{"appState":{"pageLoadApiCallsStatus":true},"categoryState":{"relatedCategories":{"headers":{"timestamp":"2023-01-02T12:01:13+00:00"},"categoryId":34308,"data":{"title":"Retirement","slug":"retirement","image":{"src":null,"width":0,"height":0},"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Retirement","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34308"},"slug":"retirement","categoryId":34308}],"parentCategory":{"categoryId":34273,"title":"Personal Finance","slug":"personal-finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"}},"childCategories":[],"description":"When you're retired, you don't work, and yet you still need money. 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During economic difficulties, you may be tempted to tap into your 401(k) funds, but most often, you're much better off financially if you can leave the funds alone. And your 401(k) management duties don't end when you retire; you still need to invest and spend wisely.","description":"Knowing how to build your 401(k) retirement plan, devising investment strategies, and making the most of your plan can all help to financially secure your path to retirement. During economic difficulties, you may be tempted to tap into your 401(k) funds, but most often, you're much better off financially if you can leave the funds alone. 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","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/10237"}},{"authorId":10238,"name":"Brenda Watson Newmann","slug":"brenda-watson-newmann","description":" <p><b>Ted Benna</b> is commonly referred to as the &#8220;father of 401(k)&#8221; because he created and gained IRS approval of the first 401(k) savings plan.</p> <p><b>Brenda Watson Newmann</b> began her career as an Associated Press foreign correspondent and later moved to Silicon Valley as Managing Editor at <i>401k Forum/mPower</i>. 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Use the tips in the following list to guide you as you make decisions about your 401(k):</p>\n<ul class=\"level-one\">\n<li>\n<p class=\"first-para\">Save in a tax-deferred retirement account as soon as you can, to get more bang for your investment buck.</p>\n</li>\n<li>\n<p class=\"first-para\">Start by saving just 1 percent of your pay if that&#8217;s all you can afford.</p>\n</li>\n<li>\n<p class=\"first-para\">Save for retirement even if you think it&#8217;s too late. It&#8217;s never too late.</p>\n</li>\n<li>\n<p class=\"first-para\">Save at least the amount your employer matches, otherwise, you&#8217;re throwing money away.</p>\n</li>\n<li>\n<p class=\"first-para\">Aim to put away 10 percent of your income for retirement each year; increase your savings rate each time you get a raise.</p>\n</li>\n<li>\n<p class=\"first-para\">Aim to build a nest egg that&#8217;s at least 10 times your annual pay when you retire.</p>\n</li>\n<li>\n<p class=\"first-para\">Remember that Social Security won&#8217;t be enough to finance your retirement. Even with a traditional company pension, you&#8217;ll likely have a gap to fill with your own savings.</p>\n</li>\n</ul>\n"},{"title":"401(k) investment strategies","thumb":null,"image":null,"content":"<p>You usually have some say in how the money in your 401(k) retirement account is invested, even if your employer manages the 401(k) account. If you&#8217;re the sole decision-maker, the following tips on how to invest your funds are even more important:</p>\n<ul class=\"level-one\">\n<li>\n<p class=\"first-para\">Come up with a plan. Know what you&#8217;re doing and why: Don&#8217;t invest blindly, hoping that it&#8217;ll all come out well in the end.</p>\n</li>\n<li>\n<p class=\"first-para\">Establish realistic expectations, and then pick funds that have the potential to meet your goals. Learn from others, but build the portfolio that&#8217;s right for you.</p>\n</li>\n<li>\n<p class=\"first-para\">Remember that a higher risk doesn&#8217;t guarantee a higher return.</p>\n</li>\n<li>\n<p class=\"first-para\">Avoid funds that have dramatic up-and-down swings, particularly if you&#8217;re nearing retirement.</p>\n</li>\n<li>\n<p class=\"first-para\">Invest in a mix of asset types, because no one knows which investments will be hot at any point in time.</p>\n</li>\n<li>\n<p class=\"first-para\">Find a professional to help you choose the best investments.</p>\n</li>\n</ul>\n"},{"title":"Get the most out of your 401(k) retirement plan","thumb":null,"image":null,"content":"<p>If your employer offers a 401(k) retirement plan and makes contributions to it on your behalf, you have a leg up in retirement investing. The suggestions in the following list can help you get the most from your 401(k) plan:</p>\n<ul class=\"level-one\">\n<li>\n<p class=\"first-para\">Contribute enough to get the full employer matching contribution.</p>\n</li>\n<li>\n<p class=\"first-para\">Use education tools and retirement planning aids from your employer or plan provider to help develop and track your retirement plan.</p>\n</li>\n<li>\n<p class=\"first-para\">Plan jointly with your spouse to get the maximum advantage from both your retirement plans.</p>\n</li>\n<li>\n<p class=\"first-para\">Take any company stock your employer gives you, but don&#8217;t invest your own money in it. Remember Enron.</p>\n</li>\n<li>\n<p class=\"first-para\">Roll your retirement money directly into a new tax-deferred account when you change jobs. Don&#8217;t cash it out.</p>\n</li>\n<li>\n<p class=\"first-para\">Don&#8217;t take a hardship withdrawal or loan unless absolutely necessary.</p>\n</li>\n</ul>\n"},{"title":"Taking money out of your 401(k) early","thumb":null,"image":null,"content":"<p class=\"Remember\">Make taking money out of your 401(k) retirement account your last option. The consequences of early withdrawals from your 401(k) hurt your current tax situation and your future investment potential. Keep the points in the following list in mind as you contemplate dipping into your 401(k):</p>\n<ul class=\"level-one\">\n<li>\n<p class=\"first-para\">Calculate how much tax you&#8217;ll owe on a hardship withdrawal before you withdraw the money. You&#8217;ll owe income tax, plus, likely, a 10 percent early withdrawal penalty if you&#8217;re under 59 1/2. Your employer withholds some taxes, but you need to make up the rest.</p>\n</li>\n<li>\n<p class=\"first-para\">Remember that a $10,000 withdrawal at age 35 will result in a loss of more than $210,000 by age 65, assuming a 9 percent investment return.</p>\n</li>\n<li>\n<p class=\"first-para\">Withdrawing money to help buy your first home can be a good investment decision, particularly if you do it early in the year when the tax break from homeownership helps offset the additional tax you pay on the distribution.</p>\n</li>\n<li>\n<p class=\"first-para\">If you borrow from your 401(k), try to continue making new contributions while repaying the loan, to limit damage to your final nest egg.</p>\n</li>\n<li>\n<p class=\"first-para\">Don&#8217;t take a loan if you&#8217;re likely to leave your employer before repaying it. Any unpaid loan balance will likely be taxable when you leave.</p>\n</li>\n</ul>\n"},{"title":"Managing your 401(k) when you retire","thumb":null,"image":null,"content":"<p class=\"Tip\">Finally you&#8217;re reaping the benefits of contributing to your 401(k) for all those years. As you start taking money out instead of putting it in, use the advice in the following list to keep your nest egg healthy:</p>\n<ul class=\"level-one\">\n<li>\n<p class=\"first-para\">Develop a strategy to deal with the taxman, because you will have to pay taxes when you take money out of the plan.</p>\n</li>\n<li>\n<p class=\"first-para\">Consider keeping at least one-third of your money in stocks during your retirement years. Converting everything into fixed-income investments leaves your money vulnerable to inflation.</p>\n</li>\n<li>\n<p class=\"first-para\">Don&#8217;t ignore inflation. What costs $10,000 the first year you retire will cost $20,328 in your 25th year of retirement, assuming a modest 3 percent inflation rate.</p>\n</li>\n<li>\n<p class=\"first-para\">Establish realistic investment return expectations (such as no more than 6 to 8 percent) during your retirement years. Don&#8217;t be lured into high-octane stocks that may fizzle.</p>\n</li>\n<li>\n<p class=\"first-para\">Plan to withdraw no more than 6 to 7 percent of your retirement account each year to reduce the potential of running out of money.</p>\n</li>\n<li>\n<p class=\"first-para\">Consider selling your home and investing the proceeds, thus converting your home from an income consumer into an income generator. 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Consider investment recommendations including bundling, pre-tax contributions, and how life circumstances may change your opportunities.","blurb":"","authors":[{"authorId":10237,"name":"Ted Benna","slug":"ted-benna","description":" <p><b>Ted Benna</b> is commonly referred to as the &#8220;father of 401(k)&#8221; because he created and gained IRS approval of the first 401(k) savings plan.</p> <p><b>Brenda Watson Newmann</b> began her career as an Associated Press foreign correspondent and later moved to Silicon Valley as Managing Editor at <i>401k Forum/mPower</i>. 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","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/10237"}},{"authorId":10238,"name":"Brenda Watson Newmann","slug":"brenda-watson-newmann","description":" <p><b>Ted Benna</b> is commonly referred to as the &#8220;father of 401(k)&#8221; because he created and gained IRS approval of the first 401(k) savings plan.</p> <p><b>Brenda Watson Newmann</b> began her career as an Associated Press foreign correspondent and later moved to Silicon Valley as Managing Editor at <i>401k Forum/mPower</i>. ","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/10238"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;retirement&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119817246&quot;]}]\" id=\"du-slot-63221affd511a\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;retirement&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119817246&quot;]}]\" id=\"du-slot-63221affd5b22\"></div></div>"},"articleType":{"articleType":"Cheat Sheet","articleList":[{"articleId":0,"title":"","slug":null,"categoryList":[],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/"}}],"content":[{"title":"Planning changes for your retirement years","thumb":null,"image":null,"content":"<p>Reducing your expenses during your retirement years is an important way to reduce financial pressure. Think about ways your life can change and make plans for a smooth transition by considering these points:</p>\n<ul>\n<li><strong>Where to live:</strong> I encourage workers approaching retirement to consider how and where they will live after they retire. Start thinking about where you’ll live a few years before you retire because this can have a significant impact on your future financial needs.My wife and I went through this process in our late 50s. We both grew up in rural south-central Pennsylvania, but we spent the first 37 years of our married lives in the Philadelphia area. We lived in suburban Bucks County for 32 of those years. None of our three married children had settled in that area. We no longer needed our large house, which was highly taxed and was going to get much worse with $100 million of new schools, so we began considering alternatives.\n<p>Our son Steve and his wife Laura were in Potter County in the north-central part of the state without any family within hundreds of miles of them. We decided to move into that area, eventually buying a nice stone ranch home on beautiful Pine Creek. Steve and his wife Laura blessed us with two lovely granddaughters who spent a lot of time with us during their growing-up years. Relocating to a smaller house in a lower cost area enabled us to reduce our expenses by close to 50 percent.</li>\n<li><strong>What to do:</strong> Planning how to spend your time is one of the many things to consider. Not having to work every day earning a paycheck sounds great, but having little or nothing to do can get boring pretty fast, especially when you may live for another 20 to 30 years. Planning some productive activities before retiring can help make this transition easier. I don’t recommend going cold turkey from full-time employment one day to full-time retirement the next day.</li>\n<li><strong>How to get around:</strong> I have done other planning to accomplish getting around efficiently. For example, I buy upscale used cars for a fraction of their original price instead of new ones. I bought my share of new cars when I did a lot of business traveling and image was a more important issue, but I no longer need to do that.</li>\n</ul>\n"},{"title":"Adding advice on your retirement investments with mPower","thumb":null,"image":null,"content":"<p>The first effort to provide actual investment advice to 401(k) participants was an online version offered by mPower. Rather than just educating participants about investments, mPower offered them investment recommendations. I served on their board both as a member and as a consultant.</p>\n<p>One of the main challenges was getting the major 401(k) service providers to integrate investment advice into their services. The head of one of the major service providers told us there wasn’t any way they wanted an independent firm telling participants they serviced how to invest because this could adversely impact the fees they received. But things changed as participant interest in advice grew and when the service providers realized this was a way to make more rather than less in fees. They accomplished this by adding an additional layer of fees — usually in the 0.5 to 1.0 percent range.</p>\n<p>Around this time, I was speaking at a meeting hosted by one of the largest service providers. The audience was a group of financial advisors. A representative of the service provider explained to the advisors how they could receive an additional 0.25 percent in fees by adding investment advice. This is when 401(k) fees for smaller plans pushed into the 2 to 3 percent range.</p>\n<p>The same thing has occurred with IRAs offered by financial advisors who are generally called <em>wealth managers</em> today. Their typical offering is called a managed account. These accounts are generally a prepackaged mix of mutual funds with total fees in the 1.5 to 2.0 percent range. They include a fee on top of the normal mutual fund fees, often called a wrap fee.</p>\n<p>&nbsp;</p>\n"},{"title":"Gaining from Ted Benna Guides","thumb":null,"image":null,"content":"<p>A small employer recently used a guide I have prepared to shift from a 401(k) to an IRA-based plan. The employer eliminated more than $1,500 in annual fees, and annual fees for participants were reduced from 2.75 percent to 0.15 percent. The new plan is also much easier for the employer to administer, and the participants have much broader investment options.</p>\n<p>There are four different guides that contain detailed information about how to set up an IRA-based plan:</p>\n<ul>\n<li><strong>For payroll-deduction IRAs:</strong> The first two are for a small business wanting to set up a payroll-deduction IRA either with or without an employer contribution.\n<ul>\n<li>The guide for the payroll-deduction IRA with an employer contribution explains two different ways for providing an employer matching contribution.</li>\n</ul>\n</li>\n<li><strong>For SEP IRAs: </strong>The third guide explains how to set up a SEP IRA to get the biggest tax advantage. A SEP IRA is of greatest value to solo entrepreneurs and family businesses. A solo entrepreneur recently used this guide to transition from a Solo 401(k) to eliminate a $99 annual fee and to save $2,450 in additional taxes.</li>\n<li><strong>For SIMPLE IRAs:</strong> The fourth guide explains in detail how to set up a SIMPLE IRA and to package it effectively for your employees. SIMPLE stands for Savings Incentive Match Plan for Employees and is a great starter plan for a small business but it is a bit more complicated than the name implies. It requires contributions from employees and employer.</li>\n</ul>\n<p>Learn more about the guides at <a href=\"mailto:[email protected]\" target=\"_blank\" rel=\"noopener\">[email protected]</a>.</p>\n<p>&nbsp;</p>\n"},{"title":"Benefitting from bundling for 401(k)s","thumb":null,"image":null,"content":"<p>Bundling wasn’t an option in the early days of 401(k)s. Administration of a typical 401(k) included several different organizations to handle the maintenance of participant accounts and all the other services required to administer the plan. Investments were usually limited to two or three options — an equity mutual fund, a Guaranteed Income Fund (GIC) issued by an insurance company, and employer stock. Participant accounts were updated monthly, quarterly, semi-annually, or only once a year. Participants received paper statements four to six weeks after the accounts were updated.</p>\n<p>Participants had to split their investments between these funds in 25 percent multiples: 100/0, 75/25, 50/50, 25/75 or 0/100. Requests to change investments had to be submitted in writing to the HR department and then submitted to the record keeper. Investment changes occurred only on the valuation dates when participant accounts were updated. This was a slow, cumbersome, error-prone process; however, fees were unbundled. Employers typically paid all recordkeeping and administrative fees and participants paid only the investment fees</p>\n<p>By the mid-1980s, the major mutual fund companies (Fidelity, Vanguard, T. Rowe Price) and some insurance companies (MassMutual, New York Life, Principal Financial) realized 401(k) plans were generating a lot of money to be invested. They began to offer bundled services. A company with a 401(k) plan could select one of these entities to handle all functions — record keeping, investments, and all other administrative procedures. Services weren’t the only things that were bundled. Fees were also bundled and all paid by participants.</p>\n<p>Plans began to expand investment options, update participant accounts daily, and permit investment changes 24/7/365. Participants were also able to access their accounts anytime first via voice response and later via the internet.</p>\n<p>&nbsp;</p>\n<p>&nbsp;</p>\n<p>&nbsp;</p>\n"}],"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Advance","lifeExpectancy":"Two years","lifeExpectancySetFrom":"2021-10-01T00:00:00+00:00","dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":288529},{"headers":{"creationTime":"2020-01-12T23:34:15+00:00","modifiedTime":"2021-03-14T17:36:15+00:00","timestamp":"2022-09-14T18:17:57+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Retirement","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34308"},"slug":"retirement","categoryId":34308}],"title":"Retirement Planning For Dummies Cheat Sheet","strippedTitle":"retirement planning for dummies cheat sheet","slug":"retirement-planning-for-dummies-cheat-sheet","canonicalUrl":"","seo":{"metaDescription":"Retirement planning got you confused? Need a million dollars? Want to retire early? Learn how to start a basic retirement plan in 15 minutes.","noIndex":0,"noFollow":0},"content":"No two retirement plans are completely alike. You might have heard that you'll have a comfortable retirement if you save a certain amount of money by a certain age. “Just save a million bucks and you’re good,” such advice goes. But how long a million dollars will last in retirement is up to you, which you can figure out pretty easily.\r\n\r\nOthers say all you need to do is max out your <a href=\"https://www.dummies.com/personal-finance/investing/retirement/401ks-for-dummies-cheat-sheet/\">401(k)</a>. And for most people, that’s good advice. But if your goal is to retire really early, you’ll need to get more aggressive in saving money.\r\n\r\nPerhaps you're starting to fear retirement planning because you’re not doing something that the experts say you must do to retire. Don’t let the endless retirement advice you read and hear paralyze you. You can start a basic retirement plan in 15 minutes.","description":"No two retirement plans are completely alike. You might have heard that you'll have a comfortable retirement if you save a certain amount of money by a certain age. “Just save a million bucks and you’re good,” such advice goes. But how long a million dollars will last in retirement is up to you, which you can figure out pretty easily.\r\n\r\nOthers say all you need to do is max out your <a href=\"https://www.dummies.com/personal-finance/investing/retirement/401ks-for-dummies-cheat-sheet/\">401(k)</a>. And for most people, that’s good advice. But if your goal is to retire really early, you’ll need to get more aggressive in saving money.\r\n\r\nPerhaps you're starting to fear retirement planning because you’re not doing something that the experts say you must do to retire. Don’t let the endless retirement advice you read and hear paralyze you. You can start a basic retirement plan in 15 minutes.","blurb":"","authors":[],"primaryCategoryTaxonomy":{"categoryId":34308,"title":"Retirement","slug":"retirement","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34308"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[],"relatedArticles":{"fromBook":[{"articleId":268853,"title":"How to Manage Your Pension","slug":"how-to-manage-your-pension","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268853"}},{"articleId":268848,"title":"How to Take Money Out of Your IRA","slug":"how-to-take-money-out-of-your-ira","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268848"}},{"articleId":268843,"title":"How to Manage Your IRA Contributions","slug":"how-to-manage-your-ira-contributions","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268843"}},{"articleId":268838,"title":"How to Get Online with Your IRA Provider","slug":"how-to-get-online-with-your-ira-provider","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268838"}},{"articleId":268829,"title":"How to Get Online Access to Your 401(k)","slug":"how-to-get-online-access-to-your-401k","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268829"}}],"fromCategory":[{"articleId":288529,"title":"401(k)s and IRAs For Dummies Cheat Sheet","slug":"401ks-and-iras-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/288529"}},{"articleId":268853,"title":"How to Manage Your Pension","slug":"how-to-manage-your-pension","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268853"}},{"articleId":268848,"title":"How to Take Money Out of Your IRA","slug":"how-to-take-money-out-of-your-ira","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268848"}},{"articleId":268843,"title":"How to Manage Your IRA Contributions","slug":"how-to-manage-your-ira-contributions","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268843"}},{"articleId":268838,"title":"How to Get Online with Your IRA Provider","slug":"how-to-get-online-with-your-ira-provider","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268838"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":281850,"slug":"retirement-planning-for-dummies","isbn":"9781119627579","categoryList":["business-careers-money","personal-finance","retirement"],"amazon":{"default":"https://www.amazon.com/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/1119627575-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":"https://www.dummies.com/wp-content/uploads/retirement-planning-for-dummies-cover-9781119627579-203x255.jpg","width":203,"height":255},"title":"Retirement Planning For Dummies","testBankPinActivationLink":"","bookOutOfPrint":true,"authorsInfo":"<p><b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i></p>","authors":[{"authorId":33279,"name":"Matthew Krantz","slug":"matthew-krantz","description":"<b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i>","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/33279"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;retirement&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119627579&quot;]}]\" id=\"du-slot-63221ad51c1bf\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;retirement&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119627579&quot;]}]\" id=\"du-slot-63221ad51ca75\"></div></div>"},"articleType":{"articleType":"Cheat Sheet","articleList":[{"articleId":0,"title":"","slug":null,"categoryList":[],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/"}}],"content":[{"title":"How Long $1 Million Will Last in Retirement","thumb":null,"image":null,"content":"<p>Hitting $1 million in retirement savings is a lofty goal. And having a million saved for retirement is a target many people share. Why? A million dollars is an impressively large round number. And a million seems like it should be enough to sustain you a long time in retirement.</p>\n<p>But is hitting a million bucks enough for your retirement? Well, that depends on a few factors only you can determine.</p>\n<h3>Measuring how much you spend</h3>\n<p>Knowing how long a million will last starts with understanding how much you spend a year. You can measure your spending habits in a number of ways. Quicken software is good at measuring your spending, but you need to pay for it and install the software on your computer. Another option, which is much easier and won’t cost you anything, is Mint.com:</p>\n<ol>\n<li>Go to the <a href=\"https://www.mint.com/\">Mint website</a>.</li>\n<li>Click the Sign Up button to open an account.</li>\n<li>If you don&#8217;t already have an account, create an ID.<br />\nUse your e-mail address and a unique password.</li>\n<li>Sign into the Mint account.</li>\n<li>Click the + Add Accounts tab at the top of the page.</li>\n<li>Look up and enter all your spending accounts, such as your credit card accounts.</li>\n<li>Go to the Trends tab.</li>\n<li>Choose the Over Time option under the Spending category.</li>\n<li>Make sure the During option is set to Last 12 months.<br />\nMint.com tells you how much you’ve spent in all the major categories.</li>\n</ol>\n<p>Think about costs you might incur when retired. It’s generally thought that most retired people spend 90 percent of what they spent while they were working. But make adjustments as needed. For example, do you expect to travel more? Also consider your healthcare costs. If your employer was paying for some of your medical expenses, you’ll need to factor in more medical spending.</p>\n<h3>Measuring how long $1 million will last</h3>\n<p>Now that you know how much you spend, it’s time to look at the other part of the equation: How long will the money last? One way to measure how long your million dollars might last is to use the FIRECalc online calculator;</p>\n<ol>\n<li>  Go to the <a href=\"https://firecalc.com/\">FIREcalc website</a>.</li>\n<li><strong> In the Start Here box, enter the following:</strong>\n<ol>\n<li><strong>Enter your annual spending.<br />\n</strong>The spending number you calculated using Mint goes into the Spending blank.</li>\n<li><strong>Enter your portfolio size.<br />\n</strong>Add up all the money you’ve saved. For our example, it’s a million dollars, or 1000000 (don’t use commas).</li>\n<li><strong>Enter the years you’d like your money to last.</strong></li>\n</ol>\n</li>\n<li><strong>Click the Submit button.</strong></li>\n<li><strong>Look at the results.<br />\n</strong>FIREcalc will run more than 100 possible scenarios to see whether your money will last as long as you’d like. For example, if you spend $30,000 a year and want it to last 40 years, the million dollars lasted long enough in all the scenarios tested.<strong><br />\n</strong></li>\n<li><strong> Revise your assumptions.<br />\n</strong>FIREcalc is customizable. For instance, change the years variable and see how your million dollars holds up. You can also make your investment portfolios more aggressive (include more stocks) or more conservative (by including more bonds) and see how the results change.<strong><br />\n</strong></li>\n</ol>\n"},{"title":"Tips for Retiring Early","thumb":null,"image":null,"content":"<p>If you love what you do for a living, retirement isn’t something you probably think much about. But if you hate your job, are burning to do something else with your life, or are just tired of the 9-to-five, walking off the job well before you turn 65 probably sounds appealing.