become available in the past decade allowing parents to better save for their children’s education. Instead of trying to set money aside in taxable savings accounts, parents can now setup an education savings account that has various tax advantages depending upon the type of account used. Choosing an education savings account depends upon what your long-term goals are for the money. There are three basic types of education savings accounts, IRC section 529 plans, the Coverdell Education Savings Account (CESA) and the Uniform Gift to Minors Account (UGMA). Each plan is tailored a little differently when it comes to its tax advantages and who gets the money from each plan, but each has the same general purpose, to save for your children or grandchildren’s future.

Medical Savings Accounts

There are three different types of accounts to help you save for healthcare costs, Flexible Spending Accounts (FSA), Health Reimbursement Arrangements (HRA) and Health Savings Accounts (HSA). The first of these, Flexible Spending Accounts are also called section 125 plans or “cafeteria plans.” This plan allows participants to put pre-tax money into the account each year to cover health insurance deductibles, co-payments, dental care and other medical expenses. Cafeteria plan money cannot accumulate from year to year, however, so it needs to be used up in one year or it will be gone. The second type of medical savings account is a Health Reimbursement Arrangement. It is similar to an FSA but the employer contributes to the account instead of the employee.

The employer can make contributions contingent on an employee participating in designated health and wellness programs. In June 2002 it was updated to allow funds to rollover from year to year, but it cannot be rolled over from employer to employer so if you change employers, you loose the accrued benefit. The last and most recently created plan is a Health Savings Account. This plan enables employees with high-deductible health insurance plans to set aside and invest money to use to pay the deductibles or other healthcare costs in the future.

These plans are designed to put healthcare decisions more into the hands of the employees. These plans are also portable so they move with you when you change employers and they can be rolled over from year to year.

Other Accounts

For those who are just looking to invest, a brokerage account is the medium to use. Brokerage accounts are setup through investment companies to allow you to purchase securities such as stocks, bonds, mutual funds, money markets, options, etc. Generally the money sits in a “core” account such as a money market until you are ready to invest it in other securities. There are fees for purchasing many securities which vary depending on the company that the account is setup with. Brokerage accounts can also offer check writing, debit and ATM cards for easier access to money in the account. Since there are no tax-advantages of a brokerage account, money can be withdrawn at any time from the core account. These accounts are perfect for additional savings that you want to invest in the stock market.

The standard savings account is probably what everyone is most familiar with. Offered by any bank, a savings account allows you to set money aside and receive a variable or fixed interest rate depending upon the account. Savings accounts are very liquid and can be withdrawn at any time, but they don’t allow check writing capabilities. Most savings accounts now days do offer ATM cards. Certificates of Deposit or CD’s are types of savings accounts that require money to be left in for a certain period of time in exchange for a slightly higher interest rate, these accounts are less liquid and there is generally a fee to take the money out before the predetermined period of time.

Whatever the reason or account used to set aside money, it is always a good thing. Savings in any form creates a more secure financial future and allows for problems or emergencies to be taken care of without having to obtain loans or dip into less liquid savings such as a home or other physical assets. Opening up any of the above types of accounts gets you started on the right track towards savings.

Copyright 2006 Emma Snow

The “B” word sends a shudder down the spine of many people. It conjures up fears of never being able to do anything with their money. That it is somehow locked up in this budget and cannot be used for anything else. That in fact is not the case. A household budget is simply a way to see where all your money is going. And more importantly to give you a plan that tells your money what it is supposed to be doing, whether that’s paying bills, going into savings or retirement accounts, or to buy groceries.

Every successful business or person has a money plan. This is what a budget is, a plan for your money, telling it what to do instead of it telling you what to do. With a budget you can set and achieve your financial goals. You can also get a better view of what your money can do for you now and in the future.

With a household budget you can create a spending and savings plan that puts aside a certain amount of money each month for known and unexpected expenses. It will also give you a good record of your monthly expenses based on each month’s expenditures.

The first thing you need to do when setting up a budget is figure out what your monthly income is. If you have a salaried job this is easy because it is a set amount each pay period. If you work on commissions or are self employed this may be more of an estimate. Write this number down at the top of your budget sheet.

Now comes the fun part. Start writing down all your monthly expenses and include even the smallest of expenses. There are certain fixed expenses such as mortgage, car payments, insurance that you need to make every month. You will also need to track those expenses that are more fluid, such as groceries, gasoline, clothing, and entertainment.

If you start by subtracting your fixed expenses from your income what you are left with needs to be budgeted to pay for those expenses that seem to change from month to month. Once you are done allocating money to all your expenses what you are left with is either a positive or negative cash flow. The nice thing about a budget is you can quickly scan what you have written down and see exactly where the money is going. This is very helpful if you are living pay check to pay check because chances are you can find some areas that you can easily cut back on or do without to leave you with extra cash at the end of every month.