</p>\n<p>Join the FIRE movement. FIRE, or financial independence retire early, is spreading like fire. You don’t have to wait until you’re 65 to call it quits with a job you hate or to make more time to do things you enjoy (some of which might also make you money).</p>\n<p>Building a retirement plan that lets you exit the workforce in your 40s or early 50s requires some extra considerations</p>\n<h3>Scrutinize your spending</h3>\n<p>The easiest way to retire sooner is simply needing less money. This might sound obvious, but the less you need to spend means the less you need to save for retirement. And your spending is mostly under your control. Here are some tips to help you spend less so you can retire sooner.</p>\n<ul>\n<li><strong>Know your run rate. </strong></li>\n</ul>\n<p style=\"padding-left: 40px;\">If you don’t know how much you’re spending a year, this is the first place to start. For a quick estimate, use the spending-tracking capabilities on the <a href=\"https://www.mint.com/\">Mint website</a>.</p>\n<ul>\n<li><strong>Boost your savings rate. </strong></li>\n</ul>\n<p style=\"padding-left: 40px;\">Saving 20 percent of your pay is the minimum for those who want to retire in their mid-60s. If you want to retire sooner, you’ll need to save more. Much more. Think 50 percent or more saved from your pay.</p>\n<ul>\n<li><strong>Banish wasteful spending.</strong></li>\n</ul>\n<p style=\"padding-left: 40px;\">If you’re looking to retire early, you need to think creatively to save more money. Be especially mindful of monthly subscriptions; these seemingly small charges add up. Only you know what you consider wasteful spending.</p>\n<ul>\n<li><strong>Monitor your housing costs.</strong></li>\n</ul>\n<p style=\"padding-left: 40px;\">Some people who retire early spend much of their effort holding down housing costs. But do you need a $2 million home in the trendy part of town? Consider a smaller home or buy in a less costly area.</p>\n<ul>\n<li><strong>Amp up your earning power.</strong></li>\n</ul>\n<p style=\"padding-left: 40px;\">If your ultimate goal is to retire early, you might be willing to do a job you’re not crazy about in exchange for a bigger paycheck. It’s best to maximize your earnings early in your career and get that money invested. The sooner you invest, the longer the money has to grow. Then later in your career, you can afford to take a lower-paying job in a field that’s you find more interesting.</p>\n<h3>Invest wisely</h3>\n<p>Retiring early is one part aggressive saving, and another part smart investing. After you’ve saved enough for your money to work for you, you likely won’t have to work as hard yourself:</p>\n<ul>\n<li><strong>Sign up for all the retirement accounts you can.</strong></li>\n</ul>\n<p style=\"padding-left: 40px;\">Holding off the taxman and letting your nest egg grow will be a huge help in letting you retire early. Get to know your 401(k) plan and max it out. If you can run a Roth IRA, do that, too. And if you have a side gig, look into opening an SEP-IRA. The more you can shield from taxes while you’re saving and working, the better.</p>\n<ul>\n<li><strong>Keep investment costs down.</strong></li>\n</ul>\n<p style=\"padding-left: 40px;\">When you’re looking to retire early, every little bit counts. If you can choose between a low-fee investment and a more expensive one, go for the lower cost one. No one can predict investment returns, but fees are disclosed and have a huge impact on how much money you make from investments.</p>\n<ul>\n<li><strong>Stay diversified but don’t be overly cautious.</strong></li>\n</ul>\n<p style=\"padding-left: 40px;\">You’ll need to balance your exposure to riskier stocks with safer bonds with great care. Going overboard on stocks might cause you to flip out during a bear market and sell in panic. One mistake like this can dash your early retirement dreams. On the other hand, if you play it too safe and go overboard on bonds, your portfolio will be doomed with inadequate returns. Find the right balance.</p>\n<ul>\n<li><strong>Maintain an emergency fund.</strong></li>\n</ul>\n<p style=\"padding-left: 40px;\">Cash isn’t going to help you reach your retirement goals. Returns on cash are very low. But making sure you have enough cash to get you through a tough path in your life will help you avoid selling stocks at a bad time to raise cash. A healthy cash cushion will also help prevent you from going into debt if your income is disrupted or you face a large and unexpected cost. It’s widely recommended you have at least six months worth of expenses in cash. More is better.</p>\n<h3>Set your financial target</h3>\n<p>All the saving and investing in the world isn’t going to help you if you don’t have a retirement goal. Know what you need to save in order to retire early. Some retirement savings goals that might help you include:</p>\n<ul>\n<li><strong>Follow the 4 percent rule (with a twist). </strong></li>\n</ul>\n<p style=\"padding-left: 40px;\">The 4 percent rule says that you can take out 4 percent of your portfolio for 30 years and have reasonable confidence your money will last at least 30 years. Some early retirees are turning the 4 percent rule on its head. The same math says if you save at least 25 times the amount of money you need a year, you’ll have enough to take out 4 percent annually. A basic early retirement financial goal is to save at least 25 times as much as you spend a year.</p>\n<ul>\n<li><strong>Think about saving more. </strong></li>\n</ul>\n<p style=\"padding-left: 40px;\">The 4 percent rule applies to a 30-year retirement span. If you plan on retiring early, you’ll need money for a longer period of time. Plus, who knows if the market’s historical returns will continue. You might also face some unexpected costs such as a leaky roof or a car that needs major repairs. Think about saving more than 25 times your annual spending. If you’re in your late 40s, you’ll want to shoot to save 35 times your annual spending or more.</p>\n<ul>\n<li><strong>Get to know online retirement calculators.</strong></li>\n</ul>\n<p style=\"padding-left: 40px;\">No one online retirement calculator is perfect. But using several of them can help you get a good understanding of how much you’ll need to retire when you want to. Check and cross-check the results you get from several of these calculators to make sure you’re on target.</p>\n<p>If it turns out that you can&#8217;t save enough to retire as early as you want to (or you decide you don’t want to retire early), following FIRE techniques will help you waste less money, save more, and at least make financial independence a strong possibility. It’s better for your money to work for you, rather than you having to work only for money.</p>\n"},{"title":"Build a Retirement Plan in 15 Minutes or Less","thumb":null,"image":null,"content":"<p>Building a retirement plan is important. But that doesn’t mean building a retirement plan needs to be time consuming.  If you’re just looking to get a retirement plan set up in the shortest amount of time possible, there’s a strategy for that.</p>\n<h3>Start with your employer plan</h3>\n<p>If you’re looking for an easy way to start your retirement plan and you are an employee, retirement options at work are your best bet:</p>\n<ol>\n<li>Check with the human resources department to find out what retirement savings options are available.</li>\n<li>See if your employee offers a 401(k) and, if so, how much of your contributions the employee will match.</li>\n<li>Sign up for the 401(k) and contribute at least as much as needed to get the maximum matching contribution from your employer.</li>\n<li>Choose the target-date fund option closest to the year you plan to retire.</li>\n<li>If you can afford to save more for your retirement:\n<ol>\n<li>See if you’re eligible for a health savings account (HSA). You’ll need to have a high-deductible medical plan.</li>\n<li>If you&#8217;re eligible, in 2020 you can contribute up to $3,550 for individuals and $7,100 for families. If you are older than 55, you can contribute an additional $1000.</li>\n</ol>\n</li>\n<li>Have money left over? Increase your contribution to your 401(k).<br />\nIn 2020, you can put up to $19,500 in your 401(k). If you’re 50 years or older, you can put in an additional $6,500.</li>\n<li>Can you still contribute more and have time? Think about opening a Roth IRA.<br />\nYou can open a Roth IRA with most online brokers or mutual fund companies. If you&#8217;re eligible to open a Roth (you’re not in what the IRS considers a high-income bracket), you can contribute $6,000 a year ($7,000 if you’re 50 or older).</li>\n</ol>\n<h3>If you don’t have access to a retirement plan at work</h3>\n<p>Not everyone has a 401(k) or other retirement plan at work. If that’s the case, you still have option:</p>\n<ul>\n<li><strong>Commit to saving for your own retirement. </strong></li>\n</ul>\n<p style=\"padding-left: 40px;\">If you don’t have a retirement plan at work, the responsibility to save falls on you. You’ll need to have the discipline to save on your own. It’s important to realize that retirement planning is your responsibility.</p>\n<ul>\n<li><strong>Set your budget. </strong></li>\n</ul>\n<p style=\"padding-left: 40px;\">Look at your monthly spending and carve out what you’ll save for retirement. Earmarking money you can save will help you determine how much you can afford for other expenses.</p>\n<ul>\n<li><strong>Choose a Roth IRA or traditional IRA. </strong></li>\n</ul>\n<p style=\"padding-left: 40px;\">As an employee with no retirement plan at work, your best option will be an Individual Retirement Account, or IRA. You can choose between a traditional IRA and a Roth IRA. You can contribute up to $6,000 a year ($7,000 if you’re 50 years old or older) to either IRA.</p>\n<p style=\"padding-left: 40px;\">Traditional IRAs give you a tax break now, and you pay tax when you take money out later. With Roth IRAs, you don’t get a tax break now, but your withdrawals are tax free when you take them out in retirement. In general, a Roth IRA is best if you think you tax bracket will be higher in the future. Roth contributions are phased out if your income is $122,000 to $137,000 as a single taxpayer and $193,000 to $203,000 if you’re married.</p>\n<p style=\"padding-left: 40px;\">Traditional  IRAs are best if you have a high income or think your tax bracket will fall in the future.</p>\n<ul>\n<li><strong>Open your IRA. </strong></li>\n</ul>\n<p style=\"padding-left: 40px;\">Nearly all online brokers or mutual fund companies will happily open an IRA for you. If you already have an online broker, you can quickly open an online account.</p>\n<ul>\n<li><strong>Invest.</strong></li>\n</ul>\n<p style=\"padding-left: 40px;\">Put your money in a target-date fund closest to your retirement date. If a target-date fund isn’t available, look into a robo-advisor option. If that’s not available, split your money between a low-cost stock index fund and a low-cost index bond fund. If you’re young or bold (or both), hold 85 percent in stocks and 15 percent in bonds. Note that 60 percent in stocks and 40 percent in bonds is more prudent.</p>\n<h3>You’re the boss</h3>\n<p>If you work for yourself, you have even more retirement planning options. Depending on the size of your business, it might take more than 15 minutes to set up a retirement plan. But if you’re a one-person business, or a gig economy worker, you can get up and running quickly.</p>\n<ul>\n<li><strong>Choose your retirement plan.</strong></li>\n</ul>\n<p style=\"padding-left: 40px;\">As a self-employed person, you have three main retirement plan options: a SEP-IRA, an individual 401(k), and a SIMPLE IRA. If you own the company and want to put away the most money possible, an individual 401(k) is tough to beat. If you’re a gig economy worker and already have a 401(k) plan in place, the SEP-IRA is a great option. Vanguard provides an easy-to-understand <a href=\"https://investor.vanguard.com/small-business-retirement-plans/comparison\">comparison</a> of the three plans to help you decide which is best for you.</p>\n<ul>\n<li><strong>Open the account. </strong></li>\n</ul>\n<p style=\"padding-left: 40px;\">If you already have a relationship with an online broker, the same firm can quickly open an employer plan for you. If not, all major online brokers and mutual funds companies will be happy to open one for you.</p>\n<ul>\n<li><strong>Contribute.</strong></li>\n</ul>\n<p style=\"padding-left: 40px;\">It’s up to you to make the contributions. You’ll need the discipline to hold back some of your annual profits to contribute.</p>\n<ul>\n<li><strong>Invest.</strong></li>\n</ul>\n<p style=\"padding-left: 40px;\">Put your money in a target-date fund closest to your retirement date. If a target-date fund isn’t available, look into a robo-advisor. If that’s not available, split your money between a low-cost stock index fund and a low-cost index bond fund. If you’re young or bold (or both), hold 85 percent in stocks and 15 percent in bonds, If you’re more cautious, hold 60 percent in stocks and 40 percent in bonds.</p>\n"}],"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Explore","lifeExpectancy":"Six months","lifeExpectancySetFrom":null,"dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":267342},{"headers":{"creationTime":"2020-03-04T19:20:39+00:00","modifiedTime":"2020-03-04T19:20:39+00:00","timestamp":"2022-09-14T18:17:34+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Retirement","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34308"},"slug":"retirement","categoryId":34308}],"title":"How to Manage Your Pension","strippedTitle":"how to manage your pension","slug":"how-to-manage-your-pension","canonicalUrl":"","seo":{"metaDescription":"Learn how to manage your pension—how to use online tools to estimate it, how to calculate the value of a lump sum payment, and how to roll it over.","noIndex":0,"noFollow":0},"content":"Keeping track of your pension, which is important for <a href=\"https://www.dummies.com/personal-finance/investing/retirement/retirement-planning-for-dummies-cheat-sheet/\">planning your retirement</a>, isn’t as easy as logging onto your online brokerage. Most companies are eager to get out of the pension business, so they farm the entire thing out to firms that specialize in pensions, such as Willis Towers Watson.\r\n\r\nIf you need to call for pension help, you'll probably be talking to people who work for the firm your employer hired to handle the pension plan. However, the site operated by the pension firm will usually look like it’s run by your employer.\r\n<h2 id=\"tab1\" >How to use online tools</h2>\r\nGetting logged into your company’s pension plan usually takes a bit of a work. You might need to call your employer’s human resources department. Then, if your employer has outsourced their pension plan management, you'll probably be handed off to the company running the pension plan.\r\n\r\nMost pension systems will allow you to look at the following information:\r\n<ul>\r\n \t<li><strong>Pension estimate:</strong> By entering your dates of employment, age, and beneficiary information, the site will tell you the payment you can expect when you retire, as shown in the following figure. As you can see in this example, the single-life annuity results in the largest monthly payout of $641.39. When you add a 50 percent survivor annuity, you’re looking at a monthly payment of $603.54. The survivor annuity payment is smaller than the single-life payment because the payments are likely to last for a longer period of time. Why? When the pensioner who worked at the company dies, a payout continues to the surviving spouse, who gets only half the payment, just $301.77.</li>\r\n</ul>\r\n[caption id=\"attachment_268857\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268857\" src=\"https://www.dummies.com/wp-content/uploads/retirement-pension-estimate.jpg\" alt=\"pension estimate\" width=\"556\" height=\"557\" /> Your pension site calculates your expected monthly payment given various scenarios.[/caption]\r\n<ul>\r\n \t<li><strong>Lump sum calculator:</strong> The pension site should also show your lump sum payment if taken now versus later. This information will help you decide which choice to make.</li>\r\n \t<li><strong>Scenario analysis:</strong> Pensions are complicated, with many variables affecting your payout amount. To help you understand the complexities, most pension sites offer scenario analyzers. You enter different retirement ages and whether or not your spouse will get benefits. The scenario analysis calculator then shows how these different choices affect your payout.</li>\r\n</ul>\r\n<p class=\"article-tips remember\">You don’t have to be retired to take money out of a pension. If you leave a company, you can activate monthly payments or take a lump sum. However, your payments will be reduced if you start taking them before reaching full retirement age. Also know that if you take a lump sum payout and don’t roll it over into another retirement account, you might trigger a nasty tax surprise.</p>\r\n\r\n<h2 id=\"tab2\" >How to calculate the value of a lump sum payment</h2>\r\nOne of the trickier decisions with pensions is whether you should take monthly payments or the lump sum. The pension's website can help you make this decision.\r\n<p class=\"article-tips tip\">Although your decision is final, a workaround exists. You can create your own pension, in a way, by using your lump sum payout to buy an annuity.</p>\r\nBy using both your pension provider’s site and an annuity pricing site, you can easily put some numbers around this complex decision. Here’s how:\r\n\r\n<strong> 1. Use the pension's online tool to get your lump sum payout.</strong>\r\n<p style=\"padding-left: 40px;\">Let’s say a 48-year-old worker left a company and wants to take her pension with her. As shown in the figure, her lump sum payout is $70,897.10. The monthly payout amount is $338.46 for a single-life annuity and $337.62 for a ten-year certain and continuous annuity.</p>\r\n\r\n\r\n[caption id=\"attachment_268856\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268856\" src=\"https://www.dummies.com/wp-content/uploads/retirement-lump-sum.jpg\" alt=\"retirement lump sum\" width=\"556\" height=\"555\" /> Our retiree can get $338.46 a month in a single-life payout or $70,897.10 in a lump sum.[/caption]\r\n\r\n<strong> 2. Go to an annuity pricing site, such as </strong><a href=\"https://www.immediateannuities.com/\">www.immediateannuities.com</a><strong> and do the following:</strong>\r\n<p style=\"padding-left: 40px;\"><em>a. Enter the lump sum information.</em></p>\r\n<p style=\"padding-left: 40px;\"><em>b. Enter your pension details and select the immediate payment option.</em> For the amount to invest, enter the lump sum payout from your pension site. I entered $70,897.10.</p>\r\n<strong> 3. Compare the monthly payouts.</strong>\r\n<p style=\"padding-left: 40px;\">As you can see in the following figure, the monthly payout from the pension plan is higher than what our retiree can buy in the open annuity market. Using the lump sum amount, the payout from the privately bought annuity is $280 for a single life, which is 17 percent less than the pension payout. Similarly, the pension payout with the ten-year certain option is $675 a month. But with the annuity provider, it’s 6 percent less, or $637 a month.</p>\r\n\r\n\r\n[caption id=\"attachment_268855\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268855\" src=\"https://www.dummies.com/wp-content/uploads/retirement-annuity-calculator.jpg\" alt=\"annuity calculator\" width=\"556\" height=\"436\" /> Schwab’s annuity calculator helps you measure your lump sum payouts.[/caption]\r\n\r\n<strong> 4. Get another estimate.</strong>\r\n<p style=\"padding-left: 40px;\">You wouldn't get only one medical opinion for a serious health condition, would you? The same is true for deciding what to do with a pension. Many online brokerages and mutual fund companies, such as Vanguard and Fidelity, tell you what size payment you’d get in exchange for a lump sum. For information on annuities, go to <a href=\"https://investor.vanguard.com/annuity/checkup\">Vanguard's site</a>, <a href=\"http://www.fidelity.com/annuities/overview\">Fidelity's site</a>, and <a href=\"http://www.schwab.com/public/schwab/investing/accounts_products/investment/annuities/income_annuity/fixed_income_annuity_calculator\">Schwab’s annuity site</a> (see the following figure).</p>\r\n\r\n\r\n[caption id=\"attachment_268854\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268854\" src=\"https://www.dummies.com/wp-content/uploads/retirement-annuity-estimator.jpg\" alt=\"annuity estimator\" width=\"556\" height=\"423\" /> Charles Schwab’s Income Annuity Estimator helps you determine the income stream from a lump sum pension.[/caption]\r\n<p class=\"article-tips tip\">It’s typical for the payouts from a pension plan to be higher than what you can buy on your own from an annuity. An annuity has fees whereas an employer-sponsored pension doesn't.</p>\r\nHowever, don’t make your decision solely on the size of the lump sum. If you’re young, you could easily invest the lump sum, and then, years later when you’re looking to retire, buy an annuity with the now-larger amount of money.\r\n<h2 id=\"tab3\" >Rolling over a pension</h2>\r\nNever assume you’re trapped in a pension. And that’s a good thing because many workers tend to not stay at the same job for more than five years. When you leave a job, you can take the pension with you by rolling it over.\r\n<p class=\"article-tips warning\">The rules around rolling over a pension are strict. Even a small mistake can make the lump sum you take from your pension a taxable event. You must rollover the pension into a qualified retirement plan, which for most people means a rollover IRA.</p>\r\nDepending on how long you worked at the company, a rollover is likely a good option. You might consider rolling over your pension if you\r\n<ul>\r\n \t<li><strong>Know the pension won’t grow:</strong> Check the pension's documentation. Many pensions provide only a modest cost-of-living annual adjustment, which is just the inflation rate. If you put the money into a diversified portfolio of stocks and bonds, your portfolio will likely grow much faster than inflation.</li>\r\n \t<li><strong>Don’t expect to retire in many years: </strong>The longer the amount of time you have to put your money to work, the better. If you don’t plan to retire in ten or more years, you still have time to put your portfolio into areas that are likely to grow faster.</li>\r\n \t<li><strong>Have other forms of guaranteed income:</strong> If you have other options for a steady cash flow, it makes sense to try to get a better return from your pension assets. If you don’t have another form of guaranteed income, you can buy one, such as an annuity, by using other savings.</li>\r\n</ul>\r\nHow do you conduct a rollover from your pension to a qualified plan? The steps are straightforward:\r\n\r\n<strong> 1. Set up a rollover IRA.</strong>\r\n<p style=\"padding-left: 40px;\">All the major online brokerages and mutual fund companies can help you with this task.</p>\r\n<strong> 2. Initiate your distribution with your pension provider.</strong>\r\n<p style=\"padding-left: 40px;\">Most pension providers’ sites allow you to begin the distribution process. You’ll need to take the lump sum distribution method. The pension provider will mail you paperwork to fill out.</p>\r\n<strong> 3. Fill out the paperwork from the pension provider.</strong>\r\n<p style=\"padding-left: 40px;\">Your spouse will need to sign a benefit waiver for you to get the lump sum.</p>\r\n<strong> 4. Make sure the check is made out to the company you’re rolling into.</strong>\r\n<p style=\"padding-left: 40px;\">This step is important. The pension lump sum amount must be made out to the financial firm where you have your rollover IRA. The check should not be made out to you.</p>\r\n<p class=\"article-tips warning\">Depositing the lump sum and then immediately writing a check to the rollover IRA provider will not work. The Internal Revenue Service will think you took the money and want to tax it.</p>","description":"Keeping track of your pension, which is important for <a href=\"https://www.dummies.com/personal-finance/investing/retirement/retirement-planning-for-dummies-cheat-sheet/\">planning your retirement</a>, isn’t as easy as logging onto your online brokerage. Most companies are eager to get out of the pension business, so they farm the entire thing out to firms that specialize in pensions, such as Willis Towers Watson.\r\n\r\nIf you need to call for pension help, you'll probably be talking to people who work for the firm your employer hired to handle the pension plan. However, the site operated by the pension firm will usually look like it’s run by your employer.\r\n<h2 id=\"tab1\" >How to use online tools</h2>\r\nGetting logged into your company’s pension plan usually takes a bit of a work. You might need to call your employer’s human resources department. Then, if your employer has outsourced their pension plan management, you'll probably be handed off to the company running the pension plan.\r\n\r\nMost pension systems will allow you to look at the following information:\r\n<ul>\r\n \t<li><strong>Pension estimate:</strong> By entering your dates of employment, age, and beneficiary information, the site will tell you the payment you can expect when you retire, as shown in the following figure. As you can see in this example, the single-life annuity results in the largest monthly payout of $641.39. When you add a 50 percent survivor annuity, you’re looking at a monthly payment of $603.54. The survivor annuity payment is smaller than the single-life payment because the payments are likely to last for a longer period of time. Why? When the pensioner who worked at the company dies, a payout continues to the surviving spouse, who gets only half the payment, just $301.77.</li>\r\n</ul>\r\n[caption id=\"attachment_268857\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268857\" src=\"https://www.dummies.com/wp-content/uploads/retirement-pension-estimate.jpg\" alt=\"pension estimate\" width=\"556\" height=\"557\" /> Your pension site calculates your expected monthly payment given various scenarios.[/caption]\r\n<ul>\r\n \t<li><strong>Lump sum calculator:</strong> The pension site should also show your lump sum payment if taken now versus later. This information will help you decide which choice to make.</li>\r\n \t<li><strong>Scenario analysis:</strong> Pensions are complicated, with many variables affecting your payout amount. To help you understand the complexities, most pension sites offer scenario analyzers. You enter different retirement ages and whether or not your spouse will get benefits. The scenario analysis calculator then shows how these different choices affect your payout.</li>\r\n</ul>\r\n<p class=\"article-tips remember\">You don’t have to be retired to take money out of a pension. If you leave a company, you can activate monthly payments or take a lump sum. However, your payments will be reduced if you start taking them before reaching full retirement age. Also know that if you take a lump sum payout and don’t roll it over into another retirement account, you might trigger a nasty tax surprise.</p>\r\n\r\n<h2 id=\"tab2\" >How to calculate the value of a lump sum payment</h2>\r\nOne of the trickier decisions with pensions is whether you should take monthly payments or the lump sum. The pension's website can help you make this decision.\r\n<p class=\"article-tips tip\">Although your decision is final, a workaround exists. You can create your own pension, in a way, by using your lump sum payout to buy an annuity.</p>\r\nBy using both your pension provider’s site and an annuity pricing site, you can easily put some numbers around this complex decision. Here’s how:\r\n\r\n<strong> 1. Use the pension's online tool to get your lump sum payout.</strong>\r\n<p style=\"padding-left: 40px;\">Let’s say a 48-year-old worker left a company and wants to take her pension with her. As shown in the figure, her lump sum payout is $70,897.10. The monthly payout amount is $338.46 for a single-life annuity and $337.62 for a ten-year certain and continuous annuity.</p>\r\n\r\n\r\n[caption id=\"attachment_268856\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268856\" src=\"https://www.dummies.com/wp-content/uploads/retirement-lump-sum.jpg\" alt=\"retirement lump sum\" width=\"556\" height=\"555\" /> Our retiree can get $338.46 a month in a single-life payout or $70,897.10 in a lump sum.[/caption]\r\n\r\n<strong> 2. Go to an annuity pricing site, such as </strong><a href=\"https://www.immediateannuities.com/\">www.immediateannuities.com</a><strong> and do the following:</strong>\r\n<p style=\"padding-left: 40px;\"><em>a. Enter the lump sum information.</em></p>\r\n<p style=\"padding-left: 40px;\"><em>b. Enter your pension details and select the immediate payment option.</em> For the amount to invest, enter the lump sum payout from your pension site. I entered $70,897.10.</p>\r\n<strong> 3. Compare the monthly payouts.</strong>\r\n<p style=\"padding-left: 40px;\">As you can see in the following figure, the monthly payout from the pension plan is higher than what our retiree can buy in the open annuity market. Using the lump sum amount, the payout from the privately bought annuity is $280 for a single life, which is 17 percent less than the pension payout. Similarly, the pension payout with the ten-year certain option is $675 a month. But with the annuity provider, it’s 6 percent less, or $637 a month.</p>\r\n\r\n\r\n[caption id=\"attachment_268855\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268855\" src=\"https://www.dummies.com/wp-content/uploads/retirement-annuity-calculator.jpg\" alt=\"annuity calculator\" width=\"556\" height=\"436\" /> Schwab’s annuity calculator helps you measure your lump sum payouts.[/caption]\r\n\r\n<strong> 4. Get another estimate.</strong>\r\n<p style=\"padding-left: 40px;\">You wouldn't get only one medical opinion for a serious health condition, would you? The same is true for deciding what to do with a pension. Many online brokerages and mutual fund companies, such as Vanguard and Fidelity, tell you what size payment you’d get in exchange for a lump sum. For information on annuities, go to <a href=\"https://investor.vanguard.com/annuity/checkup\">Vanguard's site</a>, <a href=\"http://www.fidelity.com/annuities/overview\">Fidelity's site</a>, and <a href=\"http://www.schwab.com/public/schwab/investing/accounts_products/investment/annuities/income_annuity/fixed_income_annuity_calculator\">Schwab’s annuity site</a> (see the following figure).</p>\r\n\r\n\r\n[caption id=\"attachment_268854\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268854\" src=\"https://www.dummies.com/wp-content/uploads/retirement-annuity-estimator.jpg\" alt=\"annuity estimator\" width=\"556\" height=\"423\" /> Charles Schwab’s Income Annuity Estimator helps you determine the income stream from a lump sum pension.[/caption]\r\n<p class=\"article-tips tip\">It’s typical for the payouts from a pension plan to be higher than what you can buy on your own from an annuity. An annuity has fees whereas an employer-sponsored pension doesn't.</p>\r\nHowever, don’t make your decision solely on the size of the lump sum. If you’re young, you could easily invest the lump sum, and then, years later when you’re looking to retire, buy an annuity with the now-larger amount of money.\r\n<h2 id=\"tab3\" >Rolling over a pension</h2>\r\nNever assume you’re trapped in a pension. And that’s a good thing because many workers tend to not stay at the same job for more than five years. When you leave a job, you can take the pension with you by rolling it over.\r\n<p class=\"article-tips warning\">The rules around rolling over a pension are strict. Even a small mistake can make the lump sum you take from your pension a taxable event. You must rollover the pension into a qualified retirement plan, which for most people means a rollover IRA.</p>\r\nDepending on how long you worked at the company, a rollover is likely a good option. You might consider rolling over your pension if you\r\n<ul>\r\n \t<li><strong>Know the pension won’t grow:</strong> Check the pension's documentation. Many pensions provide only a modest cost-of-living annual adjustment, which is just the inflation rate. If you put the money into a diversified portfolio of stocks and bonds, your portfolio will likely grow much faster than inflation.</li>\r\n \t<li><strong>Don’t expect to retire in many years: </strong>The longer the amount of time you have to put your money to work, the better. If you don’t plan to retire in ten or more years, you still have time to put your portfolio into areas that are likely to grow faster.</li>\r\n \t<li><strong>Have other forms of guaranteed income:</strong> If you have other options for a steady cash flow, it makes sense to try to get a better return from your pension assets. If you don’t have another form of guaranteed income, you can buy one, such as an annuity, by using other savings.</li>\r\n</ul>\r\nHow do you conduct a rollover from your pension to a qualified plan? The steps are straightforward:\r\n\r\n<strong> 1. Set up a rollover IRA.</strong>\r\n<p style=\"padding-left: 40px;\">All the major online brokerages and mutual fund companies can help you with this task.</p>\r\n<strong> 2. Initiate your distribution with your pension provider.</strong>\r\n<p style=\"padding-left: 40px;\">Most pension providers’ sites allow you to begin the distribution process. You’ll need to take the lump sum distribution method. The pension provider will mail you paperwork to fill out.</p>\r\n<strong> 3. Fill out the paperwork from the pension provider.</strong>\r\n<p style=\"padding-left: 40px;\">Your spouse will need to sign a benefit waiver for you to get the lump sum.</p>\r\n<strong> 4. Make sure the check is made out to the company you’re rolling into.</strong>\r\n<p style=\"padding-left: 40px;\">This step is important. The pension lump sum amount must be made out to the financial firm where you have your rollover IRA. The check should not be made out to you.</p>\r\n<p class=\"article-tips warning\">Depositing the lump sum and then immediately writing a check to the rollover IRA provider will not work. The Internal Revenue Service will think you took the money and want to tax it.</p>","blurb":"","authors":[{"authorId":33279,"name":"Matthew Krantz","slug":"matthew-krantz","description":"<b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i>","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/33279"}}],"primaryCategoryTaxonomy":{"categoryId":34308,"title":"Retirement","slug":"retirement","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34308"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[{"label":"How to use online tools","target":"#tab1"},{"label":"How to calculate the value of a lump sum payment","target":"#tab2"},{"label":"Rolling over a pension","target":"#tab3"}],"relatedArticles":{"fromBook":[{"articleId":268848,"title":"How to Take Money Out of Your IRA","slug":"how-to-take-money-out-of-your-ira","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268848"}},{"articleId":268843,"title":"How to Manage Your IRA Contributions","slug":"how-to-manage-your-ira-contributions","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268843"}},{"articleId":268838,"title":"How to Get Online with Your IRA Provider","slug":"how-to-get-online-with-your-ira-provider","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268838"}},{"articleId":268829,"title":"How to Get Online Access to Your 401(k)","slug":"how-to-get-online-access-to-your-401k","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268829"}},{"articleId":268822,"title":"How to Manage Your IRA","slug":"how-to-manage-your-ira","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268822"}}],"fromCategory":[{"articleId":288529,"title":"401(k)s and IRAs For Dummies Cheat Sheet","slug":"401ks-and-iras-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/288529"}},{"articleId":268848,"title":"How to Take Money Out of Your IRA","slug":"how-to-take-money-out-of-your-ira","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268848"}},{"articleId":268843,"title":"How to Manage Your IRA Contributions","slug":"how-to-manage-your-ira-contributions","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268843"}},{"articleId":268838,"title":"How to Get Online with Your IRA Provider","slug":"how-to-get-online-with-your-ira-provider","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268838"}},{"articleId":268829,"title":"How to Get Online Access to Your 401(k)","slug":"how-to-get-online-access-to-your-401k","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268829"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":281850,"slug":"retirement-planning-for-dummies","isbn":"9781119627579","categoryList":["business-careers-money","personal-finance","retirement"],"amazon":{"default":"https://www.amazon.com/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/1119627575-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":"https://www.dummies.com/wp-content/uploads/retirement-planning-for-dummies-cover-9781119627579-203x255.jpg","width":203,"height":255},"title":"Retirement Planning For Dummies","testBankPinActivationLink":"","bookOutOfPrint":true,"authorsInfo":"<p><b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i></p>","authors":[{"authorId":33279,"name":"Matthew Krantz","slug":"matthew-krantz","description":"<b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i>","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/33279"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;retirement&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119627579&quot;]}]\" id=\"du-slot-63221abec3868\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;retirement&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119627579&quot;]}]\" id=\"du-slot-63221abec40f2\"></div></div>"},"articleType":{"articleType":"Articles","articleList":null,"content":null,"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Explore","lifeExpectancy":null,"lifeExpectancySetFrom":null,"dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":268853},{"headers":{"creationTime":"2020-03-04T18:59:42+00:00","modifiedTime":"2020-03-04T18:59:42+00:00","timestamp":"2022-09-14T18:17:34+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Retirement","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34308"},"slug":"retirement","categoryId":34308}],"title":"How to Take Money Out of Your IRA","strippedTitle":"how to take money out of your ira","slug":"how-to-take-money-out-of-your-ira","canonicalUrl":"","seo":{"metaDescription":"Learn how to take money out of your IRA. Learn about 72(t) distributions, your required minimum distributions, and selecting a beneficiary.","noIndex":0,"noFollow":0},"content":"When you turn 70-1/2, you’re no longer allowed to <a href=\"https://www.dummies.com/personal-finance/investing/retirement/how-to-manage-your-ira-contributions/\">contribute to a traditional IRA</a>. You can contribute to a Roth IRA at any age as long as you have earned income below limits dictated by the IRS. Remember that <em>earned income</em> is money you make from reportable income-producing activities—in other words, a paying job.\r\n\r\nGearing up to take money out of your IRA requires a change in mindset. Fortunately, your IRA provider can be of help here, too.\r\n<h2 id=\"tab1\" >Getting money out early: 72(t) distributions</h2>\r\nTaking money out of a traditional IRA before you turn 59-1/2 is generally a no-no with retirement accounts because it triggers a bad tax day. You owe not only the taxes on the money you took out but also a 10 percent early withdrawal penalty—unless you know the 72(t) trick. This rule is named after an arcane section of the IRS code that says you can take money out without a 10 percent penalty if you do so in “substantially equal periodic payments.”\r\n<p class=\"article-tips tech\">You must take out the distributions, in equal amounts, for at least five years or until you turn 59-1/2. You can calculate how much money you must take out in three ways: the required minimum distribution method, the fixed amortization method, and the fixed annuitization method. As you can guess from their names, the calculations are complicated. If you’re interested in a <a href=\"http://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-substantially-equal-periodic-payments\">72(t) withdrawal</a>, your IRA provider can help.</p>\r\n<p class=\"article-tips tip\">You can take money out of an IRA before you turn 59-1/2 without paying the 10 percent penalty in a few other ways, without invoking the 72(t). A big exception for the 10 percent penalty is when you’re permanently or completely disabled. In that case, you can take money out of both a traditional IRA and a Roth IRA. Also, if you die, your beneficiary can take withdrawals.</p>\r\n\r\n<h2 id=\"tab2\" >Taking your required minimum distribution</h2>\r\nWhen you blow out a cake with 70 candles, know that in six months you’ll be in for a big change with your traditional IRA. That’s when Uncle Sam says it’s time for your <em>required minimum distribution (RMD).</em> It must be taken out before April 1 of the year after you turn 70-1/2.\r\n\r\nThe RMD is calculated using a complicated formula based on your life expectancy. You must take your RMD from all of your traditional IRAs. This requirement is another reason to have your retirement money in one place; you’ll deal with just one annual check.\r\n\r\nAs part of their service, most IRA providers will calculate your RMD. Vanguard shows the calculation in its <a href=\"https://personal.vanguard.com/us/insights/retirement/living/estimate-your-rmd-tool\">RMD calculator</a>, shown in the figure and available.\r\n\r\n[caption id=\"attachment_268849\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268849\" src=\"https://www.dummies.com/wp-content/uploads/retirement-rmd-calculated.jpg\" alt=\"Vanguard will calculate your RMD.\" width=\"556\" height=\"539\" /> Vanguard will calculate your RMD.[/caption]\r\n<p class=\"article-tips tip\">Don’t ignore the RMD. If you don’t withdraw the RMD and pay the tax, you’ll owe a 50 percent penalty tax on the money you should have withdrawn. Yes, half will be gone in taxes. Most IRA providers calculate your RMD for you and even withhold some of the tax due from what you’re paid. IRA providers will even deposit the money into your account electronically — almost like a paycheck.</p>\r\n\r\n<h2 id=\"tab3\" >Setting up a beneficiary</h2>\r\nYour retirement funds are there for you and your spouse, if you have one, or other beneficiary to enjoy later in life. Make sure that your IRA provider knows who to give the money to if you die before your beneficiary. Yes, you could do this in a will, but it’s a better idea to set up a beneficiary. Your beneficiary instructions will take precedence over a will.\r\n\r\nWhen you die, the IRA provider knows to shift the ownership of the IRA to your beneficiary. Listing beneficiaries on IRA accounts is so important that many IRA providers won’t let you fund an account until you choose a beneficiary.\r\n<p class=\"article-tips tip\">If you have a large or complicated estate or unusual wishes for where your money should go when you die, you might want to create a trust. A trust is a legal entity that can take ownership of assets and follow your instructions in distributing them. Consult with an estate-planning attorney or pick up <a href=\"https://www.dummies.com/store/product/Estate-Trust-Administration-For-Dummies-2nd-Edition.productCd-1119543878.html\"><em>Estate & Trust Administration For Dummies</em></a>, 2nd Edition, by Margaret Munro and Kathyrn Murphy (Wiley).</p>\r\n\r\n<h2 id=\"tab4\" >A word about inherited IRAs</h2>\r\nDon’t keep your IRA a secret from the beneficiary. After you die and your IRA passes to your beneficiary, new rules kick in. The beneficiary will need to contact the IRA provider and let them know you’re dead. Most IRA providers require a death certificate.\r\n\r\nThe rules surrounding inherited IRAs vary based on whether or not the IRA is inherited by a spouse. If spouses inherit an IRA, they have a choice on how to take it over:\r\n<ul>\r\n \t<li><strong>Make it their own:</strong> Spouses can choose to take over the IRA in their own name. This allows spouses to contribute or take distributions as if it were theirs in the first place.</li>\r\n \t<li><strong>Turn it into an inherited IRA:</strong> If you go this route, you’ll need to follow rules set out by the IRS, which have many options.</li>\r\n</ul>\r\nA beneficiary who isn’t a spouse has only one avenue: transferring the IRA into an inherited IRA. Again, your IRA provider will help with the details. If you’d like to read more about how inherited IRAs are handled, check out <a href=\"https://investor.vanguard.com/inherit/ira-rmd\">Vanguard's description</a>. Schwab shows all the <a href=\"http://www.schwab.com/public/schwab/investing/retirement_and_planning/understanding_iras/inherited_ira/withdrawal_rules\">inherited IRA rules</a>, too.","description":"When you turn 70-1/2, you’re no longer allowed to <a href=\"https://www.dummies.com/personal-finance/investing/retirement/how-to-manage-your-ira-contributions/\">contribute to a traditional IRA</a>. You can contribute to a Roth IRA at any age as long as you have earned income below limits dictated by the IRS. Remember that <em>earned income</em> is money you make from reportable income-producing activities—in other words, a paying job.\r\n\r\nGearing up to take money out of your IRA requires a change in mindset. Fortunately, your IRA provider can be of help here, too.\r\n<h2 id=\"tab1\" >Getting money out early: 72(t) distributions</h2>\r\nTaking money out of a traditional IRA before you turn 59-1/2 is generally a no-no with retirement accounts because it triggers a bad tax day. You owe not only the taxes on the money you took out but also a 10 percent early withdrawal penalty—unless you know the 72(t) trick. This rule is named after an arcane section of the IRS code that says you can take money out without a 10 percent penalty if you do so in “substantially equal periodic payments.”\r\n<p class=\"article-tips tech\">You must take out the distributions, in equal amounts, for at least five years or until you turn 59-1/2. You can calculate how much money you must take out in three ways: the required minimum distribution method, the fixed amortization method, and the fixed annuitization method. As you can guess from their names, the calculations are complicated. If you’re interested in a <a href=\"http://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-substantially-equal-periodic-payments\">72(t) withdrawal</a>, your IRA provider can help.</p>\r\n<p class=\"article-tips tip\">You can take money out of an IRA before you turn 59-1/2 without paying the 10 percent penalty in a few other ways, without invoking the 72(t). A big exception for the 10 percent penalty is when you’re permanently or completely disabled. In that case, you can take money out of both a traditional IRA and a Roth IRA. Also, if you die, your beneficiary can take withdrawals.</p>\r\n\r\n<h2 id=\"tab2\" >Taking your required minimum distribution</h2>\r\nWhen you blow out a cake with 70 candles, know that in six months you’ll be in for a big change with your traditional IRA. That’s when Uncle Sam says it’s time for your <em>required minimum distribution (RMD).</em> It must be taken out before April 1 of the year after you turn 70-1/2.\r\n\r\nThe RMD is calculated using a complicated formula based on your life expectancy. You must take your RMD from all of your traditional IRAs. This requirement is another reason to have your retirement money in one place; you’ll deal with just one annual check.\r\n\r\nAs part of their service, most IRA providers will calculate your RMD. Vanguard shows the calculation in its <a href=\"https://personal.vanguard.com/us/insights/retirement/living/estimate-your-rmd-tool\">RMD calculator</a>, shown in the figure and available.\r\n\r\n[caption id=\"attachment_268849\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268849\" src=\"https://www.dummies.com/wp-content/uploads/retirement-rmd-calculated.jpg\" alt=\"Vanguard will calculate your RMD.\" width=\"556\" height=\"539\" /> Vanguard will calculate your RMD.[/caption]\r\n<p class=\"article-tips tip\">Don’t ignore the RMD. If you don’t withdraw the RMD and pay the tax, you’ll owe a 50 percent penalty tax on the money you should have withdrawn. Yes, half will be gone in taxes. Most IRA providers calculate your RMD for you and even withhold some of the tax due from what you’re paid. IRA providers will even deposit the money into your account electronically — almost like a paycheck.</p>\r\n\r\n<h2 id=\"tab3\" >Setting up a beneficiary</h2>\r\nYour retirement funds are there for you and your spouse, if you have one, or other beneficiary to enjoy later in life. Make sure that your IRA provider knows who to give the money to if you die before your beneficiary. Yes, you could do this in a will, but it’s a better idea to set up a beneficiary. Your beneficiary instructions will take precedence over a will.\r\n\r\nWhen you die, the IRA provider knows to shift the ownership of the IRA to your beneficiary. Listing beneficiaries on IRA accounts is so important that many IRA providers won’t let you fund an account until you choose a beneficiary.\r\n<p class=\"article-tips tip\">If you have a large or complicated estate or unusual wishes for where your money should go when you die, you might want to create a trust. A trust is a legal entity that can take ownership of assets and follow your instructions in distributing them. Consult with an estate-planning attorney or pick up <a href=\"https://www.dummies.com/store/product/Estate-Trust-Administration-For-Dummies-2nd-Edition.productCd-1119543878.html\"><em>Estate & Trust Administration For Dummies</em></a>, 2nd Edition, by Margaret Munro and Kathyrn Murphy (Wiley).</p>\r\n\r\n<h2 id=\"tab4\" >A word about inherited IRAs</h2>\r\nDon’t keep your IRA a secret from the beneficiary. After you die and your IRA passes to your beneficiary, new rules kick in. The beneficiary will need to contact the IRA provider and let them know you’re dead. Most IRA providers require a death certificate.\r\n\r\nThe rules surrounding inherited IRAs vary based on whether or not the IRA is inherited by a spouse. If spouses inherit an IRA, they have a choice on how to take it over:\r\n<ul>\r\n \t<li><strong>Make it their own:</strong> Spouses can choose to take over the IRA in their own name. This allows spouses to contribute or take distributions as if it were theirs in the first place.</li>\r\n \t<li><strong>Turn it into an inherited IRA:</strong> If you go this route, you’ll need to follow rules set out by the IRS, which have many options.</li>\r\n</ul>\r\nA beneficiary who isn’t a spouse has only one avenue: transferring the IRA into an inherited IRA. Again, your IRA provider will help with the details. If you’d like to read more about how inherited IRAs are handled, check out <a href=\"https://investor.vanguard.com/inherit/ira-rmd\">Vanguard's description</a>. Schwab shows all the <a href=\"http://www.schwab.com/public/schwab/investing/retirement_and_planning/understanding_iras/inherited_ira/withdrawal_rules\">inherited IRA rules</a>, too.","blurb":"","authors":[{"authorId":33279,"name":"Matthew Krantz","slug":"matthew-krantz","description":"<b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i>","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/33279"}}],"primaryCategoryTaxonomy":{"categoryId":34308,"title":"Retirement","slug":"retirement","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34308"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[{"label":"Getting money out early: 72(t) distributions","target":"#tab1"},{"label":"Taking your required minimum distribution","target":"#tab2"},{"label":"Setting up a beneficiary","target":"#tab3"},{"label":"A word about inherited IRAs","target":"#tab4"}],"relatedArticles":{"fromBook":[{"articleId":268853,"title":"How to Manage Your Pension","slug":"how-to-manage-your-pension","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268853"}},{"articleId":268843,"title":"How to Manage Your IRA Contributions","slug":"how-to-manage-your-ira-contributions","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268843"}},{"articleId":268838,"title":"How to Get Online with Your IRA Provider","slug":"how-to-get-online-with-your-ira-provider","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268838"}},{"articleId":268829,"title":"How to Get Online Access to Your 401(k)","slug":"how-to-get-online-access-to-your-401k","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268829"}},{"articleId":268822,"title":"How to Manage Your IRA","slug":"how-to-manage-your-ira","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268822"}}],"fromCategory":[{"articleId":288529,"title":"401(k)s and IRAs For Dummies Cheat Sheet","slug":"401ks-and-iras-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/288529"}},{"articleId":268853,"title":"How to Manage Your Pension","slug":"how-to-manage-your-pension","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268853"}},{"articleId":268843,"title":"How to Manage Your IRA Contributions","slug":"how-to-manage-your-ira-contributions","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268843"}},{"articleId":268838,"title":"How to Get Online with Your IRA Provider","slug":"how-to-get-online-with-your-ira-provider","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268838"}},{"articleId":268829,"title":"How to Get Online Access to Your 401(k)","slug":"how-to-get-online-access-to-your-401k","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268829"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":281850,"slug":"retirement-planning-for-dummies","isbn":"9781119627579","categoryList":["business-careers-money","personal-finance","retirement"],"amazon":{"default":"https://www.amazon.com/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/1119627575-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":"https://www.dummies.com/wp-content/uploads/retirement-planning-for-dummies-cover-9781119627579-203x255.jpg","width":203,"height":255},"title":"Retirement Planning For Dummies","testBankPinActivationLink":"","bookOutOfPrint":true,"authorsInfo":"<p><b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i></p>","authors":[{"authorId":33279,"name":"Matthew Krantz","slug":"matthew-krantz","description":"<b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i>","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/33279"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;retirement&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119627579&quot;]}]\" id=\"du-slot-63221abebbaf0\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;retirement&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119627579&quot;]}]\" id=\"du-slot-63221abebc35f\"></div></div>"},"articleType":{"articleType":"Articles","articleList":null,"content":null,"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Explore","lifeExpectancy":null,"lifeExpectancySetFrom":null,"dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":268848},{"headers":{"creationTime":"2020-03-04T18:52:51+00:00","modifiedTime":"2020-03-04T18:52:51+00:00","timestamp":"2022-09-14T18:17:34+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Retirement","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34308"},"slug":"retirement","categoryId":34308}],"title":"How to Manage Your IRA Contributions","strippedTitle":"how to manage your ira contributions","slug":"how-to-manage-your-ira-contributions","canonicalUrl":"","seo":{"metaDescription":"Learn how to manage your IRA contributions—whether you want to set up a one-time contribution or automatic contributions or rollover contributions.","noIndex":0,"noFollow":0},"content":"Getting money into your IRA is where the magic begins. You can’t build a portfolio until a source of funds exists. IRAs give you not only big leeway in what investments you buy but also lots of control over how you buy those investments.