Here are four quick tips to help get your budget on track.

1. Learn money management – Successfully dealing with money is 80% behavior. Most people work for their money instead of having their money work for them.

2. Make a plan – A budget is a money plan. Most people would never dream of building a house without a plan. In fact most every activity in life involves some sort of plan. But our most important asset, our money, is left plan free and when we run out or are weighed down with debt we don’t know why.

3. Needs and Want – Know the difference. Needs are basic things like a home with a roof, groceries, clothes (in moderation), transportation to get to work. You don’t need a $400 plus car payment to get to work or a pair of $100 designer jeans. You may want them but you don’t need them.

4. Be a little frugal – This doesn’t mean live in a cave. You can still have fun but make sure it fits into you budget.

Creating a household budget is the first step to getting your finances under control. You will have to be patient with the process because chances are it will not work the first 2 to 3 months you do it. But remain diligent and around the third month you will begin to see patterns that will help you refine your budget into a financial plan that will set you on the right path.

For many baby boomers retirement is around the corner. It is amazing how fast the years have gone by. In 2007 the oldest baby boomers started collecting social security, and in the following eleven years another 77 million are expected to do the same.What About Social Security

Currently there are about 40 million retired people collecting social security. With another 77 million expecting to get their social security payments back with interest, that is going to be a tremendous strain on the system.

Most boomers (and those coming after them) realize that they cannot count on social security being around long enough for them to collect any of the money they paid into it. They are hoping that the government repairs the system, but they cannot depend on that.

Retirement Savings Accounts

For this reason it is very important that baby boomers and those following behind them start saving for retirement as soon as possible. A 25 year old who starts setting as little as $100 aside each month will have about $350,000 saved by retirement age (at 8% interest). In comparison, someone who starts saving at 40 or 50 years of age would need to put in a lot more than $100 a month to have $350,000 by age 67.

It is too late for baby boomers to start saving for retirement at 21, but it is never too late to begin saving. If your company offers a 401k sign up today. If they offer matching contributions, then sign up for the maximum deduction allowed.

A good retirement savings plan for small business owners is a Keough account. This is similar to a 401k. There is a certain amount you can put in each year that is tax deductible.

There are other retirement accounts available, too, such as traditional IRAs and the Roth IRA. The Roth IRA does not allow for tax deductions when you make the contributions, but you do not pay taxes on it when you make withdrawals.

Even if retirement is just a few years away, by starting to save today you will have something to live on. If on your 65th birthday you find that it isn’t enough to retire on, you can always work a few more years to build up the retirement fund some more.

How to Make Your Savings Stretch

Working part-time after you retire is often a good idea. It provides you with something to do that keeps you involved socially and exercises your mind. It will also make your retirement savings last longer.

Another way to make your retirement savings last longer is to start withdrawing from taxable accounts and let the tax-advantaged savings accounts compound for as long as possible.

Basically, baby boomers need to start planning for retirement now by having an IRA, 401k, or Keough (or a combination of these), and by getting out of debt now rather than later. The longer you wait to pay off credit card debt, car loans, and your house, the harder it will be for you to live on a fixed income when you reach retirement age.

If making a budget is new to you then you might want to consider a monthly budget planner to help ease this task. Getting your finances organized can be difficult when you stop to think about everything that is involved, but being organized is an important part of the budgeting process.

Now if you are already an organized person your monthly budget may easily be written out with a pen or pencil on a piece of paper. If you aren’t that organized and this is your first attempt at making a budget then a paper and pencil is till a good idea. The whole point is to get organized and writing down all your income and expenses can help get the process started.

If paper and pencil is not your idea of fun, or your ready to get a little more sophisticated you can use pre-printed budgeting sheets. These spreadsheets are very useful because they break everything into categories for you, making it easy to just take all your income and expense information and plug it into the right slot.

You can find these printed spreadsheets in book form at your local office supply store or you can find free printable versions on the internet. The only drawback to using the pre-printed budgeting sheet is trying to shoehorn some of your expenses into categories that don’t really match. You may find yourself penciling in those things that don’t have a match.

Many people create their own spreadsheets on their computer. This gives you a lot of flexibility to fully customize your monthly budget. The only minus to this approach is learning how to use spreadsheet software such as Microsoft’s Excel. Although if you do learn how to use this type of software you can create a very detailed budget that does everything from tracking income and expenses to keeping track of investments and retirement accounts.

The nest step up on the budget making food chain is software made specifically for that purpose. There are any number of software budgeting programs available on the market today with the two biggest being Quicken and Microsoft Money. These programs have the power to do any type of financial tracking you need to have done. They can also help you plan where you want to be in your financial future and help create a program based on your budget to get you there.

No matter which option you choose a monthly budget planner will let you take back control of your cash flow. With out it you’ll be hard pressed to build a financial future for you and your family.