\r\n<h2 id=\"tab1\" >Set up IRA deposits</h2>\r\nWhen you’re talking about putting money aside that you can’t touch for decades, it’s easy to understand why lots of people put off retirement savings. Let’s face it, blowing $800 on a new smartphone is more immediately satisfying than putting $800 in an <a href=\"https://www.dummies.com/personal-finance/investing/retirement/how-to-get-online-with-your-ira-provider/\">IRA</a>. IRA providers know this, and go out of their way to make it easy for you to get money into your account. You can make ongoing contributions to your IRA in two main ways:\r\n<ul>\r\n \t<li><strong>One-time contribution:</strong> The IRA provider lets you connect multiple checking and savings accounts to your retirement account. You can then tell the provider to digitally pull money from one or more of those accounts as a contribution. Vanguard’s one-time contribution screen, shown in Figure 8-5, asks you to choose the investment you want the money to go into. It also tracks your annual contribution to date.</li>\r\n \t<li><strong>Automatic contribution:</strong> You can also tell your IRA provider to take money from a checking or savings account, say every month or quarter. This method puts your retirement plan on autopilot.</li>\r\n</ul>\r\n[caption id=\"attachment_268844\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268844\" src=\"https://www.dummies.com/wp-content/uploads/retirement-ira-contributions.jpg\" alt=\"one-time IRA contribution\" width=\"556\" height=\"536\" /> Vanguard makes it easy to make a one-time contribution to your IRA.[/caption]\r\n<p class=\"article-tips warning\">It’s up to you to make sure your contributions meet the requirements and don’t exceed limits. If you’re covered by a retirement plan at work, the <a href=\"http://www.irs.gov/retirement-plans/2019-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-covered-by-a-retirement-plan-at-work\">IRS spells out whether you can deduct your IRA contributions</a>. If you make too much money, the deducible amount of your contribution is reduced or eliminated. In a nutshell, if you made more than $74,000 as a single taxpayer or $123,000 married filing jointly and are covered by a plan at work, you can’t deduct IRA contributions.</p>\r\n\r\n<h2 id=\"tab2\" >Roll over Beethoven: IRA rollovers</h2>\r\nAnother way to fund an IRA is a rollover. You might opt to rollover your old 401(k) from a previous place of employment, which can be a good idea if your old 401(k) has high fees or poor investment choices. You can rollover funds also from one IRA to another, although that process is usually called a <em>transfer.</em>\r\n<p class=\"article-tips tip\">Generally, it's best to keep your retirement accounts in as few places as possible. Consolidating your retirement funds with one IRA provider helps you qualify for lower-priced investments and makes it easier to keep track of your money.</p>\r\nA rollover involves three steps:\r\n<ol>\r\n \t<li><strong> Fill out your IRA provider's rollover form.</strong>\r\nThe form is usually short, asking for the account number and the provider holding the funds now. You’ll also be asked if you’d like to roll the funds into a new IRA or an existing one.</li>\r\n \t<li><strong> Notify the 401(k) or IRA provider you’re moving from.</strong>\r\nTell them you’re moving the money and where you're moving it. The provider will cut a check for the money.\r\n<p class=\"article-tips warning\">Make sure the check is made out to the firm where the money is going, not to you. If the money goes to you, the IRS might think you took a distribution and hit you with a tax bill.</p>\r\n</li>\r\n \t<li><strong> Wait.</strong>\r\nA rollover can take a few weeks. Your new IRA provider will let you know when the process has been completed.</li>\r\n</ol>\r\n<h2 id=\"tab3\" >Fund an IRA with a Roth conversion</h2>\r\nWith traditional IRAs, you get a tax break now. With a Roth IRA, you pay now but take out the money later free and clear. Guessing which will be best for you is difficult. In general, a Roth is a good idea if you think your current tax rate is lower than it will be when you’re retired.\r\n\r\nRoth IRAs are preferable also if you think you might need to pull the money out sooner than in retirement, or if you think you won’t need the money and want to leave it for a spouse or an heir. Traditional IRAs require you to take money out when you turn 70-1/2. With a Roth, you can leave the money in.\r\n\r\nGiven all the guesswork in choosing a Roth IRA versus a traditional IRA, you might change your mind about the kind of IRA you want. That’s where a <em>Roth conversion</em> comes in. You can turn a traditional IRA into a Roth IRA if you pay the taxes now.\r\n<p class=\"article-tips warning\">Converting a traditional IRA to a Roth can make sense. It’s also a back door way to open a Roth for people who earn too much to fund a Roth. A Roth conversion has several drawbacks, however. You must wait at least five years after a conversion to take money out of a Roth. The conversion also triggers a tax event — you’ll have a tax bill on those tax-deferred contributions.</p>\r\nDoes a Roth conversion make sense for you? To answer that question, you can use a variety of online tools, including the following:\r\n<ul>\r\n \t<li><strong><a href=\"http://www.schwab.com/public/schwab/investing/retirement_and_planning/understanding_iras/ira_calculators/roth_ira_conversion\">Schwab IRA Conversion Calculator</a>:</strong> This tool helps you think about all the important variables that determine whether or not you should convert to a Roth. These variables include the amount of money you’d like to convert and your taxable income.</li>\r\n \t<li><strong><a href=\"http://www.calcxml.com/calculators/roth-ira-conversion-calculator\">CalcXML’s Roth Conversion Calculator</a>:</strong> This tool does all the math to see whether a Roth conversion makes sense. The calculator considers the size of the conversion as well as your age and income needs.</li>\r\n</ul>","description":"Getting money into your IRA is where the magic begins. You can’t build a portfolio until a source of funds exists. IRAs give you not only big leeway in what investments you buy but also lots of control over how you buy those investments.\r\n<h2 id=\"tab1\" >Set up IRA deposits</h2>\r\nWhen you’re talking about putting money aside that you can’t touch for decades, it’s easy to understand why lots of people put off retirement savings. Let’s face it, blowing $800 on a new smartphone is more immediately satisfying than putting $800 in an <a href=\"https://www.dummies.com/personal-finance/investing/retirement/how-to-get-online-with-your-ira-provider/\">IRA</a>. IRA providers know this, and go out of their way to make it easy for you to get money into your account. You can make ongoing contributions to your IRA in two main ways:\r\n<ul>\r\n \t<li><strong>One-time contribution:</strong> The IRA provider lets you connect multiple checking and savings accounts to your retirement account. You can then tell the provider to digitally pull money from one or more of those accounts as a contribution. Vanguard’s one-time contribution screen, shown in Figure 8-5, asks you to choose the investment you want the money to go into. It also tracks your annual contribution to date.</li>\r\n \t<li><strong>Automatic contribution:</strong> You can also tell your IRA provider to take money from a checking or savings account, say every month or quarter. This method puts your retirement plan on autopilot.</li>\r\n</ul>\r\n[caption id=\"attachment_268844\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268844\" src=\"https://www.dummies.com/wp-content/uploads/retirement-ira-contributions.jpg\" alt=\"one-time IRA contribution\" width=\"556\" height=\"536\" /> Vanguard makes it easy to make a one-time contribution to your IRA.[/caption]\r\n<p class=\"article-tips warning\">It’s up to you to make sure your contributions meet the requirements and don’t exceed limits. If you’re covered by a retirement plan at work, the <a href=\"http://www.irs.gov/retirement-plans/2019-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-covered-by-a-retirement-plan-at-work\">IRS spells out whether you can deduct your IRA contributions</a>. If you make too much money, the deducible amount of your contribution is reduced or eliminated. In a nutshell, if you made more than $74,000 as a single taxpayer or $123,000 married filing jointly and are covered by a plan at work, you can’t deduct IRA contributions.</p>\r\n\r\n<h2 id=\"tab2\" >Roll over Beethoven: IRA rollovers</h2>\r\nAnother way to fund an IRA is a rollover. You might opt to rollover your old 401(k) from a previous place of employment, which can be a good idea if your old 401(k) has high fees or poor investment choices. You can rollover funds also from one IRA to another, although that process is usually called a <em>transfer.</em>\r\n<p class=\"article-tips tip\">Generally, it's best to keep your retirement accounts in as few places as possible. Consolidating your retirement funds with one IRA provider helps you qualify for lower-priced investments and makes it easier to keep track of your money.</p>\r\nA rollover involves three steps:\r\n<ol>\r\n \t<li><strong> Fill out your IRA provider's rollover form.</strong>\r\nThe form is usually short, asking for the account number and the provider holding the funds now. You’ll also be asked if you’d like to roll the funds into a new IRA or an existing one.</li>\r\n \t<li><strong> Notify the 401(k) or IRA provider you’re moving from.</strong>\r\nTell them you’re moving the money and where you're moving it. The provider will cut a check for the money.\r\n<p class=\"article-tips warning\">Make sure the check is made out to the firm where the money is going, not to you. If the money goes to you, the IRS might think you took a distribution and hit you with a tax bill.</p>\r\n</li>\r\n \t<li><strong> Wait.</strong>\r\nA rollover can take a few weeks. Your new IRA provider will let you know when the process has been completed.</li>\r\n</ol>\r\n<h2 id=\"tab3\" >Fund an IRA with a Roth conversion</h2>\r\nWith traditional IRAs, you get a tax break now. With a Roth IRA, you pay now but take out the money later free and clear. Guessing which will be best for you is difficult. In general, a Roth is a good idea if you think your current tax rate is lower than it will be when you’re retired.\r\n\r\nRoth IRAs are preferable also if you think you might need to pull the money out sooner than in retirement, or if you think you won’t need the money and want to leave it for a spouse or an heir. Traditional IRAs require you to take money out when you turn 70-1/2. With a Roth, you can leave the money in.\r\n\r\nGiven all the guesswork in choosing a Roth IRA versus a traditional IRA, you might change your mind about the kind of IRA you want. That’s where a <em>Roth conversion</em> comes in. You can turn a traditional IRA into a Roth IRA if you pay the taxes now.\r\n<p class=\"article-tips warning\">Converting a traditional IRA to a Roth can make sense. It’s also a back door way to open a Roth for people who earn too much to fund a Roth. A Roth conversion has several drawbacks, however. You must wait at least five years after a conversion to take money out of a Roth. The conversion also triggers a tax event — you’ll have a tax bill on those tax-deferred contributions.</p>\r\nDoes a Roth conversion make sense for you? To answer that question, you can use a variety of online tools, including the following:\r\n<ul>\r\n \t<li><strong><a href=\"http://www.schwab.com/public/schwab/investing/retirement_and_planning/understanding_iras/ira_calculators/roth_ira_conversion\">Schwab IRA Conversion Calculator</a>:</strong> This tool helps you think about all the important variables that determine whether or not you should convert to a Roth. These variables include the amount of money you’d like to convert and your taxable income.</li>\r\n \t<li><strong><a href=\"http://www.calcxml.com/calculators/roth-ira-conversion-calculator\">CalcXML’s Roth Conversion Calculator</a>:</strong> This tool does all the math to see whether a Roth conversion makes sense. The calculator considers the size of the conversion as well as your age and income needs.</li>\r\n</ul>","blurb":"","authors":[{"authorId":33279,"name":"Matthew Krantz","slug":"matthew-krantz","description":"<b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i>","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/33279"}}],"primaryCategoryTaxonomy":{"categoryId":34308,"title":"Retirement","slug":"retirement","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34308"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[{"label":"Set up IRA deposits","target":"#tab1"},{"label":"Roll over Beethoven: IRA rollovers","target":"#tab2"},{"label":"Fund an IRA with a Roth conversion","target":"#tab3"}],"relatedArticles":{"fromBook":[{"articleId":268853,"title":"How to Manage Your Pension","slug":"how-to-manage-your-pension","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268853"}},{"articleId":268848,"title":"How to Take Money Out of Your IRA","slug":"how-to-take-money-out-of-your-ira","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268848"}},{"articleId":268838,"title":"How to Get Online with Your IRA Provider","slug":"how-to-get-online-with-your-ira-provider","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268838"}},{"articleId":268829,"title":"How to Get Online Access to Your 401(k)","slug":"how-to-get-online-access-to-your-401k","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268829"}},{"articleId":268822,"title":"How to Manage Your IRA","slug":"how-to-manage-your-ira","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268822"}}],"fromCategory":[{"articleId":288529,"title":"401(k)s and IRAs For Dummies Cheat Sheet","slug":"401ks-and-iras-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/288529"}},{"articleId":268853,"title":"How to Manage Your Pension","slug":"how-to-manage-your-pension","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268853"}},{"articleId":268848,"title":"How to Take Money Out of Your IRA","slug":"how-to-take-money-out-of-your-ira","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268848"}},{"articleId":268838,"title":"How to Get Online with Your IRA Provider","slug":"how-to-get-online-with-your-ira-provider","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268838"}},{"articleId":268829,"title":"How to Get Online Access to Your 401(k)","slug":"how-to-get-online-access-to-your-401k","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268829"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":281850,"slug":"retirement-planning-for-dummies","isbn":"9781119627579","categoryList":["business-careers-money","personal-finance","retirement"],"amazon":{"default":"https://www.amazon.com/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/1119627575-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":"https://www.dummies.com/wp-content/uploads/retirement-planning-for-dummies-cover-9781119627579-203x255.jpg","width":203,"height":255},"title":"Retirement Planning For Dummies","testBankPinActivationLink":"","bookOutOfPrint":true,"authorsInfo":"<p><b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i></p>","authors":[{"authorId":33279,"name":"Matthew Krantz","slug":"matthew-krantz","description":"<b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i>","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/33279"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;retirement&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119627579&quot;]}]\" id=\"du-slot-63221abeb4899\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;retirement&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119627579&quot;]}]\" id=\"du-slot-63221abeb51c3\"></div></div>"},"articleType":{"articleType":"Articles","articleList":null,"content":null,"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Explore","lifeExpectancy":null,"lifeExpectancySetFrom":null,"dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":268843},{"headers":{"creationTime":"2020-03-04T18:46:27+00:00","modifiedTime":"2020-03-04T18:46:27+00:00","timestamp":"2022-09-14T18:17:34+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Retirement","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34308"},"slug":"retirement","categoryId":34308}],"title":"How to Get Online with Your IRA Provider","strippedTitle":"how to get online with your ira provider","slug":"how-to-get-online-with-your-ira-provider","canonicalUrl":"","seo":{"metaDescription":"Learn how to open your IRA account online, how to register your account, log in, look around, and understand your portfolio holdings.","noIndex":0,"noFollow":0},"content":"If you’re not online with your IRA provider, it’s time you were. If your IRA provider is keeping up with industry trends, you’ll be amazed at the digital resources available to you. You just need to know what to look for.\r\n<p class=\"article-tips tip\">It might seem tempting to skip the process of registering for online access of your IRA account. If you do that, though, you’ll seriously miss out. Yes, you could manage your IRA over the phone and through the mail. But even if you’re a hands-off investor, you’re much better off doing everything online.</p>\r\n<p class=\"article-tips tip\">Be sure you know how to get <a href=\"https://www.dummies.com/personal-finance/investing/retirement/how-to-get-online-access-to-your-401k/\">online access to your 401(k)</a>as well.</p>\r\n\r\n<h2 id=\"tab1\" >How to open your IRA account</h2>\r\nOpening an IRA varies based on the provider, but you can expect a basic script similar to the following, which is the way Vanguard does it:\r\n<ol>\r\n \t<li><strong> Go to the IRA provider's website and find the button for opening an account.\r\n</strong>IRA providers make this button easy to find. On most sites, it's in the upper-right corner of the screen.</li>\r\n \t<li><strong> Choose a new account or a rollover.\r\n</strong>Remember, you can always open a brand new IRA account if you’re just getting started. But if you’ve been saving for retirement somewhere else, you can <em>rollover,</em> or transfer, money from a 401(k), another IRA, or sometimes even a pension.</li>\r\n \t<li><strong> Show me the money.\r\n</strong>The first thing the IRA provider will want to know is how you’ll fund the account. You can electronically move money from a checking or savings account. You can also rollover from another plan or transfer securities you own elsewhere. If you're funding your account through your bank, you need your bank account information.</li>\r\n \t<li><strong> Do one of the following:</strong>\r\n<ol>\r\n \t<li><strong>If you already have another account with the IRA provider: </strong>You might have an older account with the IRA provider. If you do, sign in. By opening the new IRA with your existing login information, you'll avoid typing lots of information all over again. It’s also easier to manage your accounts if they’re associated with the same username.</li>\r\n \t<li><strong>If you’re opening a first account with the IRA provider: </strong>Be prepared to answer a bunch of questions. You’ll need to enter information about yourself, including a Social Security number and address.</li>\r\n</ol>\r\n</li>\r\n \t<li><strong> Choose the type of account:\r\n</strong>You need to know the type of account you want to open. You'll be asked if the account is for retirement, general savings, or education (as shown in Figure 8-1). If you choose a retirement account, you’ll be asked if you want a traditional IRA, Roth IRA, SIMPLE IRA, or SEP IRA.</li>\r\n \t<li><strong> Answer questions, set up funding, and e-sign.\r\n</strong>You’ll be asked to enter the amount of your initial investment. If you’re opening an account with this IRA provider for the first time, you’ll also need to enter a username and password for online access.</li>\r\n \t<li><strong> Wait.\r\n</strong>Some IRA providers will open your account immediately if everything you entered checks out. Others, such as Vanguard, confirm your information, which can take a day or two.</li>\r\n</ol>\r\n[caption id=\"attachment_268839\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268839\" src=\"https://www.dummies.com/wp-content/uploads/retirement-ira-online.jpg\" alt=\"online IRA application\" width=\"556\" height=\"384\" /> Vanguard’s online IRA application steps you through opening an account and getting online access.[/caption]\r\n<h2 id=\"tab2\" >Log in and look around</h2>\r\nThe long road to setting up your IRA is over and you're now an IRA owner. How cool is that? Next, it’s time to see what you can find on the IRA provider’s site. The list is long:\r\n<ul>\r\n \t<li><strong>Account information:</strong> All IRA sites can tell you how much is in your account (your balance) and your investments, or</li>\r\n \t<li><strong>Account activity:</strong> Any time you put money into (contribute to), your IRA or take money out of (withdraw from), your IRA, the transaction is recorded. Your account activity shows the comings and goings of the money in your account.</li>\r\n</ul>\r\n<p class=\"article-tips tip\">Money can come into or go out of your account, even if you’re not putting it in or taking it out. Is your long-lost rich uncle putting money into your IRA? Nope. If you own stock in a company that makes a profit beyond what it needs, the company might pay you, the investor. These payments are called <em>dividends</em> and appear in your account activity. What about money coming out? Fees. The IRA provider might take money out of your account for account-servicing costs.</p>\r\n<p class=\"article-tips warning\">If you own mutual funds, the (sometimes large) fees they charge won’t appear in the account activity listing. Mutual fund fees are taken out of the fund itself.</p>\r\n\r\n<ul>\r\n \t<li><strong>Performance:</strong> Remember getting a report card when you were a kid? Your IRA's report card is its performance tracking. Here you see how much your IRA is growing or shrinking during the year and over the long term.</li>\r\n \t<li><strong>Asset mix:</strong> Your <em>asset mix,</em> or asset allocation, is the combination of asset classes in your portfolio, such as stocks and bonds. The more stocks in your portfolio, the riskier your portfolio but the more it's likely to grow in the long term.</li>\r\n</ul>\r\n<h2 id=\"tab3\" >Understand your portfolio holdings</h2>\r\nIf you want to dig deeper into what you own in your IRA, look for an area called Holdings. In this section, you’ll find the following important attributes of the investments in your account:\r\n<ul>\r\n \t<li><strong>Summary:</strong> Here you’ll find the name of each investment you own and its symbol. Mutual funds and other investment funds are identified by a multi-character abbreviation, or symbol. This symbol is useful if you want to look the fund up using a third-party site.</li>\r\n \t<li><strong>Returns:</strong> The amount of money you make or lose from an investment is more than how much its price has changed. It’s also a tally of the dividends paid. The Returns section adds all this together. You can find your return on an investment during several time periods, such as one, three, five, and ten years.</li>\r\n \t<li><strong>Cost basis:</strong> Your <em>cost basis</em> of an investment is how much you paid to buy it. If you paid $100 for a share of a mutual fund that’s now worth $110 a share, your cost basis is $100. If you sell the mutual fund for $110 a share, you have a <em>realized capital gain,</em> or profit, of $10. If you don’t sell the mutual fund but hold it, you have an <em>unrealized capital gain</em> of $10. Your IRA provider tracks capital gains for you.</li>\r\n</ul>\r\n<p class=\"article-tips remember\">Tracking your capital gains is a big deal with taxable accounts but not with tax-deferred ones such as traditional IRAs. With a taxable account, you pay taxes on only your realized gains. But with an IRA, your entire withdrawal is taxable—even your cost basis because it hasn’t been taxed yet.</p>","description":"If you’re not online with your IRA provider, it’s time you were. If your IRA provider is keeping up with industry trends, you’ll be amazed at the digital resources available to you. You just need to know what to look for.\r\n<p class=\"article-tips tip\">It might seem tempting to skip the process of registering for online access of your IRA account. If you do that, though, you’ll seriously miss out. Yes, you could manage your IRA over the phone and through the mail. But even if you’re a hands-off investor, you’re much better off doing everything online.</p>\r\n<p class=\"article-tips tip\">Be sure you know how to get <a href=\"https://www.dummies.com/personal-finance/investing/retirement/how-to-get-online-access-to-your-401k/\">online access to your 401(k)</a>as well.</p>\r\n\r\n<h2 id=\"tab1\" >How to open your IRA account</h2>\r\nOpening an IRA varies based on the provider, but you can expect a basic script similar to the following, which is the way Vanguard does it:\r\n<ol>\r\n \t<li><strong> Go to the IRA provider's website and find the button for opening an account.\r\n</strong>IRA providers make this button easy to find. On most sites, it's in the upper-right corner of the screen.</li>\r\n \t<li><strong> Choose a new account or a rollover.\r\n</strong>Remember, you can always open a brand new IRA account if you’re just getting started. But if you’ve been saving for retirement somewhere else, you can <em>rollover,</em> or transfer, money from a 401(k), another IRA, or sometimes even a pension.</li>\r\n \t<li><strong> Show me the money.\r\n</strong>The first thing the IRA provider will want to know is how you’ll fund the account. You can electronically move money from a checking or savings account. You can also rollover from another plan or transfer securities you own elsewhere. If you're funding your account through your bank, you need your bank account information.</li>\r\n \t<li><strong> Do one of the following:</strong>\r\n<ol>\r\n \t<li><strong>If you already have another account with the IRA provider: </strong>You might have an older account with the IRA provider. If you do, sign in. By opening the new IRA with your existing login information, you'll avoid typing lots of information all over again. It’s also easier to manage your accounts if they’re associated with the same username.</li>\r\n \t<li><strong>If you’re opening a first account with the IRA provider: </strong>Be prepared to answer a bunch of questions. You’ll need to enter information about yourself, including a Social Security number and address.</li>\r\n</ol>\r\n</li>\r\n \t<li><strong> Choose the type of account:\r\n</strong>You need to know the type of account you want to open. You'll be asked if the account is for retirement, general savings, or education (as shown in Figure 8-1). If you choose a retirement account, you’ll be asked if you want a traditional IRA, Roth IRA, SIMPLE IRA, or SEP IRA.</li>\r\n \t<li><strong> Answer questions, set up funding, and e-sign.\r\n</strong>You’ll be asked to enter the amount of your initial investment. If you’re opening an account with this IRA provider for the first time, you’ll also need to enter a username and password for online access.</li>\r\n \t<li><strong> Wait.\r\n</strong>Some IRA providers will open your account immediately if everything you entered checks out. Others, such as Vanguard, confirm your information, which can take a day or two.</li>\r\n</ol>\r\n[caption id=\"attachment_268839\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268839\" src=\"https://www.dummies.com/wp-content/uploads/retirement-ira-online.jpg\" alt=\"online IRA application\" width=\"556\" height=\"384\" /> Vanguard’s online IRA application steps you through opening an account and getting online access.[/caption]\r\n<h2 id=\"tab2\" >Log in and look around</h2>\r\nThe long road to setting up your IRA is over and you're now an IRA owner. How cool is that? Next, it’s time to see what you can find on the IRA provider’s site. The list is long:\r\n<ul>\r\n \t<li><strong>Account information:</strong> All IRA sites can tell you how much is in your account (your balance) and your investments, or</li>\r\n \t<li><strong>Account activity:</strong> Any time you put money into (contribute to), your IRA or take money out of (withdraw from), your IRA, the transaction is recorded. Your account activity shows the comings and goings of the money in your account.</li>\r\n</ul>\r\n<p class=\"article-tips tip\">Money can come into or go out of your account, even if you’re not putting it in or taking it out. Is your long-lost rich uncle putting money into your IRA? Nope. If you own stock in a company that makes a profit beyond what it needs, the company might pay you, the investor. These payments are called <em>dividends</em> and appear in your account activity. What about money coming out? Fees. The IRA provider might take money out of your account for account-servicing costs.</p>\r\n<p class=\"article-tips warning\">If you own mutual funds, the (sometimes large) fees they charge won’t appear in the account activity listing. Mutual fund fees are taken out of the fund itself.</p>\r\n\r\n<ul>\r\n \t<li><strong>Performance:</strong> Remember getting a report card when you were a kid? Your IRA's report card is its performance tracking. Here you see how much your IRA is growing or shrinking during the year and over the long term.</li>\r\n \t<li><strong>Asset mix:</strong> Your <em>asset mix,</em> or asset allocation, is the combination of asset classes in your portfolio, such as stocks and bonds. The more stocks in your portfolio, the riskier your portfolio but the more it's likely to grow in the long term.</li>\r\n</ul>\r\n<h2 id=\"tab3\" >Understand your portfolio holdings</h2>\r\nIf you want to dig deeper into what you own in your IRA, look for an area called Holdings. In this section, you’ll find the following important attributes of the investments in your account:\r\n<ul>\r\n \t<li><strong>Summary:</strong> Here you’ll find the name of each investment you own and its symbol. Mutual funds and other investment funds are identified by a multi-character abbreviation, or symbol. This symbol is useful if you want to look the fund up using a third-party site.</li>\r\n \t<li><strong>Returns:</strong> The amount of money you make or lose from an investment is more than how much its price has changed. It’s also a tally of the dividends paid. The Returns section adds all this together. You can find your return on an investment during several time periods, such as one, three, five, and ten years.</li>\r\n \t<li><strong>Cost basis:</strong> Your <em>cost basis</em> of an investment is how much you paid to buy it. If you paid $100 for a share of a mutual fund that’s now worth $110 a share, your cost basis is $100. If you sell the mutual fund for $110 a share, you have a <em>realized capital gain,</em> or profit, of $10. If you don’t sell the mutual fund but hold it, you have an <em>unrealized capital gain</em> of $10. Your IRA provider tracks capital gains for you.</li>\r\n</ul>\r\n<p class=\"article-tips remember\">Tracking your capital gains is a big deal with taxable accounts but not with tax-deferred ones such as traditional IRAs. With a taxable account, you pay taxes on only your realized gains. But with an IRA, your entire withdrawal is taxable—even your cost basis because it hasn’t been taxed yet.</p>","blurb":"","authors":[{"authorId":33279,"name":"Matthew Krantz","slug":"matthew-krantz","description":"<b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i>","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/33279"}}],"primaryCategoryTaxonomy":{"categoryId":34308,"title":"Retirement","slug":"retirement","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34308"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[{"label":"How to open your IRA account","target":"#tab1"},{"label":"Log in and look around","target":"#tab2"},{"label":"Understand your portfolio holdings","target":"#tab3"}],"relatedArticles":{"fromBook":[{"articleId":268853,"title":"How to Manage Your Pension","slug":"how-to-manage-your-pension","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268853"}},{"articleId":268848,"title":"How to Take Money Out of Your IRA","slug":"how-to-take-money-out-of-your-ira","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268848"}},{"articleId":268843,"title":"How to Manage Your IRA Contributions","slug":"how-to-manage-your-ira-contributions","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268843"}},{"articleId":268829,"title":"How to Get Online Access to Your 401(k)","slug":"how-to-get-online-access-to-your-401k","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268829"}},{"articleId":268822,"title":"How to Manage Your IRA","slug":"how-to-manage-your-ira","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268822"}}],"fromCategory":[{"articleId":288529,"title":"401(k)s and IRAs For Dummies Cheat Sheet","slug":"401ks-and-iras-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/288529"}},{"articleId":268853,"title":"How to Manage Your Pension","slug":"how-to-manage-your-pension","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268853"}},{"articleId":268848,"title":"How to Take Money Out of Your IRA","slug":"how-to-take-money-out-of-your-ira","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268848"}},{"articleId":268843,"title":"How to Manage Your IRA Contributions","slug":"how-to-manage-your-ira-contributions","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268843"}},{"articleId":268829,"title":"How to Get Online Access to Your 401(k)","slug":"how-to-get-online-access-to-your-401k","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268829"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":281850,"slug":"retirement-planning-for-dummies","isbn":"9781119627579","categoryList":["business-careers-money","personal-finance","retirement"],"amazon":{"default":"https://www.amazon.com/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/1119627575-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":"https://www.dummies.com/wp-content/uploads/retirement-planning-for-dummies-cover-9781119627579-203x255.jpg","width":203,"height":255},"title":"Retirement Planning For Dummies","testBankPinActivationLink":"","bookOutOfPrint":true,"authorsInfo":"<p><b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i></p>","authors":[{"authorId":33279,"name":"Matthew Krantz","slug":"matthew-krantz","description":"<b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i>","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/33279"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;retirement&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119627579&quot;]}]\" id=\"du-slot-63221abeacda4\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;retirement&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119627579&quot;]}]\" id=\"du-slot-63221abead680\"></div></div>"},"articleType":{"articleType":"Articles","articleList":null,"content":null,"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Explore","lifeExpectancy":null,"lifeExpectancySetFrom":null,"dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":268838},{"headers":{"creationTime":"2020-03-04T18:37:05+00:00","modifiedTime":"2020-03-04T18:37:05+00:00","timestamp":"2022-09-14T18:17:34+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Retirement","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34308"},"slug":"retirement","categoryId":34308}],"title":"How to Get Online Access to Your 401(k)","strippedTitle":"how to get online access to your 401(k)","slug":"how-to-get-online-access-to-your-401k","canonicalUrl":"","seo":{"metaDescription":"Learn how to register online for your 401(k), how to use the 401(k) tools provided, and how to check out the performance of your investments.","noIndex":0,"noFollow":0},"content":"Many employers tout their 401(k) plans as a job perk. But, typically, you're on your own when it comes to setting up online access. In some ways, this situation is symbolic of how the responsibility for <a href=\"https://www.dummies.com/personal-finance/investing/retirement/retirement-planning-for-dummies-cheat-sheet/\">retirement planning</a> has shifted to employees. Not only do employers want to scale back how much they contribute to your retirement, many don’t even want to help you manage the account.\r\n<h2 id=\"tab1\" >How to register for 401(k) access</h2>\r\nMost 401(k)s are established on paper. The paperwork you sign when you join a company opens the account and gives the 401(k) plan administrator the right to take money out of your paycheck.\r\n\r\nBut you can’t do much with the account until you register for online assess with the 401(k) plan site. After that, you can see your balances, make changes, and evaluate how you’re doing.\r\n\r\nYou might be surprised at some of the online tools you can pick up right from your 401(k) plan provider. Nearly all 401(k) sites offer useful calculators and information to help you better prepare for retirement.\r\n\r\nWhat kicks off the process of setting up 401(k) account access? Ironically, it’s probably snail mail. At some point after starting a job or signing up for a 401(k), you should get a letter in the mail from your 401(k) administrator with your summary plan description. This document, similar to the one shown, lets you know that the account is established and that you can set up online access.\r\n\r\n[caption id=\"attachment_268833\" align=\"alignnone\" width=\"450\"]<img class=\"size-full wp-image-268833\" src=\"https://www.dummies.com/wp-content/uploads/retirement-summary-plan.jpg\" alt=\"summary plan description\" width=\"450\" height=\"600\" /> Your summary plan description tells you it’s time to set up online access.[/caption]\r\n\r\nIf you look closely, you’ll see a website address in the upper-right corner of the summary plan description in the figure. In this example, it’s <em>www.voyaretirementplans.com</em>. From here, you’ll want to follow these steps to register:\r\n<ol>\r\n \t<li><strong> Click the Register Now button.</strong>\r\nJust about all 401(k) sites put the button just below the log-in section, as you can see in this figure for the Voya example.\r\n\r\n[caption id=\"attachment_268832\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268832\" src=\"https://www.dummies.com/wp-content/uploads/retirement-register-now.jpg\" alt=\"Register Now\" width=\"556\" height=\"525\" /> Find the Register Now or a similar option.[/caption]</li>\r\n \t<li><strong> Choose an identification method.</strong>\r\nSites usually ask for either your personal identification number (PIN) or your Social Security number and date of birth. The PIN would have been sent to you in the mail. If you didn’t get a PIN, go with door #2, because you know your Social Security and birthday.</li>\r\n \t<li><strong> Create your log-in</strong> <strong>information</strong>.\r\nYou are asked to choose a username and password. Try to choose something difficult to guess—or better yet, use a password manager.</li>\r\n</ol>\r\n<p class=\"article-tips tip\">Passwords are getting more complicated in an effort to keep hackers out. Choose a password that’s not a real word, and use a string of symbols, numbers, and uppercase and lowercase letters. Try to come up with something only you will know. For example, suppose you’re a Star Wars fan. Rather than using <em>starwars</em> as a password, use <em>MT4ceBWY</em>. (Get it? <em>May the Force be with you</em>.)</p>\r\n\r\n<h2 id=\"tab2\" >Get to know your 401(k) tools</h2>\r\nThe beauty of 401(k) plans is their hands-off nature. If you’re like many 401(k) investors, after you sign up for the plan, you don't want to think about it—and you certainly don't want to do is dig around the various features of the 401(k) provider’s website.\r\n\r\nBut you might be surprised at some of the online tools you can pick up right from your 401(k) plan provider. Nearly all 401(k) sites offer useful calculators and information to help you better prepare for retirement.\r\n<p class=\"article-tips tip\">Using the tools on your 401(k) plan provider’s site is helpful because you already have log-in information with them, and many of the tools can be personalized because your details are already there.</p>\r\nA few helpful tools to look for on your 401(k) plan provider’s site follow:\r\n<ul>\r\n \t<li><strong>Calculators:</strong> Most 401(k) providers will use your account details as inputs for calculators. You’ll likely find a contribution calculator that will tell you if you’re putting enough in your 401(k) to meet your full-year contribution goal. This tool is useful if you want to max out your 401(k), putting in the most legally allowed. The tool will also tell you what percentage you should take out of your paycheck to hit your annual contribution target.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">Also look for a retirement overview calculator. This tool helps you see how much money you should have when you retire based on your savings rate, income needs, and rate of return.</p>\r\n<p style=\"padding-left: 40px;\">Lastly, 401(k) providers offer retirement income estimate calculators. These tools look at how much you’re saving and your expected returns, and estimate how much income you might expect in retirement.</p>\r\n\r\n<ul>\r\n \t<li><strong>Investing education:</strong> You’ll likely find useful articles and videos to coach you on the importance of diversification and asset allocation. You might also find information on related topics such as estate planning.</li>\r\n \t<li><strong>Risk questionnaires:</strong> Some 401(k) sites feature basic questionnaires that will help you see how much risk you can handle. You’ll be asked how much you know about investing, how much volatility you can handle, and your age.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">Some 401(k)-planning sites use this information, paired with what the plan administrator already knows about you, to offer a possible asset allocation, as shown. Your <em>asset allocation</em> is the mix of asset classes expected to give you the best return for your level of risk.</p>\r\n\r\n\r\n[caption id=\"attachment_268831\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268831\" src=\"https://www.dummies.com/wp-content/uploads/retirement-asset-allocation.jpg\" alt=\"recommended portfolio\" width=\"556\" height=\"442\" /> Voya’s questionnaire recommends a portfolio based on what it knows about you.[/caption]\r\n<p style=\"padding-left: 40px;\">Typically, your appetite for risk is a function of how much <em>volatility,</em> or ups and downs in portfolio value, you can endure. For example, suppose that the target-date fund for your retirement year suggests a middle-of-the-road portfolio of 60 percent stocks and 40 percent bonds. But after taking the questionnaire, the 401(k) provider’s site might suggest a more aggressive portfolio with 70 percent stocks and 30 percent bonds.</p>\r\n\r\n<h2 id=\"tab3\" >Check out your 401(k) performance</h2>\r\nBefore you think about making your 401(k) work better for you, it’s wise to see how it’s doing so far. 401(k) provider sites help you track how much return you’re getting on your money.\r\n<p class=\"article-tips remember\">Measuring investment performance is important and something you should count on from your 401(k) provider. The results of the calculation tell you if your investment choices are delivering what you need to reach your goals. Performance statistics also tell you if you’re getting results that are at least keeping up with the average. If your portfolio returns are less than market returns, or indexes, that’s a big sign that you should optimize your 401(k).</p>\r\nMost 401(k) sites will help you see your portfolio performance in two ways:\r\n<ul>\r\n \t<li><strong>At the fund level:</strong> Nearly all 401(k) plans have an Investments section. Here you can look up how the funds have performed over various time periods, including short periods (such as a month or year) and longer periods (such as five or ten years). The data is typically shown in a table like the one shown here.</li>\r\n</ul>\r\n[caption id=\"attachment_268830\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268830\" src=\"https://www.dummies.com/wp-content/uploads/retirement-investments.jpg\" alt=\"investments section\" width=\"556\" height=\"417\" /> The Investments section shows you how each of the individual investments in the plan have done.[/caption]\r\n<p class=\"article-tips tip\">If you own only the 401(k)’s target-date fund, look up your particular fund in the investments list. This might be all the information you need to know how you’re doing.</p>\r\n\r\n<ul>\r\n \t<li><strong>As a personal rate of return: </strong>401(k) providers don’t just tell you how the funds in the plan have performed. They also keep track of how you have done.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">What’s the difference between the funds’ returns and your returns? Keep in mind that some investors spread their portfolios over multiple funds. They might also move money from one fund to another. The timing of your contributions matter, too. The personal rate of return incorporates all these factors to arrive at your total return.</p>","description":"Many employers tout their 401(k) plans as a job perk. But, typically, you're on your own when it comes to setting up online access. In some ways, this situation is symbolic of how the responsibility for <a href=\"https://www.dummies.com/personal-finance/investing/retirement/retirement-planning-for-dummies-cheat-sheet/\">retirement planning</a> has shifted to employees. Not only do employers want to scale back how much they contribute to your retirement, many don’t even want to help you manage the account.\r\n<h2 id=\"tab1\" >How to register for 401(k) access</h2>\r\nMost 401(k)s are established on paper. The paperwork you sign when you join a company opens the account and gives the 401(k) plan administrator the right to take money out of your paycheck.\r\n\r\nBut you can’t do much with the account until you register for online assess with the 401(k) plan site. After that, you can see your balances, make changes, and evaluate how you’re doing.\r\n\r\nYou might be surprised at some of the online tools you can pick up right from your 401(k) plan provider. Nearly all 401(k) sites offer useful calculators and information to help you better prepare for retirement.\r\n\r\nWhat kicks off the process of setting up 401(k) account access? Ironically, it’s probably snail mail. At some point after starting a job or signing up for a 401(k), you should get a letter in the mail from your 401(k) administrator with your summary plan description. This document, similar to the one shown, lets you know that the account is established and that you can set up online access.\r\n\r\n[caption id=\"attachment_268833\" align=\"alignnone\" width=\"450\"]<img class=\"size-full wp-image-268833\" src=\"https://www.dummies.com/wp-content/uploads/retirement-summary-plan.jpg\" alt=\"summary plan description\" width=\"450\" height=\"600\" /> Your summary plan description tells you it’s time to set up online access.[/caption]\r\n\r\nIf you look closely, you’ll see a website address in the upper-right corner of the summary plan description in the figure. In this example, it’s <em>www.voyaretirementplans.com</em>. From here, you’ll want to follow these steps to register:\r\n<ol>\r\n \t<li><strong> Click the Register Now button.</strong>\r\nJust about all 401(k) sites put the button just below the log-in section, as you can see in this figure for the Voya example.\r\n\r\n[caption id=\"attachment_268832\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268832\" src=\"https://www.dummies.com/wp-content/uploads/retirement-register-now.jpg\" alt=\"Register Now\" width=\"556\" height=\"525\" /> Find the Register Now or a similar option.[/caption]</li>\r\n \t<li><strong> Choose an identification method.</strong>\r\nSites usually ask for either your personal identification number (PIN) or your Social Security number and date of birth. The PIN would have been sent to you in the mail. If you didn’t get a PIN, go with door #2, because you know your Social Security and birthday.</li>\r\n \t<li><strong> Create your log-in</strong> <strong>information</strong>.\r\nYou are asked to choose a username and password. Try to choose something difficult to guess—or better yet, use a password manager.</li>\r\n</ol>\r\n<p class=\"article-tips tip\">Passwords are getting more complicated in an effort to keep hackers out. Choose a password that’s not a real word, and use a string of symbols, numbers, and uppercase and lowercase letters. Try to come up with something only you will know. For example, suppose you’re a Star Wars fan. Rather than using <em>starwars</em> as a password, use <em>MT4ceBWY</em>. (Get it? <em>May the Force be with you</em>.)</p>\r\n\r\n<h2 id=\"tab2\" >Get to know your 401(k) tools</h2>\r\nThe beauty of 401(k) plans is their hands-off nature. If you’re like many 401(k) investors, after you sign up for the plan, you don't want to think about it—and you certainly don't want to do is dig around the various features of the 401(k) provider’s website.\r\n\r\nBut you might be surprised at some of the online tools you can pick up right from your 401(k) plan provider. Nearly all 401(k) sites offer useful calculators and information to help you better prepare for retirement.\r\n<p class=\"article-tips tip\">Using the tools on your 401(k) plan provider’s site is helpful because you already have log-in information with them, and many of the tools can be personalized because your details are already there.</p>\r\nA few helpful tools to look for on your 401(k) plan provider’s site follow:\r\n<ul>\r\n \t<li><strong>Calculators:</strong> Most 401(k) providers will use your account details as inputs for calculators. You’ll likely find a contribution calculator that will tell you if you’re putting enough in your 401(k) to meet your full-year contribution goal. This tool is useful if you want to max out your 401(k), putting in the most legally allowed. The tool will also tell you what percentage you should take out of your paycheck to hit your annual contribution target.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">Also look for a retirement overview calculator. This tool helps you see how much money you should have when you retire based on your savings rate, income needs, and rate of return.</p>\r\n<p style=\"padding-left: 40px;\">Lastly, 401(k) providers offer retirement income estimate calculators. These tools look at how much you’re saving and your expected returns, and estimate how much income you might expect in retirement.</p>\r\n\r\n<ul>\r\n \t<li><strong>Investing education:</strong> You’ll likely find useful articles and videos to coach you on the importance of diversification and asset allocation. You might also find information on related topics such as estate planning.</li>\r\n \t<li><strong>Risk questionnaires:</strong> Some 401(k) sites feature basic questionnaires that will help you see how much risk you can handle. You’ll be asked how much you know about investing, how much volatility you can handle, and your age.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">Some 401(k)-planning sites use this information, paired with what the plan administrator already knows about you, to offer a possible asset allocation, as shown. Your <em>asset allocation</em> is the mix of asset classes expected to give you the best return for your level of risk.</p>\r\n\r\n\r\n[caption id=\"attachment_268831\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268831\" src=\"https://www.dummies.com/wp-content/uploads/retirement-asset-allocation.jpg\" alt=\"recommended portfolio\" width=\"556\" height=\"442\" /> Voya’s questionnaire recommends a portfolio based on what it knows about you.[/caption]\r\n<p style=\"padding-left: 40px;\">Typically, your appetite for risk is a function of how much <em>volatility,</em> or ups and downs in portfolio value, you can endure. For example, suppose that the target-date fund for your retirement year suggests a middle-of-the-road portfolio of 60 percent stocks and 40 percent bonds. But after taking the questionnaire, the 401(k) provider’s site might suggest a more aggressive portfolio with 70 percent stocks and 30 percent bonds.</p>\r\n\r\n<h2 id=\"tab3\" >Check out your 401(k) performance</h2>\r\nBefore you think about making your 401(k) work better for you, it’s wise to see how it’s doing so far. 401(k) provider sites help you track how much return you’re getting on your money.\r\n<p class=\"article-tips remember\">Measuring investment performance is important and something you should count on from your 401(k) provider. The results of the calculation tell you if your investment choices are delivering what you need to reach your goals. Performance statistics also tell you if you’re getting results that are at least keeping up with the average. If your portfolio returns are less than market returns, or indexes, that’s a big sign that you should optimize your 401(k).</p>\r\nMost 401(k) sites will help you see your portfolio performance in two ways:\r\n<ul>\r\n \t<li><strong>At the fund level:</strong> Nearly all 401(k) plans have an Investments section. Here you can look up how the funds have performed over various time periods, including short periods (such as a month or year) and longer periods (such as five or ten years). The data is typically shown in a table like the one shown here.</li>\r\n</ul>\r\n[caption id=\"attachment_268830\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268830\" src=\"https://www.dummies.com/wp-content/uploads/retirement-investments.jpg\" alt=\"investments section\" width=\"556\" height=\"417\" /> The Investments section shows you how each of the individual investments in the plan have done.[/caption]\r\n<p class=\"article-tips tip\">If you own only the 401(k)’s target-date fund, look up your particular fund in the investments list. This might be all the information you need to know how you’re doing.</p>\r\n\r\n<ul>\r\n \t<li><strong>As a personal rate of return: </strong>401(k) providers don’t just tell you how the funds in the plan have performed. They also keep track of how you have done.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">What’s the difference between the funds’ returns and your returns? Keep in mind that some investors spread their portfolios over multiple funds. They might also move money from one fund to another. The timing of your contributions matter, too. The personal rate of return incorporates all these factors to arrive at your total return.</p>","blurb":"","authors":[{"authorId":33279,"name":"Matthew Krantz","slug":"matthew-krantz","description":"<b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i>","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/33279"}}],"primaryCategoryTaxonomy":{"categoryId":34308,"title":"Retirement","slug":"retirement","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34308"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[{"label":"How to register for 401(k) access","target":"#tab1"},{"label":"Get to know your 401(k) tools","target":"#tab2"},{"label":"Check out your 401(k) performance","target":"#tab3"}],"relatedArticles":{"fromBook":[{"articleId":268853,"title":"How to Manage Your Pension","slug":"how-to-manage-your-pension","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268853"}},{"articleId":268848,"title":"How to Take Money Out of Your IRA","slug":"how-to-take-money-out-of-your-ira","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268848"}},{"articleId":268843,"title":"How to Manage Your IRA Contributions","slug":"how-to-manage-your-ira-contributions","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268843"}},{"articleId":268838,"title":"How to Get Online with Your IRA Provider","slug":"how-to-get-online-with-your-ira-provider","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268838"}},{"articleId":268822,"title":"How to Manage Your IRA","slug":"how-to-manage-your-ira","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268822"}}],"fromCategory":[{"articleId":288529,"title":"401(k)s and IRAs For Dummies Cheat Sheet","slug":"401ks-and-iras-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/288529"}},{"articleId":268853,"title":"How to Manage Your Pension","slug":"how-to-manage-your-pension","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268853"}},{"articleId":268848,"title":"How to Take Money Out of Your IRA","slug":"how-to-take-money-out-of-your-ira","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268848"}},{"articleId":268843,"title":"How to Manage Your IRA Contributions","slug":"how-to-manage-your-ira-contributions","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268843"}},{"articleId":268838,"title":"How to Get Online with Your IRA Provider","slug":"how-to-get-online-with-your-ira-provider","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268838"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":281850,"slug":"retirement-planning-for-dummies","isbn":"9781119627579","categoryList":["business-careers-money","personal-finance","retirement"],"amazon":{"default":"https://www.amazon.com/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/1119627575-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":"https://www.dummies.com/wp-content/uploads/retirement-planning-for-dummies-cover-9781119627579-203x255.jpg","width":203,"height":255},"title":"Retirement Planning For Dummies","testBankPinActivationLink":"","bookOutOfPrint":true,"authorsInfo":"<p><b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i></p>","authors":[{"authorId":33279,"name":"Matthew Krantz","slug":"matthew-krantz","description":"<b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i>","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/33279"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;retirement&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119627579&quot;]}]\" id=\"du-slot-63221abea4b4c\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;retirement&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119627579&quot;]}]\" id=\"du-slot-63221abea540c\"></div></div>"},"articleType":{"articleType":"Articles","articleList":null,"content":null,"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Explore","lifeExpectancy":null,"lifeExpectancySetFrom":null,"dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":268829},{"headers":{"creationTime":"2020-03-04T03:38:49+00:00","modifiedTime":"2020-03-04T03:38:49+00:00","timestamp":"2022-09-14T18:17:34+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Retirement","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34308"},"slug":"retirement","categoryId":34308}],"title":"How to Manage Your IRA","strippedTitle":"how to manage your ira","slug":"how-to-manage-your-ira","canonicalUrl":"","seo":{"metaDescription":"Learn how to manage your IRA by choosing your investments, hiring a professional, and knowing the type of brokerage you want to use.","noIndex":0,"noFollow":0},"content":"Your IRA is an important part of your overall <a href=\"https://www.dummies.com/personal-finance/investing/retirement/retirement-planning-for-dummies-cheat-sheet/\">retirement plan</a>. One of the great perks of using an IRA is the full control you have over it. You’re free to choose the financial firm you’ll work with and your investments. But this extra control means you’ll have to do some additional legwork to get things set up to your specifications. Don’t let the choices stymie you.\r\n<h2 id=\"tab1\" >Know what you’d like to own</h2>\r\nIt might be tempting to call the usual suspects — the financial firms that always advertise their IRA services during golf matches. But first think a bit about what investments you plan to buy.\r\n\r\nThe number of financial firms offering IRA services is almost infinite. All the big players and many smaller ones will let you set up an IRA. Most will also waive setup costs just to get you in the door.\r\n\r\nIRA providers are distinguished by their investment menus. You'll typically put the following investments in an IRA:\r\n<ul>\r\n \t<li><strong>Individual securities:</strong> If you want total control, consider choosing individual bonds or stocks. Rather than owning a mutual fund that holds hundreds of stocks, you might want to own the ten stocks you like best.</li>\r\n \t<li><strong>Mutual funds:</strong> A mutual fund is the most common investment in IRAs. You put money into a fund that’s used to buy individual securities. You then pay a fee. With <em>index funds</em>, you own all the securities in an index, such as the Standard & Poor’s 500. With <em>active funds,</em> you pay fund managers to select the best investments. These funds usually cost more than index funds. Mutual funds are priced at the end of the day.</li>\r\n \t<li><strong>Exchange-traded fund (ETF):</strong> With an ETF, you own a portion of a basket of investments. Most ETFs are based on indexes and have very low fees. ETFs are priced like stocks, meaning their value changes during the day. ETFs are increasingly popular due to their low fees and no minimum investment.</li>\r\n</ul>\r\n<p class=\"article-tips tip\">If you want to actively trade individual stocks in your IRA, you might not get what you’re looking for from a traditional mutual fund company. Consider a discount broker instead. Similarly, if you like the products from a particular mutual fund company, you might want to work directly with that fund company to create an IRA. Keep your investment strategy in mind when you look at IRA providers.</p>\r\n\r\n<h2 id=\"tab2\" >Choose someone to handle your IRA</h2>\r\nThe company you choose to house your IRA is important because it will be your financial wingman.\r\n\r\nIf you call just about any financial firm and ask if they’ll take your IRA, the answer will always be yes. IRA customers are dream clients. They invest large sums of money, typically have jobs, and usually don’t touch the money for a long time. And many don’t pay attention to the fees they’re paying.\r\n\r\nWith that said, most of the firms you’ll want to consider for your IRA needs are in one of three main categories: mutual fund companies, traditional and discount brokerages, and robo-advisors.\r\n\r\nRobo-advisors are making waves in the IRA business. Originally, robo-advisors were a handful of tech startups with smart people who found a way to make the investing process easier. You’d go to a website and answer a survey, and the site would choose your investments and diversify your holdings. Robo-advisors measured your appetite for risk and spread your money over low-cost investments.\r\n<p class=\"article-tips remember\">But the world of robo-advisors has become blurry. Although many firms that are exclusively robo-advisors are still in action, mutual fund companies and brokerages are into the game, too. For example, mutual fund company Vanguard offers one of the most popular robo-advisor services. Keep the changing robo-advisors landscape in mind while considering which route is best for you. If you like your online brokerage, inquire to see if it offers a robo-advisor before moving your money to another firm.</p>\r\n\r\n<h2 id=\"tab3\" >Mutual fund companies</h2>\r\nAll mutual fund companies are happy to handle your IRA account, and most make the process as simple as possible. However, it’s difficult to paint them all with the same brush. For instance, just a few, such as Fidelity, have impressive technology tools. And only some mutual fund companies, Vanguard among them, have adopted innovations such as exchange-traded funds.\r\n\r\nIf you’re interested in using a mutual fund company, you need to understand the advantages and disadvantages it offers for your IRA.\r\n\r\nThe advantages of mutual fund companies follow:\r\n<ul>\r\n \t<li>If you buy the company’s own funds, you can often avoid paying trading commissions.</li>\r\n \t<li>Customer service representatives have a good understanding of the investments.</li>\r\n \t<li>The companies typically have long track records.</li>\r\n \t<li>These firms are focused on long-term retirement plans. You won’t be urged to buy hot stocks or to trade. Some mutual fund companies offer excellent educational materials to help you avoid making short-term decisions that you’ll regret later.</li>\r\n</ul>\r\nThe disadvantages of mutual fund companies follow:\r\n<ul>\r\n \t<li>You’re typically encouraged to use the offerings from just one fund family. This restriction might be a problem if you like, say, one fund company for bonds and another for stocks.</li>\r\n \t<li>Mutual fund companies are typically slow to innovate and might not offer some investments you're interested in.</li>\r\n \t<li>Their technology tools can be rudimentary.</li>\r\n \t<li>Popular target-date funds are made up of their own funds, which may or may not be the best for you.</li>\r\n</ul>\r\nSome of the largest mutual fund players follow:\r\n<ul>\r\n \t<li><strong><a href=\"http://www.vanguard.com/\">Vanguard</a></strong> is the king of low-cost passive investing. The company’s founder, John Bogle, created the company based on the idea that most mutual fund companies spend too much money trying to beat the market, when so few reliably do.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">With a Vanguard IRA, you can invest in the fund company’s massive suite of best-in-class index funds. You can open an account with an initial deposit of $1,000.</p>\r\n<p class=\"article-tips remember\">To buy many of Vanguard’s mutual funds, you must invest at least $3,000. There’s no cost other than the low Vanguard fund fees. And if you sign up for electronic documents, Vanguard will waive the $20 annual fee.</p>\r\n<p class=\"article-tips tip\">Vanguard is a leader in increasingly popular exchange-traded funds (ETFs). You can buy them for no commission at Vanguard, and many ETFs don’t have minimum deposits.</p>\r\n\r\n<ul>\r\n \t<li><strong><a href=\"http://www.fidelity.com/\">Fidelity</a></strong> shows that a mutual fund company can have major technology chops. The company’s website and mobile apps keep up with those offered by brokers and robo-advisors.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">Meanwhile, Fidelity is challenging Vanguard on the fees front. Fidelity offers a number of index mutual funds that do not charge an <em>expense ratio,</em> which is the annual fee you pay to own a fund and is measured as a percentage of how much you’ve invested. For example, if you have $10,000 invested and a fund has a 0.2 percent expense ratio, you'll pay a yearly fee of $20.</p>\r\n<p style=\"padding-left: 40px;\">Fidelity offers the Fidelity ZERO Large Cap Index Fund, which is even less expensive than the rock-bottom 0.05 percent annual fee charged by Vanguard’s comparable fund. Fidelity seems aware of its head-to-head competition with Vanguard, as you can see in the following figure.</p>\r\n<p style=\"padding-left: 40px;\">Fidelity also offers a range of <em>actively managed mutual funds,</em> which hire people who try to find stocks that they think will do better than index funds. These funds typically charge more than index funds, up to 1 percent.</p>\r\n\r\n\r\n[caption id=\"attachment_268825\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268825\" src=\"https://www.dummies.com/wp-content/uploads/retirement-fidelity-vs-vanguard.jpg\" alt=\"Fidelity vs. Vanguard\" width=\"556\" height=\"282\" /> Fidelity is challenging Vanguard for IRA dollars where it counts — fees.[/caption]\r\n<ul>\r\n \t<li><strong><a href=\"http://www.troweprice.com/\"> Rowe Price</a></strong> is a well-regarded traditional mutual fund company. What makes T. Rowe Price unique is that it focuses on actively managed funds. (It also offers a few index funds, but not as many as Vanguard or Fidelity.) Unlike some other actively managed fund companies, though, T. Rowe Price works directly with investors instead of only through financial advisors. The fees charged by T. Rowe Price funds tend to be higher than the fees for index funds.</li>\r\n</ul>\r\n<p class=\"article-tips tip\">Some of the other mutual fund companies that offer IRAs, such as <a href=\"http://www.franklintempleton.com/\">Franklin Templeton</a>, work directly with investors to set up accounts. If you're interested in a particular mutual fund company, see if they work directly with individual investors.</p>\r\nSome other large mutual fund companies, such as BlackRock, Invesco, and American Funds, typically work with financial advisors or brokerages. So, if you want a BlackRock fund in your IRA, you must hire an advisor to buy it for you or buy it yourself through a brokerage. You see how to do this later in the \"Connecting with a Financial Planner\" section.\r\n<h2 id=\"tab4\" >Traditional and discount online brokerages</h2>\r\nSticking with a mutual fund company may be comfortable and convenient, especially if you opened an IRA because your employer doesn’t provide a 401(k). But using a mutual fund company for your IRA takes away one of the reasons why you may have opened it: control. Using an IRA allows you to be in the driver’s seat of your retirement. Buckle up!\r\n\r\nFollowing are the advantages of an IRA:\r\n<ul>\r\n \t<li>You’re the boss. You can mix and match investment products from different providers.</li>\r\n \t<li>The brokers, especially discount online brokers, usually have best-in-class websites and apps.</li>\r\n \t<li>You have access to brokerage services. Many of these firms started as places to buy and sell stock. If you’re interested in online investing, you might want an account here.</li>\r\n \t<li>Many of these brokerages can not only hold your IRA but also help you with checking and savings accounts.</li>\r\n \t<li>Many brokerage firms have branches, so you can head to an office and meet with a person face-to-face.</li>\r\n \t<li>Online brokers are quick to add new features such as ETFs, robo-advisory services, and human help.</li>\r\n</ul>\r\nFollowing are the disadvantages of an IRA:\r\n<ul>\r\n \t<li>Commissions might be charged on investments you could get free elsewhere. This is especially true with some mutual funds.</li>\r\n \t<li>Brokers might steer you toward certain products.</li>\r\n \t<li>Some brokerages are more geared for online trading rather than long-term investing.</li>\r\n</ul>\r\nSome of the major players are the most popular names in financial services:\r\n<ul>\r\n \t<li><strong><a href=\"http://www.schwab.com/\">Charles Schwab</a>:</strong> It’s hard to talk about do-it-yourself IRAs without mentioning Chuck. An industry pioneer, Charles Schwab has just about any product you could want. You can buy mutual funds, including thousands with no commission. You can open any type of IRA with no fees and no minimum requirements. The company also offers its own ETFs and provides a robo-advisor, as shown in the following figure.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">And if you want to buy or sell individual stocks to avoid annual fees charged by funds, you can do that, too. Schwab used to charge $4.95 a trade. But in late 2019, Schwab, along with most of the major online brokers, cut stock trading commissions to $0. If you buy any of the 500 ETFs in its Schwab ETF OneSource, there’s no commission.</p>\r\n<p style=\"padding-left: 40px;\">Schwab also has offerings for people who are not interested in choosing their own investments. Its Schwab Intelligent Portfolios, which is essentially a robo-advisor, will assess your risk appetite and put your money in Schwab ETFs to fit your goals. There’s no fee for the service, but there is a $5,000 minimum. You’ll also pay the fees on the Schwab funds, which may not be the lowest. If you want a more customized portfolio, you can use Schwab Intelligent Portfolios Premium, which costs $300 upfront and $30 a month thereafter. The minimum deposit is $25,000.</p>\r\n<p class=\"article-tips warning\">Don’t be fooled by the so-called free nature of Schwab Intelligent Portfolios. You pay the underlying fees of the ETFs. Also, Schwab will put part of your portfolio in cash. That cash will get next to no return, which costs you in lost interest. For example, suppose Schwab puts $50,000 of your portfolio into cash. If you instead put that money in a savings account at 2 percent interest, you’d get roughly $1,000 a year in interest.</p>\r\n\r\n\r\n[caption id=\"attachment_268824\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268824\" src=\"https://www.dummies.com/wp-content/uploads/retirement-schwab-robo.jpg\" alt=\"Charles Schwab services\" width=\"556\" height=\"416\" /> Charles Schwab offers just about any financial service, including its own robo-advisor.[/caption]\r\n<ul>\r\n \t<li><strong><a href=\"http://www.tdameritrade.com/\">TD Ameritrade</a>:</strong> TD Ameritrade is another behemoth in the IRA business. The company, whose roots are in stock trading, is a leader in providing top-notch tools for monitoring your portfolio and the market. They also provide state-of-the-art stock and bond research tools. TD Ameritrade in 2019 cut its $6.95 per stock trade commission to $0. It also has no minimum and no ongoing fees.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">If you’re looking for more help, check out TD Ameritrade's Essential Portfolios, a robo-advisor that will put your money into low-cost ETFs to match your goals. You pay 0.3 percent a year for Essential Portfolios and up to 0.9 percent for more customized portfolios.</p>\r\n\r\n<ul>\r\n \t<li><strong><a href=\"http://www.ally.com/\">Ally</a></strong>: Ally has rapidly grown from being an online bank to a legitimate option for retirement investors. Ally is focused on two types of retirement investors: do-it-yourselfers and those looking for a turnkey solution.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">If you’re a do-it-yourselfer, you can buy and sell stocks, including ETFs, for no commission. If you’re looking for more automated help, Ally offers its Ally Invest Managed Portfolios, a service that is essentially a robo-advisor. You answer questions about your financial goals and Ally puts your money in a number of low-cost ETFs. The service charges a 0.3 percent fee on your balances.</p>\r\n\r\n<ul>\r\n \t<li><strong><a href=\"http://www.etrade.com/\">E-Trade</a>:</strong> This online brokerage firm has come a long way since its Super Bowl ads featuring a talking baby. Like TD Ameritrade, the company’s roots are in low-cost online stock trading, and it offers online stock trades for no commission. E-Trade has since broadened its offerings. In addition to the standard traditional IRA and Roth IRA, it also has an E-Trade Complete IRA that helps you manage withdrawals after you turn 59-1/2.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">You can choose from a number of prebuilt portfolios that match your risk tolerance. For an initial deposit of $500, you can build a portfolio made up of mutual funds. If you prefer ETFs, the minimum deposit is $2,500. You do not pay a fee for the portfolio, but you must pay each fund’s fee.</p>\r\n<p style=\"padding-left: 40px;\">For a 0.3 percent annual fee, E-Trade also offers a robo-advisor that is more customized than the prebuilt portfolios. You can choose from five sample portfolios. This option also gives you more control to increase or decrease investments to make your portfolio more or less aggressive.</p>\r\n\r\n<ul>\r\n \t<li><strong><a href=\"http://www.chase.com/personal/investments/you-invest\">JPMorgan Chase’s You Invest</a>:</strong> JPMorgan is competing aggressively with its You Invest offering. If you want to decide which investments you want, you can. The You Invest Trade offering lets you buy stocks and ETFs for $2.95. If you meet certain balance requirements, you may qualify for free trades.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">A separate offering called You Invest Portfolios is JPMorgan’s robo-advisor. You pay 0.3 percent of your portfolio balance, and JPMorgan puts you into its lineup of ETFs. What’s a bit different is that you don’t pay any fees for the underlying investments.</p>\r\nFor a summary of the offerings described in the preceding list, check out this table.\r\n<table width=\"472\"><caption><strong>Five Brokers to Consider for Your IRA</strong></caption>\r\n<tbody>\r\n<tr>\r\n<td width=\"106\"><strong>Broker/Bank</strong></td>\r\n<td width=\"90\"><strong>Stock Commission</strong></td>\r\n<td width=\"120\"><strong>Commission-Free ETFs Available</strong></td>\r\n<td width=\"156\"><strong>Robo-Advisor Fee (Annual)</strong></td>\r\n</tr>\r\n<tr>\r\n<td width=\"106\">Charles Schwab</td>\r\n<td width=\"90\">$0</td>\r\n<td width=\"120\">All trades free, including ETFs</td>\r\n<td width=\"156\">$0 for basic, $300+$30 a month for advanced version</td>\r\n</tr>\r\n<tr>\r\n<td width=\"106\">TD Ameritrade</td>\r\n<td width=\"90\">$0</td>\r\n<td width=\"120\">All trades free, including ETFs</td>\r\n<td width=\"156\">From 0.3% to 0.9% plus investment fees</td>\r\n</tr>\r\n<tr>\r\n<td width=\"106\">Ally</td>\r\n<td width=\"90\">$0</td>\r\n<td width=\"120\">All trades free, including ETFs</td>\r\n<td width=\"156\">0.3% plus investment fees</td>\r\n</tr>\r\n<tr>\r\n<td width=\"106\">E-Trade</td>\r\n<td width=\"90\">$0</td>\r\n<td width=\"120\">All trades free, including ETFs</td>\r\n<td width=\"156\">0.3% plus investment fees</td>\r\n</tr>\r\n<tr>\r\n<td width=\"106\">JPMorgan Chase’s You Invest</td>\r\n<td width=\"90\">$2.95 (after the first 100 free trades)</td>\r\n<td width=\"120\">First 100 trades free; some customers get more free trades if they have other relationships with the bank</td>\r\n<td width=\"156\">0.35%</td>\r\n</tr>\r\n</tbody>\r\n</table>\r\n<p class=\"article-tips tip\">Most major banks offer their customers IRAs. If you already have a savings or checking account with a bank, see whether an IRA account at the same bank makes sense. You might get additional perks if your balance is high enough.</p>\r\n\r\n<h2 id=\"tab5\" >Robo-advisors</h2>\r\nOnline shopping has made it easy to get a Bart Simpson chess set delivered to your door the next day. Technology is trying to bring the same convenience to your IRA.\r\n\r\nSome financial firms are first and foremost robo-advisors. Betterment and Wealthfront were pioneers in the robo-advisor business, but they broadened their offerings as traditional brokers launched robo-advisory businesses.\r\n\r\nWhy are online brokers opening their own robo-advisors? For people who don’t want to think about IRAs, a robo-advisor can be a good option. Just answer a risk questionnaire, and the system chooses a handful of investments that fit your risk profile. Most robo-advisors charge 0.3 percent or so a year, which is much less than the 1 percent or more charged by human advisors.\r\n\r\nIn addition to simplicity, robo-advisors offer the following advantages:\r\n<ul>\r\n \t<li><strong>Automatic rebalancing:</strong> All robo-advisors, including those from the mutual fund providers listed in the “Mutual fund companies” section and the brokers listed in Table 6-2, handle <em>rebalancing</em>. This is the process of shifting money from one asset class to another if one is doing so well you own too much of it.</li>\r\n \t<li><strong>Automatic tax-loss harvesting</strong>: If you’re losing money on an investment and sell it and then wait more than 30 days to buy it back, you might get a tax write-off. Most robo-advisors are smart enough to do this for you.</li>\r\n \t<li><strong>Instant diversification:</strong> You know to not put too many eggs in one basket. The same is true for investing. You can let a robo-advisor handle it for you.</li>\r\n \t<li><strong>Dollar investing:</strong> This perk is subtle. If you want to invest a set amount in your robo-advisor account, you can. The robo-advisor handles all the math on how many shares you can buy.</li>\r\n \t<li><strong>No commissions on transactions:</strong> Typically, after you pay the annual fee, there’s no commission when you buy or sell.</li>\r\n</ul>\r\n<p class=\"article-tips remember\">Most of these advantages of robo-advisors apply to the robo-advisory businesses of the brokers, too.</p>\r\nFollowing are the disadvantages of robo-advisors:\r\n<ul>\r\n \t<li><strong>Fees:</strong> All this robo-magic isn't free. You can save money by doing everything the robo-advisors do, including rebalancing. A 0.3 percent fee might sound small, but it adds up fast. The fee is $300 a year on a $100,000 portfolio. If you don’t trade much, a broker might cost less.</li>\r\n \t<li><strong>Little to no control:</strong> If you want any say in what you’re buying, a robo-advisor might frustrate you. Some robo-advisors allow you to customize what you’re buying, but fees might rise.</li>\r\n \t<li><strong>Difficulty seeing what you’re buying:</strong> Robo-advisors can be a black box. You might know only that you’re buying a stock ETF or a bond ETF, not that you're buying an ETF from BlackRock, Vanguard, or State Street, or another provider.</li>\r\n</ul>\r\nIf you’re looking to team up with a pure-play robo-advisor, consider the following:\r\n<ul>\r\n \t<li><strong><a href=\"http://www.betterment.com/\">Betterment</a>: </strong>When you get to Betterment’s site, shown here, you immediately get a sense of its mission: simplicity. The site breaks down the three objectives you might have: Getting started for the first time, completely automating your portfolio, and having more of a say.</li>\r\n</ul>\r\n[caption id=\"attachment_268823\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268823\" src=\"https://www.dummies.com/wp-content/uploads/retirement-betterment-robo.jpg\" alt=\"robo-advisor services from Betterment\" width=\"556\" height=\"440\" /> Betterment offers robo-advisor services and lets you set the level of automation.[/caption]\r\n<p style=\"padding-left: 40px;\">Unlike some robo-advisors, Betterment gives you more control and lets you tweak its suggestions. Prefer to be 30 percent invested in bonds rather than the 40 percent Betterment recommends? You can change the allocation.</p>\r\n<p style=\"padding-left: 40px;\">Betterment’s basic offering costs 0.25 percent a year, plus the fees of the underlying investments. If you want access to a financial planner, you can get the Premium service for 0.4 percent.</p>\r\n\r\n<ul>\r\n \t<li><strong><a href=\"http://www.wealthfront.com/\">Wealthfront</a>:</strong> Wealthfront is the chief pure-play robo-advisor rival to Betterment. Wealthfront is more focused on people who want total automation. It also adds some nice banking features. For instance, Wealthfront offers a high-interest savings account where you can put cash you don’t want to invest right now. Many brokers pay next to nothing for cash sitting in your account. The service charges 0.25 percent of the amount in your portfolio, including cash.</li>\r\n \t<li><strong><a href=\"http://www.personalcapital.com/\">Personal Capital</a>: </strong>At first, Personal Capital looks similar to a money-tracking service such as Mint.com. It has two powerful tools: The financial accounts monitoring tool helps you pinpoint your spending, and the retirement planning tool looks at your balances and tells you how you’re progressing toward retirement.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">But Personal Capital is also an advisory service, including a robo-advisor. For a 0.89 percent annual fee, Personal Capital will recommend a portfolio of ETFs. Personal Capital also offers live financial planners who will help you online not only with retirement planning but also other goals.</p>\r\n\r\n<ul>\r\n \t<li><strong><a href=\"http://www.acorns.com/\">Acorns</a>:</strong> When planning for retirement, you just have to get started—even if you have only a small amount to invest. Acorns takes this theory to the extreme. This robo-advisor lets you save and invest your pocket change.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">Acorns offers several services to help you with your spending and investing. And its Acorns Later service can give you a hand planning for retirement. It all starts with an Acorns debit card linked to an Acorns checking account. When you buy goods and services with your Acorns debit card, Acorns will round up the amount and invest the rest. If you buy a can of soda for $1.50, Acorns will round up to $2 and invest the 50 cents.</p>\r\n<p style=\"padding-left: 40px;\">You might decide to put this round-up money to work for retirement. If so, Acorns will recommend the right type of IRA for you. Everything is automatic, and Acorns will spread your money in a variety of ETFs, primarily from Vanguard.</p>\r\n<p class=\"article-tips warning\">The Acorns IRA service is a reasonable $2 a month—until you’re a millionaire. Then it’s a pricey $100 a month per million invested. Bill Gates, you might want to put your IRA somewhere else.</p>\r\nThis table compares the major robo-advisors.\r\n<table width=\"400\"><caption><strong>Comparing Robo-Advisors</strong></caption>\r\n<tbody>\r\n<tr>\r\n<td width=\"112\"><strong>Broker/Bank</strong></td>\r\n<td width=\"126\"><strong>Account Minimum</strong></td>\r\n<td width=\"162\"><strong>Robo-Advisor Fee (Annual)</strong></td>\r\n</tr>\r\n<tr>\r\n<td width=\"112\">Betterment</td>\r\n<td width=\"126\">$0 for basic digital and $100,000 for premium</td>\r\n<td width=\"162\">0.25% for basic digital and 0.4% for premium, plus investment fees</td>\r\n</tr>\r\n<tr>\r\n<td width=\"112\">Wealthfront</td>\r\n<td width=\"126\">$500 (more for additional services)</td>\r\n<td width=\"162\">0.25% plus investment fees</td>\r\n</tr>\r\n<tr>\r\n<td width=\"112\">Personal Capital</td>\r\n<td width=\"126\">$25,000</td>\r\n<td width=\"162\">0.89% for first $1 million invested</td>\r\n</tr>\r\n<tr>\r\n<td width=\"112\">Acorns Later</td>\r\n<td width=\"126\">$5</td>\r\n<td width=\"162\">$2 a month with under $1 million invested, and $100 per million a month after $1 million</td>\r\n</tr>\r\n</tbody>\r\n</table>","description":"Your IRA is an important part of your overall <a href=\"https://www.dummies.com/personal-finance/investing/retirement/retirement-planning-for-dummies-cheat-sheet/\">retirement plan</a>. One of the great perks of using an IRA is the full control you have over it. You’re free to choose the financial firm you’ll work with and your investments. But this extra control means you’ll have to do some additional legwork to get things set up to your specifications. Don’t let the choices stymie you.\r\n<h2 id=\"tab1\" >Know what you’d like to own</h2>\r\nIt might be tempting to call the usual suspects — the financial firms that always advertise their IRA services during golf matches. But first think a bit about what investments you plan to buy.\r\n\r\nThe number of financial firms offering IRA services is almost infinite. All the big players and many smaller ones will let you set up an IRA. Most will also waive setup costs just to get you in the door.\r\n\r\nIRA providers are distinguished by their investment menus. You'll typically put the following investments in an IRA:\r\n<ul>\r\n \t<li><strong>Individual securities:</strong> If you want total control, consider choosing individual bonds or stocks. Rather than owning a mutual fund that holds hundreds of stocks, you might want to own the ten stocks you like best.</li>\r\n \t<li><strong>Mutual funds:</strong> A mutual fund is the most common investment in IRAs. You put money into a fund that’s used to buy individual securities. You then pay a fee. With <em>index funds</em>, you own all the securities in an index, such as the Standard & Poor’s 500. With <em>active funds,</em> you pay fund managers to select the best investments. These funds usually cost more than index funds. Mutual funds are priced at the end of the day.</li>\r\n \t<li><strong>Exchange-traded fund (ETF):</strong> With an ETF, you own a portion of a basket of investments. Most ETFs are based on indexes and have very low fees. ETFs are priced like stocks, meaning their value changes during the day. ETFs are increasingly popular due to their low fees and no minimum investment.</li>\r\n</ul>\r\n<p class=\"article-tips tip\">If you want to actively trade individual stocks in your IRA, you might not get what you’re looking for from a traditional mutual fund company. Consider a discount broker instead. Similarly, if you like the products from a particular mutual fund company, you might want to work directly with that fund company to create an IRA. Keep your investment strategy in mind when you look at IRA providers.</p>\r\n\r\n<h2 id=\"tab2\" >Choose someone to handle your IRA</h2>\r\nThe company you choose to house your IRA is important because it will be your financial wingman.\r\n\r\nIf you call just about any financial firm and ask if they’ll take your IRA, the answer will always be yes. IRA customers are dream clients. They invest large sums of money, typically have jobs, and usually don’t touch the money for a long time. And many don’t pay attention to the fees they’re paying.\r\n\r\nWith that said, most of the firms you’ll want to consider for your IRA needs are in one of three main categories: mutual fund companies, traditional and discount brokerages, and robo-advisors.\r\n\r\nRobo-advisors are making waves in the IRA business. Originally, robo-advisors were a handful of tech startups with smart people who found a way to make the investing process easier. You’d go to a website and answer a survey, and the site would choose your investments and diversify your holdings. Robo-advisors measured your appetite for risk and spread your money over low-cost investments.\r\n<p class=\"article-tips remember\">But the world of robo-advisors has become blurry. Although many firms that are exclusively robo-advisors are still in action, mutual fund companies and brokerages are into the game, too. For example, mutual fund company Vanguard offers one of the most popular robo-advisor services. Keep the changing robo-advisors landscape in mind while considering which route is best for you. If you like your online brokerage, inquire to see if it offers a robo-advisor before moving your money to another firm.</p>\r\n\r\n<h2 id=\"tab3\" >Mutual fund companies</h2>\r\nAll mutual fund companies are happy to handle your IRA account, and most make the process as simple as possible. However, it’s difficult to paint them all with the same brush. For instance, just a few, such as Fidelity, have impressive technology tools. And only some mutual fund companies, Vanguard among them, have adopted innovations such as exchange-traded funds.\r\n\r\nIf you’re interested in using a mutual fund company, you need to understand the advantages and disadvantages it offers for your IRA.\r\n\r\nThe advantages of mutual fund companies follow:\r\n<ul>\r\n \t<li>If you buy the company’s own funds, you can often avoid paying trading commissions.</li>\r\n \t<li>Customer service representatives have a good understanding of the investments.</li>\r\n \t<li>The companies typically have long track records.</li>\r\n \t<li>These firms are focused on long-term retirement plans. You won’t be urged to buy hot stocks or to trade. Some mutual fund companies offer excellent educational materials to help you avoid making short-term decisions that you’ll regret later.</li>\r\n</ul>\r\nThe disadvantages of mutual fund companies follow:\r\n<ul>\r\n \t<li>You’re typically encouraged to use the offerings from just one fund family. This restriction might be a problem if you like, say, one fund company for bonds and another for stocks.</li>\r\n \t<li>Mutual fund companies are typically slow to innovate and might not offer some investments you're interested in.</li>\r\n \t<li>Their technology tools can be rudimentary.</li>\r\n \t<li>Popular target-date funds are made up of their own funds, which may or may not be the best for you.</li>\r\n</ul>\r\nSome of the largest mutual fund players follow:\r\n<ul>\r\n \t<li><strong><a href=\"http://www.vanguard.com/\">Vanguard</a></strong> is the king of low-cost passive investing. The company’s founder, John Bogle, created the company based on the idea that most mutual fund companies spend too much money trying to beat the market, when so few reliably do.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">With a Vanguard IRA, you can invest in the fund company’s massive suite of best-in-class index funds. You can open an account with an initial deposit of $1,000.</p>\r\n<p class=\"article-tips remember\">To buy many of Vanguard’s mutual funds, you must invest at least $3,000. There’s no cost other than the low Vanguard fund fees. And if you sign up for electronic documents, Vanguard will waive the $20 annual fee.</p>\r\n<p class=\"article-tips tip\">Vanguard is a leader in increasingly popular exchange-traded funds (ETFs). You can buy them for no commission at Vanguard, and many ETFs don’t have minimum deposits.</p>\r\n\r\n<ul>\r\n \t<li><strong><a href=\"http://www.fidelity.com/\">Fidelity</a></strong> shows that a mutual fund company can have major technology chops. The company’s website and mobile apps keep up with those offered by brokers and robo-advisors.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">Meanwhile, Fidelity is challenging Vanguard on the fees front. Fidelity offers a number of index mutual funds that do not charge an <em>expense ratio,</em> which is the annual fee you pay to own a fund and is measured as a percentage of how much you’ve invested. For example, if you have $10,000 invested and a fund has a 0.2 percent expense ratio, you'll pay a yearly fee of $20.</p>\r\n<p style=\"padding-left: 40px;\">Fidelity offers the Fidelity ZERO Large Cap Index Fund, which is even less expensive than the rock-bottom 0.05 percent annual fee charged by Vanguard’s comparable fund. Fidelity seems aware of its head-to-head competition with Vanguard, as you can see in the following figure.</p>\r\n<p style=\"padding-left: 40px;\">Fidelity also offers a range of <em>actively managed mutual funds,</em> which hire people who try to find stocks that they think will do better than index funds. These funds typically charge more than index funds, up to 1 percent.</p>\r\n\r\n\r\n[caption id=\"attachment_268825\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268825\" src=\"https://www.dummies.com/wp-content/uploads/retirement-fidelity-vs-vanguard.jpg\" alt=\"Fidelity vs. Vanguard\" width=\"556\" height=\"282\" /> Fidelity is challenging Vanguard for IRA dollars where it counts — fees.[/caption]\r\n<ul>\r\n \t<li><strong><a href=\"http://www.troweprice.com/\"> Rowe Price</a></strong> is a well-regarded traditional mutual fund company. What makes T. Rowe Price unique is that it focuses on actively managed funds. (It also offers a few index funds, but not as many as Vanguard or Fidelity.) Unlike some other actively managed fund companies, though, T. Rowe Price works directly with investors instead of only through financial advisors. The fees charged by T. Rowe Price funds tend to be higher than the fees for index funds.</li>\r\n</ul>\r\n<p class=\"article-tips tip\">Some of the other mutual fund companies that offer IRAs, such as <a href=\"http://www.franklintempleton.com/\">Franklin Templeton</a>, work directly with investors to set up accounts. If you're interested in a particular mutual fund company, see if they work directly with individual investors.</p>\r\nSome other large mutual fund companies, such as BlackRock, Invesco, and American Funds, typically work with financial advisors or brokerages. So, if you want a BlackRock fund in your IRA, you must hire an advisor to buy it for you or buy it yourself through a brokerage. You see how to do this later in the \"Connecting with a Financial Planner\" section.\r\n<h2 id=\"tab4\" >Traditional and discount online brokerages</h2>\r\nSticking with a mutual fund company may be comfortable and convenient, especially if you opened an IRA because your employer doesn’t provide a 401(k). But using a mutual fund company for your IRA takes away one of the reasons why you may have opened it: control. Using an IRA allows you to be in the driver’s seat of your retirement. Buckle up!\r\n\r\nFollowing are the advantages of an IRA:\r\n<ul>\r\n \t<li>You’re the boss. You can mix and match investment products from different providers.</li>\r\n \t<li>The brokers, especially discount online brokers, usually have best-in-class websites and apps.</li>\r\n \t<li>You have access to brokerage services. Many of these firms started as places to buy and sell stock. If you’re interested in online investing, you might want an account here.</li>\r\n \t<li>Many of these brokerages can not only hold your IRA but also help you with checking and savings accounts.</li>\r\n \t<li>Many brokerage firms have branches, so you can head to an office and meet with a person face-to-face.</li>\r\n \t<li>Online brokers are quick to add new features such as ETFs, robo-advisory services, and human help.</li>\r\n</ul>\r\nFollowing are the disadvantages of an IRA:\r\n<ul>\r\n \t<li>Commissions might be charged on investments you could get free elsewhere. This is especially true with some mutual funds.</li>\r\n \t<li>Brokers might steer you toward certain products.</li>\r\n \t<li>Some brokerages are more geared for online trading rather than long-term investing.</li>\r\n</ul>\r\nSome of the major players are the most popular names in financial services:\r\n<ul>\r\n \t<li><strong><a href=\"http://www.schwab.com/\">Charles Schwab</a>:</strong> It’s hard to talk about do-it-yourself IRAs without mentioning Chuck. An industry pioneer, Charles Schwab has just about any product you could want. You can buy mutual funds, including thousands with no commission. You can open any type of IRA with no fees and no minimum requirements. The company also offers its own ETFs and provides a robo-advisor, as shown in the following figure.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">And if you want to buy or sell individual stocks to avoid annual fees charged by funds, you can do that, too. Schwab used to charge $4.95 a trade. But in late 2019, Schwab, along with most of the major online brokers, cut stock trading commissions to $0. If you buy any of the 500 ETFs in its Schwab ETF OneSource, there’s no commission.</p>\r\n<p style=\"padding-left: 40px;\">Schwab also has offerings for people who are not interested in choosing their own investments. Its Schwab Intelligent Portfolios, which is essentially a robo-advisor, will assess your risk appetite and put your money in Schwab ETFs to fit your goals. There’s no fee for the service, but there is a $5,000 minimum. You’ll also pay the fees on the Schwab funds, which may not be the lowest. If you want a more customized portfolio, you can use Schwab Intelligent Portfolios Premium, which costs $300 upfront and $30 a month thereafter. The minimum deposit is $25,000.</p>\r\n<p class=\"article-tips warning\">Don’t be fooled by the so-called free nature of Schwab Intelligent Portfolios. You pay the underlying fees of the ETFs. Also, Schwab will put part of your portfolio in cash. That cash will get next to no return, which costs you in lost interest. For example, suppose Schwab puts $50,000 of your portfolio into cash. If you instead put that money in a savings account at 2 percent interest, you’d get roughly $1,000 a year in interest.</p>\r\n\r\n\r\n[caption id=\"attachment_268824\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268824\" src=\"https://www.dummies.com/wp-content/uploads/retirement-schwab-robo.jpg\" alt=\"Charles Schwab services\" width=\"556\" height=\"416\" /> Charles Schwab offers just about any financial service, including its own robo-advisor.[/caption]\r\n<ul>\r\n \t<li><strong><a href=\"http://www.tdameritrade.com/\">TD Ameritrade</a>:</strong> TD Ameritrade is another behemoth in the IRA business. The company, whose roots are in stock trading, is a leader in providing top-notch tools for monitoring your portfolio and the market. They also provide state-of-the-art stock and bond research tools. TD Ameritrade in 2019 cut its $6.95 per stock trade commission to $0. It also has no minimum and no ongoing fees.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">If you’re looking for more help, check out TD Ameritrade's Essential Portfolios, a robo-advisor that will put your money into low-cost ETFs to match your goals. You pay 0.3 percent a year for Essential Portfolios and up to 0.9 percent for more customized portfolios.</p>\r\n\r\n<ul>\r\n \t<li><strong><a href=\"http://www.ally.com/\">Ally</a></strong>: Ally has rapidly grown from being an online bank to a legitimate option for retirement investors. Ally is focused on two types of retirement investors: do-it-yourselfers and those looking for a turnkey solution.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">If you’re a do-it-yourselfer, you can buy and sell stocks, including ETFs, for no commission. If you’re looking for more automated help, Ally offers its Ally Invest Managed Portfolios, a service that is essentially a robo-advisor. You answer questions about your financial goals and Ally puts your money in a number of low-cost ETFs. The service charges a 0.3 percent fee on your balances.</p>\r\n\r\n<ul>\r\n \t<li><strong><a href=\"http://www.etrade.com/\">E-Trade</a>:</strong> This online brokerage firm has come a long way since its Super Bowl ads featuring a talking baby. Like TD Ameritrade, the company’s roots are in low-cost online stock trading, and it offers online stock trades for no commission. E-Trade has since broadened its offerings. In addition to the standard traditional IRA and Roth IRA, it also has an E-Trade Complete IRA that helps you manage withdrawals after you turn 59-1/2.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">You can choose from a number of prebuilt portfolios that match your risk tolerance. For an initial deposit of $500, you can build a portfolio made up of mutual funds. If you prefer ETFs, the minimum deposit is $2,500. You do not pay a fee for the portfolio, but you must pay each fund’s fee.</p>\r\n<p style=\"padding-left: 40px;\">For a 0.3 percent annual fee, E-Trade also offers a robo-advisor that is more customized than the prebuilt portfolios. You can choose from five sample portfolios. This option also gives you more control to increase or decrease investments to make your portfolio more or less aggressive.</p>\r\n\r\n<ul>\r\n \t<li><strong><a href=\"http://www.chase.com/personal/investments/you-invest\">JPMorgan Chase’s You Invest</a>:</strong> JPMorgan is competing aggressively with its You Invest offering. If you want to decide which investments you want, you can. The You Invest Trade offering lets you buy stocks and ETFs for $2.95. If you meet certain balance requirements, you may qualify for free trades.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">A separate offering called You Invest Portfolios is JPMorgan’s robo-advisor. You pay 0.3 percent of your portfolio balance, and JPMorgan puts you into its lineup of ETFs. What’s a bit different is that you don’t pay any fees for the underlying investments.</p>\r\nFor a summary of the offerings described in the preceding list, check out this table.\r\n<table width=\"472\"><caption><strong>Five Brokers to Consider for Your IRA</strong></caption>\r\n<tbody>\r\n<tr>\r\n<td width=\"106\"><strong>Broker/Bank</strong></td>\r\n<td width=\"90\"><strong>Stock Commission</strong></td>\r\n<td width=\"120\"><strong>Commission-Free ETFs Available</strong></td>\r\n<td width=\"156\"><strong>Robo-Advisor Fee (Annual)</strong></td>\r\n</tr>\r\n<tr>\r\n<td width=\"106\">Charles Schwab</td>\r\n<td width=\"90\">$0</td>\r\n<td width=\"120\">All trades free, including ETFs</td>\r\n<td width=\"156\">$0 for basic, $300+$30 a month for advanced version</td>\r\n</tr>\r\n<tr>\r\n<td width=\"106\">TD Ameritrade</td>\r\n<td width=\"90\">$0</td>\r\n<td width=\"120\">All trades free, including ETFs</td>\r\n<td width=\"156\">From 0.3% to 0.9% plus investment fees</td>\r\n</tr>\r\n<tr>\r\n<td width=\"106\">Ally</td>\r\n<td width=\"90\">$0</td>\r\n<td width=\"120\">All trades free, including ETFs</td>\r\n<td width=\"156\">0.3% plus investment fees</td>\r\n</tr>\r\n<tr>\r\n<td width=\"106\">E-Trade</td>\r\n<td width=\"90\">$0</td>\r\n<td width=\"120\">All trades free, including ETFs</td>\r\n<td width=\"156\">0.3% plus investment fees</td>\r\n</tr>\r\n<tr>\r\n<td width=\"106\">JPMorgan Chase’s You Invest</td>\r\n<td width=\"90\">$2.95 (after the first 100 free trades)</td>\r\n<td width=\"120\">First 100 trades free; some customers get more free trades if they have other relationships with the bank</td>\r\n<td width=\"156\">0.35%</td>\r\n</tr>\r\n</tbody>\r\n</table>\r\n<p class=\"article-tips tip\">Most major banks offer their customers IRAs. If you already have a savings or checking account with a bank, see whether an IRA account at the same bank makes sense. You might get additional perks if your balance is high enough.</p>\r\n\r\n<h2 id=\"tab5\" >Robo-advisors</h2>\r\nOnline shopping has made it easy to get a Bart Simpson chess set delivered to your door the next day. Technology is trying to bring the same convenience to your IRA.\r\n\r\nSome financial firms are first and foremost robo-advisors. Betterment and Wealthfront were pioneers in the robo-advisor business, but they broadened their offerings as traditional brokers launched robo-advisory businesses.\r\n\r\nWhy are online brokers opening their own robo-advisors? For people who don’t want to think about IRAs, a robo-advisor can be a good option. Just answer a risk questionnaire, and the system chooses a handful of investments that fit your risk profile. Most robo-advisors charge 0.3 percent or so a year, which is much less than the 1 percent or more charged by human advisors.\r\n\r\nIn addition to simplicity, robo-advisors offer the following advantages:\r\n<ul>\r\n \t<li><strong>Automatic rebalancing:</strong> All robo-advisors, including those from the mutual fund providers listed in the “Mutual fund companies” section and the brokers listed in Table 6-2, handle <em>rebalancing</em>. This is the process of shifting money from one asset class to another if one is doing so well you own too much of it.</li>\r\n \t<li><strong>Automatic tax-loss harvesting</strong>: If you’re losing money on an investment and sell it and then wait more than 30 days to buy it back, you might get a tax write-off. Most robo-advisors are smart enough to do this for you.</li>\r\n \t<li><strong>Instant diversification:</strong> You know to not put too many eggs in one basket. The same is true for investing. You can let a robo-advisor handle it for you.</li>\r\n \t<li><strong>Dollar investing:</strong> This perk is subtle. If you want to invest a set amount in your robo-advisor account, you can. The robo-advisor handles all the math on how many shares you can buy.</li>\r\n \t<li><strong>No commissions on transactions:</strong> Typically, after you pay the annual fee, there’s no commission when you buy or sell.</li>\r\n</ul>\r\n<p class=\"article-tips remember\">Most of these advantages of robo-advisors apply to the robo-advisory businesses of the brokers, too.</p>\r\nFollowing are the disadvantages of robo-advisors:\r\n<ul>\r\n \t<li><strong>Fees:</strong> All this robo-magic isn't free. You can save money by doing everything the robo-advisors do, including rebalancing. A 0.3 percent fee might sound small, but it adds up fast. The fee is $300 a year on a $100,000 portfolio. If you don’t trade much, a broker might cost less.</li>\r\n \t<li><strong>Little to no control:</strong> If you want any say in what you’re buying, a robo-advisor might frustrate you. Some robo-advisors allow you to customize what you’re buying, but fees might rise.</li>\r\n \t<li><strong>Difficulty seeing what you’re buying:</strong> Robo-advisors can be a black box. You might know only that you’re buying a stock ETF or a bond ETF, not that you're buying an ETF from BlackRock, Vanguard, or State Street, or another provider.</li>\r\n</ul>\r\nIf you’re looking to team up with a pure-play robo-advisor, consider the following:\r\n<ul>\r\n \t<li><strong><a href=\"http://www.betterment.com/\">Betterment</a>: </strong>When you get to Betterment’s site, shown here, you immediately get a sense of its mission: simplicity. The site breaks down the three objectives you might have: Getting started for the first time, completely automating your portfolio, and having more of a say.</li>\r\n</ul>\r\n[caption id=\"attachment_268823\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268823\" src=\"https://www.dummies.com/wp-content/uploads/retirement-betterment-robo.jpg\" alt=\"robo-advisor services from Betterment\" width=\"556\" height=\"440\" /> Betterment offers robo-advisor services and lets you set the level of automation.[/caption]\r\n<p style=\"padding-left: 40px;\">Unlike some robo-advisors, Betterment gives you more control and lets you tweak its suggestions. Prefer to be 30 percent invested in bonds rather than the 40 percent Betterment recommends? You can change the allocation.</p>\r\n<p style=\"padding-left: 40px;\">Betterment’s basic offering costs 0.25 percent a year, plus the fees of the underlying investments. If you want access to a financial planner, you can get the Premium service for 0.4 percent.</p>\r\n\r\n<ul>\r\n \t<li><strong><a href=\"http://www.wealthfront.com/\">Wealthfront</a>:</strong> Wealthfront is the chief pure-play robo-advisor rival to Betterment. Wealthfront is more focused on people who want total automation. It also adds some nice banking features. For instance, Wealthfront offers a high-interest savings account where you can put cash you don’t want to invest right now. Many brokers pay next to nothing for cash sitting in your account. The service charges 0.25 percent of the amount in your portfolio, including cash.</li>\r\n \t<li><strong><a href=\"http://www.personalcapital.com/\">Personal Capital</a>: </strong>At first, Personal Capital looks similar to a money-tracking service such as Mint.com. It has two powerful tools: The financial accounts monitoring tool helps you pinpoint your spending, and the retirement planning tool looks at your balances and tells you how you’re progressing toward retirement.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">But Personal Capital is also an advisory service, including a robo-advisor. For a 0.89 percent annual fee, Personal Capital will recommend a portfolio of ETFs. Personal Capital also offers live financial planners who will help you online not only with retirement planning but also other goals.</p>\r\n\r\n<ul>\r\n \t<li><strong><a href=\"http://www.acorns.com/\">Acorns</a>:</strong> When planning for retirement, you just have to get started—even if you have only a small amount to invest. Acorns takes this theory to the extreme. This robo-advisor lets you save and invest your pocket change.</li>\r\n</ul>\r\n<p style=\"padding-left: 40px;\">Acorns offers several services to help you with your spending and investing. And its Acorns Later service can give you a hand planning for retirement. It all starts with an Acorns debit card linked to an Acorns checking account. When you buy goods and services with your Acorns debit card, Acorns will round up the amount and invest the rest. If you buy a can of soda for $1.50, Acorns will round up to $2 and invest the 50 cents.</p>\r\n<p style=\"padding-left: 40px;\">You might decide to put this round-up money to work for retirement. If so, Acorns will recommend the right type of IRA for you. Everything is automatic, and Acorns will spread your money in a variety of ETFs, primarily from Vanguard.</p>\r\n<p class=\"article-tips warning\">The Acorns IRA service is a reasonable $2 a month—until you’re a millionaire. Then it’s a pricey $100 a month per million invested. Bill Gates, you might want to put your IRA somewhere else.</p>\r\nThis table compares the major robo-advisors.\r\n<table width=\"400\"><caption><strong>Comparing Robo-Advisors</strong></caption>\r\n<tbody>\r\n<tr>\r\n<td width=\"112\"><strong>Broker/Bank</strong></td>\r\n<td width=\"126\"><strong>Account Minimum</strong></td>\r\n<td width=\"162\"><strong>Robo-Advisor Fee (Annual)</strong></td>\r\n</tr>\r\n<tr>\r\n<td width=\"112\">Betterment</td>\r\n<td width=\"126\">$0 for basic digital and $100,000 for premium</td>\r\n<td width=\"162\">0.25% for basic digital and 0.4% for premium, plus investment fees</td>\r\n</tr>\r\n<tr>\r\n<td width=\"112\">Wealthfront</td>\r\n<td width=\"126\">$500 (more for additional services)</td>\r\n<td width=\"162\">0.25% plus investment fees</td>\r\n</tr>\r\n<tr>\r\n<td width=\"112\">Personal Capital</td>\r\n<td width=\"126\">$25,000</td>\r\n<td width=\"162\">0.89% for first $1 million invested</td>\r\n</tr>\r\n<tr>\r\n<td width=\"112\">Acorns Later</td>\r\n<td width=\"126\">$5</td>\r\n<td width=\"162\">$2 a month with under $1 million invested, and $100 per million a month after $1 million</td>\r\n</tr>\r\n</tbody>\r\n</table>","blurb":"","authors":[{"authorId":33279,"name":"Matthew Krantz","slug":"matthew-krantz","description":"<b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i>","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/33279"}}],"primaryCategoryTaxonomy":{"categoryId":34308,"title":"Retirement","slug":"retirement","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34308"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[{"label":"Know what you’d like to own","target":"#tab1"},{"label":"Choose someone to handle your IRA","target":"#tab2"},{"label":"Mutual fund companies","target":"#tab3"},{"label":"Traditional and discount online brokerages","target":"#tab4"},{"label":"Robo-advisors","target":"#tab5"}],"relatedArticles":{"fromBook":[{"articleId":268853,"title":"How to Manage Your Pension","slug":"how-to-manage-your-pension","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268853"}},{"articleId":268848,"title":"How to Take Money Out of Your IRA","slug":"how-to-take-money-out-of-your-ira","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268848"}},{"articleId":268843,"title":"How to Manage Your IRA Contributions","slug":"how-to-manage-your-ira-contributions","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268843"}},{"articleId":268838,"title":"How to Get Online with Your IRA Provider","slug":"how-to-get-online-with-your-ira-provider","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268838"}},{"articleId":268829,"title":"How to Get Online Access to Your 401(k)","slug":"how-to-get-online-access-to-your-401k","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268829"}}],"fromCategory":[{"articleId":288529,"title":"401(k)s and IRAs For Dummies Cheat Sheet","slug":"401ks-and-iras-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/288529"}},{"articleId":268853,"title":"How to Manage Your Pension","slug":"how-to-manage-your-pension","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268853"}},{"articleId":268848,"title":"How to Take Money Out of Your IRA","slug":"how-to-take-money-out-of-your-ira","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268848"}},{"articleId":268843,"title":"How to Manage Your IRA Contributions","slug":"how-to-manage-your-ira-contributions","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268843"}},{"articleId":268838,"title":"How to Get Online with Your IRA Provider","slug":"how-to-get-online-with-your-ira-provider","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268838"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":281850,"slug":"retirement-planning-for-dummies","isbn":"9781119627579","categoryList":["business-careers-money","personal-finance","retirement"],"amazon":{"default":"https://www.amazon.com/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/1119627575-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":"https://www.dummies.com/wp-content/uploads/retirement-planning-for-dummies-cover-9781119627579-203x255.jpg","width":203,"height":255},"title":"Retirement Planning For Dummies","testBankPinActivationLink":"","bookOutOfPrint":true,"authorsInfo":"<p><b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i></p>","authors":[{"authorId":33279,"name":"Matthew Krantz","slug":"matthew-krantz","description":"<b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i>","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/33279"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;retirement&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119627579&quot;]}]\" id=\"du-slot-63221abe9d130\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;retirement&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119627579&quot;]}]\" id=\"du-slot-63221abe9da1f\"></div></div>"},"articleType":{"articleType":"Articles","articleList":null,"content":null,"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Explore","lifeExpectancy":null,"lifeExpectancySetFrom":null,"dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":268822},{"headers":{"creationTime":"2020-03-04T02:44:22+00:00","modifiedTime":"2020-03-04T02:44:22+00:00","timestamp":"2022-09-14T18:17:34+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Retirement","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34308"},"slug":"retirement","categoryId":34308}],"title":"How to Protect Your Retirement Money with Insurance","strippedTitle":"how to protect your retirement money with insurance","slug":"how-to-protect-your-retirement-money-with-insurance","canonicalUrl":"","seo":{"metaDescription":"Protecting your retirement funds from disaster is part of retirement planning. Use insurance to make sure your plan can withstand unexpected events.","noIndex":0,"noFollow":0},"content":"Protecting your retirement funds from disaster is a critical part of retirement planning. That’s where insurance comes in. You want to make sure your plan can withstand an unexpected event. Typically, health scares are the culprits in disrupting a plan, but home and auto accidents can be major expenses, too.\r\n<p class=\"article-tips tip\">Find your insurance declaration pages. These documents will tell you how much coverage you have, which you’ll need to evaluate your plan and make certain you’re protected.</p>\r\n\r\n<h2 id=\"tab1\" >Check property and casualty coverages</h2>\r\nIf you’re <a href=\"https://www.dummies.com/personal-finance/investing/retirement/retirement-planning-for-dummies-cheat-sheet/\">planning for retirement</a>, it’s important that you have in place the right amount of automobile and homeowner's (or renter's) insurance coverage, in addition to healthcare coverage:\r\n<ul>\r\n \t<li><strong>Automobile insurance:</strong> Your car can be the source of enormous financial losses, not only to your vehicle but to someone else's vehicle and other personal property. Additionally, the financial hit from injuries can wipe out a financial plan overnight. If you’re nearing retirement age, you likely have significant assets to protect. Simply accepting the minimum coverage required by your state is likely not enough.</li>\r\n \t<li><strong>Homeowner's (or renter's) insurance:</strong> If you own your home, it might be one of the pieces of bedrock in your financial plan. If you don’t have rent or a mortgage, you’re well ahead of those who spend 30 percent of their budget for housing. Protecting your home from a devastating fire or other catastrophe is important. Don’t count on the insurance company to verify that you have enough coverage. Renters insurance can help safeguard your personal belongings.</li>\r\n</ul>\r\n<p class=\"article-tips tip\">Insurance needs remain fairly unchanged as you near retirement—you need to protect your home whether you’re 34 or 64. But one factor that you might want to modify as you age is your deductible.</p>\r\nYour <em>deductible</em> is how much of a loss you’re responsible for in an accident. Let’s say your car sustains $1,500 in damage. If you’re young, you might not have the financial resources to handle a large hit and so you opt for a lower $250 deductible. The lower deductible comes at a cost, in the form of a higher monthly payment.\r\n\r\nAs you age, however, you probably have a larger financial reserve. One easy way to save money on insurance is to push up your deductible to $1,000 and save on your monthly premiums.\r\n\r\nLog into your insurance provider’s site, as shown, to see whether a higher deductible is available. You’ll also want to double-check that the limits are appropriate.\r\n\r\n[caption id=\"attachment_268818\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268818\" src=\"https://www.dummies.com/wp-content/uploads/retirement-insurance-policy-limits.jpg\" alt=\"insurance policy limits\" width=\"556\" height=\"313\" /> Check your homeowner's and auto policy limits to see if you can boost your deductible to lower your premiums.[/caption]\r\n<h2 id=\"tab2\" >Get ready for a rainy day: Umbrella insurance</h2>\r\nKnowing your coverage limits on your automotive and homeowner’s insurance policies unlocks the next phase of insurance. As you age and amass more money, you have more at risk from a big accident. Not only do you have more money to lose, you have less time to recover from a financial blow.\r\n\r\nAfter looking at your limits on your homeowner’s and automotive plans, you might see a disconnect. If your net worth exceeds your insurance limits, that’s a red flag. If you’ve accumulated a big nest egg, you don’t want to see it evaporate if you’re caught in a massive car pileup on the freeway. Similarly, if someone gets seriously hurt on your property, lawsuit damages can be enormous.\r\n\r\nHow do you protect yourself other than never leaving the house or never inviting someone over to visit? Enter <em>umbrella insurance,</em> which unlocks millions of dollars of extra coverage beyond what your homeowner’s and auto policies cover.\r\n<p class=\"article-tips tip\">Umbrella policies don’t kick in until the limits of your homeowner’s and automotive policies are exceeded. Because the umbrella policy doesn’t pay anything until your homeowner's or auto policy’s limit is topped, the rates on umbrella policies tend to be reasonable. It’s common to buy $1 million of coverage for $100 or $200 a year. It’s a small price to pay for such a large amount of protection and peace of mind.</p>\r\nHow much umbrella coverage to you need? You could figure it out yourself, but I like <a href=\"http://www.kiplinger.com/tool/insurance/T028-S002-how-much-umbrella-insurance-do-i-need/index.php\">Kiplinger’s How Much Umbrella Insurance Do I Need? calculator</a>. The calculator, which is shown here, helps you buy just enough umbrella insurance to safeguard you from a major financial shock.\r\n\r\n[caption id=\"attachment_268817\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268817\" src=\"https://www.dummies.com/wp-content/uploads/retirement-umbrella-insurance.jpg\" alt=\"umbrella insurance\" width=\"556\" height=\"350\" /> Kiplinger’s umbrella insurance tool helps you protect yourself without paying too much.[/caption]\r\n\r\nTo use the calculator, start with your net worth and work backwards:\r\n<ol>\r\n \t<li><strong> Enter your net worth.\r\n</strong>Your <em>net worth</em> is the value of what you own minus what you owe.\r\n<p class=\"article-tips tip\">To err on the side of safety, consider buying an umbrella policy valued at your net worth. Yes, some of your money is protected against creditors, as you’ll see in Steps 2 and 3. But when you take the money out of protected accounts, such as retirement accounts, it’s exposed. This approach isn’t necessarily recommended, but it's a conservative way to go.</p>\r\n</li>\r\n \t<li><strong> Enter your home equity value.\r\n</strong>The <em>equity value</em> is the market value of your home minus mortgages or loans. Most states protect at least some of your home equity. The Kiplinger calculator can tabulate how much of your home equity is at risk.</li>\r\n \t<li><strong> Enter your retirement plan balances.</strong>\r\nEnter the value of your retirement plans, including 401(k), IRA, Roth IRA, SIMPLE IRA, and SEP IRA. Assets held in these accounts are protected from creditors.</li>\r\n \t<li><strong> Set a limit to your homeowner's and auto policies.\r\n</strong>Remember that your auto and homeowner’s liability coverage pays injury claims first. Most umbrella policy insurers will require your homeowner's liability limit to be $250,000 or higher. And you’ll likely need to have a per-person liability limit on your auto policy of $250,000 or more and $500,000 per accident.</li>\r\n</ol>\r\n<p class=\"article-tips tip\">You’ll usually get the most bang from your insurance buck if you raise your auto and homeowner's liability limits to the lowest required by your umbrella policy provider. Because you buy umbrella coverage in giant $1 million chunks, you can usually boost your total protection at a lower cost with an umbrella than with homeowner's or auto policy limits. Also, to save money on premiums, see if you can get your umbrella policy from the same company that provides your auto and homeowner’s policies. It’s also easier to coordinate payments from a single company.</p>\r\n\r\n<h2 id=\"tab3\" >Protect your family with life insurance</h2>\r\nThinking about all the things that can go wrong in life is no fun. That’s why I left the chapter on insurance for the end of the book. Planning for retirement should be fun. It gets you thinking about what’s most important in life and how to enjoy what you have for as long as possible.\r\n\r\nBut you need to prepare for unhappy events, too.\r\n<h3>Understanding the benefits of life insurance</h3>\r\nLife insurance isn’t for you. It’s for your beneficiaries. You buy a life insurance policy on your life with the idea that it will cover your financial role if you pass away. Life insurance is especially critical when you’re starting a family. If you’re the primary breadwinner and you die, imagine the financial hardship your family would suffer.\r\n\r\nTo combat this potentially cataclysmic crisis, you can buy a <em>term-life insurance</em> policy. By agreeing to pay an annual premium, if you were to die in a certain amount of time (or term), the insurance company agrees to pay out a pre-determined sum of money. The premium is the fee you pay to keep the policy active.\r\n<p class=\"article-tips tip\">Life insurance is there only to take care of people who count on you financially, after you die. If you’re not supporting anyone financially, you probably don’t need life insurance. Also, other forms of life insurance wrap savings and investment plans in with the death benefit. These plans are called whole-life plans. Whole-life plans might make sense for a subset of people, but they’re so complicated and potentially expensive that you should consult with an expert before buying one. Or you could just buy a term-life insurance policy and keep it simple.</p>\r\n\r\n<h3>Estimating how much life insurance you need</h3>\r\nIf you decide that you need life insurance, the next question is how much coverage you require. Some excellent online calculators, such as the following, can help you make the calculations:\r\n<ul>\r\n \t<li><a href=\"https://lifehappens.org/insurance-overview/life-insurance/calculate-your-needs\"><strong>LifeHappens Calculate Your Needs calculator</strong></a><strong>: </strong>Steps you through the important questions you need to answer to decide how much life insurance coverage you need. As you can see in Figure 16-8, the site shows you the two variables that determine how much money your dependents would need if you died and in the future. The site helps you measure both.</li>\r\n</ul>\r\n[caption id=\"attachment_268816\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268816\" src=\"https://www.dummies.com/wp-content/uploads/retirement-lifehappens.jpg\" alt=\"life insurance tool\" width=\"556\" height=\"449\" /> LifeHappens provides many useful tools to help you see how much life insurance you need.[/caption]\r\n<ul>\r\n \t<li><a href=\"https://lifehappens.org/insurance-calculators/calculate-human-life-value/\"><strong>LifeHappens Human Life Calculator</strong></a><strong>:</strong> Puts a price tag on your existence by showing how much of a financial blow your family would suffer if you died today. Putting a price tag on your life is another way to think about your life insurance needs, as you can see in the sidebar, “What’s a Life Worth?” The calculator is an eye-opening tabulation of what a human life is worth.</li>\r\n \t<li><a href=\"http://www.bankrate.com/calculators/insurance/life-insurance-calculator.aspx\"><strong>Bankrate Life Insurance Calculator</strong></a><strong>: </strong>Looks at the question of how much life insurance you need in a slightly different way. Most life insurance calculators differ in their approach, so it’s a good idea to run your numbers through a few.</li>\r\n</ul>\r\n<p class=\"article-tips tip\">Don’t fixate too much on how much life insurance you need. The biggest question is whether or not you need it. And if you do need it, don’t waste any time. Just buy it. An easy rule-of-thumb on how much you and your spouse collectively need is to buy? You’ll want a policy with a payout that’s 10 times your combined household income.</p>\r\n\r\n<h3>Buying life insurance</h3>\r\nTalk about a tough sell. How would you like to buy something that costs you money every year, doesn't benefit you personally, and pays out only if you die? Not exactly uplifting.\r\n\r\nThat’s why the moment someone hears that you’re interested in buying life insurance, sellers will come out of the woodwork to sell you a policy. Just search for <em>life insurance</em> online and you'll get life insurance ads on your screen for months.\r\n\r\nIf you do decide that you’re ready to buy a policy, first check with the carrier that provides your auto, homeowner’s, or umbrella coverage. Most also sell life insurance and provide a multi-policy discount. In addition, online insurance forums, such as LendingTree.com and SelectQuote, will shop your insurance needs against a network of bidders. You can then compare coverage and prices to get the best combination for you.","description":"Protecting your retirement funds from disaster is a critical part of retirement planning. That’s where insurance comes in. You want to make sure your plan can withstand an unexpected event. Typically, health scares are the culprits in disrupting a plan, but home and auto accidents can be major expenses, too.\r\n<p class=\"article-tips tip\">Find your insurance declaration pages. These documents will tell you how much coverage you have, which you’ll need to evaluate your plan and make certain you’re protected.</p>\r\n\r\n<h2 id=\"tab1\" >Check property and casualty coverages</h2>\r\nIf you’re <a href=\"https://www.dummies.com/personal-finance/investing/retirement/retirement-planning-for-dummies-cheat-sheet/\">planning for retirement</a>, it’s important that you have in place the right amount of automobile and homeowner's (or renter's) insurance coverage, in addition to healthcare coverage:\r\n<ul>\r\n \t<li><strong>Automobile insurance:</strong> Your car can be the source of enormous financial losses, not only to your vehicle but to someone else's vehicle and other personal property. Additionally, the financial hit from injuries can wipe out a financial plan overnight. If you’re nearing retirement age, you likely have significant assets to protect. Simply accepting the minimum coverage required by your state is likely not enough.</li>\r\n \t<li><strong>Homeowner's (or renter's) insurance:</strong> If you own your home, it might be one of the pieces of bedrock in your financial plan. If you don’t have rent or a mortgage, you’re well ahead of those who spend 30 percent of their budget for housing. Protecting your home from a devastating fire or other catastrophe is important. Don’t count on the insurance company to verify that you have enough coverage. Renters insurance can help safeguard your personal belongings.</li>\r\n</ul>\r\n<p class=\"article-tips tip\">Insurance needs remain fairly unchanged as you near retirement—you need to protect your home whether you’re 34 or 64. But one factor that you might want to modify as you age is your deductible.</p>\r\nYour <em>deductible</em> is how much of a loss you’re responsible for in an accident. Let’s say your car sustains $1,500 in damage. If you’re young, you might not have the financial resources to handle a large hit and so you opt for a lower $250 deductible. The lower deductible comes at a cost, in the form of a higher monthly payment.\r\n\r\nAs you age, however, you probably have a larger financial reserve. One easy way to save money on insurance is to push up your deductible to $1,000 and save on your monthly premiums.\r\n\r\nLog into your insurance provider’s site, as shown, to see whether a higher deductible is available. You’ll also want to double-check that the limits are appropriate.\r\n\r\n[caption id=\"attachment_268818\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268818\" src=\"https://www.dummies.com/wp-content/uploads/retirement-insurance-policy-limits.jpg\" alt=\"insurance policy limits\" width=\"556\" height=\"313\" /> Check your homeowner's and auto policy limits to see if you can boost your deductible to lower your premiums.[/caption]\r\n<h2 id=\"tab2\" >Get ready for a rainy day: Umbrella insurance</h2>\r\nKnowing your coverage limits on your automotive and homeowner’s insurance policies unlocks the next phase of insurance. As you age and amass more money, you have more at risk from a big accident. Not only do you have more money to lose, you have less time to recover from a financial blow.\r\n\r\nAfter looking at your limits on your homeowner’s and automotive plans, you might see a disconnect. If your net worth exceeds your insurance limits, that’s a red flag. If you’ve accumulated a big nest egg, you don’t want to see it evaporate if you’re caught in a massive car pileup on the freeway. Similarly, if someone gets seriously hurt on your property, lawsuit damages can be enormous.\r\n\r\nHow do you protect yourself other than never leaving the house or never inviting someone over to visit? Enter <em>umbrella insurance,</em> which unlocks millions of dollars of extra coverage beyond what your homeowner’s and auto policies cover.\r\n<p class=\"article-tips tip\">Umbrella policies don’t kick in until the limits of your homeowner’s and automotive policies are exceeded. Because the umbrella policy doesn’t pay anything until your homeowner's or auto policy’s limit is topped, the rates on umbrella policies tend to be reasonable. It’s common to buy $1 million of coverage for $100 or $200 a year. It’s a small price to pay for such a large amount of protection and peace of mind.</p>\r\nHow much umbrella coverage to you need? You could figure it out yourself, but I like <a href=\"http://www.kiplinger.com/tool/insurance/T028-S002-how-much-umbrella-insurance-do-i-need/index.php\">Kiplinger’s How Much Umbrella Insurance Do I Need? calculator</a>. The calculator, which is shown here, helps you buy just enough umbrella insurance to safeguard you from a major financial shock.\r\n\r\n[caption id=\"attachment_268817\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268817\" src=\"https://www.dummies.com/wp-content/uploads/retirement-umbrella-insurance.jpg\" alt=\"umbrella insurance\" width=\"556\" height=\"350\" /> Kiplinger’s umbrella insurance tool helps you protect yourself without paying too much.[/caption]\r\n\r\nTo use the calculator, start with your net worth and work backwards:\r\n<ol>\r\n \t<li><strong> Enter your net worth.\r\n</strong>Your <em>net worth</em> is the value of what you own minus what you owe.\r\n<p class=\"article-tips tip\">To err on the side of safety, consider buying an umbrella policy valued at your net worth. Yes, some of your money is protected against creditors, as you’ll see in Steps 2 and 3. But when you take the money out of protected accounts, such as retirement accounts, it’s exposed. This approach isn’t necessarily recommended, but it's a conservative way to go.</p>\r\n</li>\r\n \t<li><strong> Enter your home equity value.\r\n</strong>The <em>equity value</em> is the market value of your home minus mortgages or loans. Most states protect at least some of your home equity. The Kiplinger calculator can tabulate how much of your home equity is at risk.</li>\r\n \t<li><strong> Enter your retirement plan balances.</strong>\r\nEnter the value of your retirement plans, including 401(k), IRA, Roth IRA, SIMPLE IRA, and SEP IRA. Assets held in these accounts are protected from creditors.</li>\r\n \t<li><strong> Set a limit to your homeowner's and auto policies.\r\n</strong>Remember that your auto and homeowner’s liability coverage pays injury claims first. Most umbrella policy insurers will require your homeowner's liability limit to be $250,000 or higher. And you’ll likely need to have a per-person liability limit on your auto policy of $250,000 or more and $500,000 per accident.</li>\r\n</ol>\r\n<p class=\"article-tips tip\">You’ll usually get the most bang from your insurance buck if you raise your auto and homeowner's liability limits to the lowest required by your umbrella policy provider. Because you buy umbrella coverage in giant $1 million chunks, you can usually boost your total protection at a lower cost with an umbrella than with homeowner's or auto policy limits. Also, to save money on premiums, see if you can get your umbrella policy from the same company that provides your auto and homeowner’s policies. It’s also easier to coordinate payments from a single company.</p>\r\n\r\n<h2 id=\"tab3\" >Protect your family with life insurance</h2>\r\nThinking about all the things that can go wrong in life is no fun. That’s why I left the chapter on insurance for the end of the book. Planning for retirement should be fun. It gets you thinking about what’s most important in life and how to enjoy what you have for as long as possible.\r\n\r\nBut you need to prepare for unhappy events, too.\r\n<h3>Understanding the benefits of life insurance</h3>\r\nLife insurance isn’t for you. It’s for your beneficiaries. You buy a life insurance policy on your life with the idea that it will cover your financial role if you pass away. Life insurance is especially critical when you’re starting a family. If you’re the primary breadwinner and you die, imagine the financial hardship your family would suffer.\r\n\r\nTo combat this potentially cataclysmic crisis, you can buy a <em>term-life insurance</em> policy. By agreeing to pay an annual premium, if you were to die in a certain amount of time (or term), the insurance company agrees to pay out a pre-determined sum of money. The premium is the fee you pay to keep the policy active.\r\n<p class=\"article-tips tip\">Life insurance is there only to take care of people who count on you financially, after you die. If you’re not supporting anyone financially, you probably don’t need life insurance. Also, other forms of life insurance wrap savings and investment plans in with the death benefit. These plans are called whole-life plans. Whole-life plans might make sense for a subset of people, but they’re so complicated and potentially expensive that you should consult with an expert before buying one. Or you could just buy a term-life insurance policy and keep it simple.</p>\r\n\r\n<h3>Estimating how much life insurance you need</h3>\r\nIf you decide that you need life insurance, the next question is how much coverage you require. Some excellent online calculators, such as the following, can help you make the calculations:\r\n<ul>\r\n \t<li><a href=\"https://lifehappens.org/insurance-overview/life-insurance/calculate-your-needs\"><strong>LifeHappens Calculate Your Needs calculator</strong></a><strong>: </strong>Steps you through the important questions you need to answer to decide how much life insurance coverage you need. As you can see in Figure 16-8, the site shows you the two variables that determine how much money your dependents would need if you died and in the future. The site helps you measure both.</li>\r\n</ul>\r\n[caption id=\"attachment_268816\" align=\"alignnone\" width=\"556\"]<img class=\"size-full wp-image-268816\" src=\"https://www.dummies.com/wp-content/uploads/retirement-lifehappens.jpg\" alt=\"life insurance tool\" width=\"556\" height=\"449\" /> LifeHappens provides many useful tools to help you see how much life insurance you need.[/caption]\r\n<ul>\r\n \t<li><a href=\"https://lifehappens.org/insurance-calculators/calculate-human-life-value/\"><strong>LifeHappens Human Life Calculator</strong></a><strong>:</strong> Puts a price tag on your existence by showing how much of a financial blow your family would suffer if you died today. Putting a price tag on your life is another way to think about your life insurance needs, as you can see in the sidebar, “What’s a Life Worth?” The calculator is an eye-opening tabulation of what a human life is worth.</li>\r\n \t<li><a href=\"http://www.bankrate.com/calculators/insurance/life-insurance-calculator.aspx\"><strong>Bankrate Life Insurance Calculator</strong></a><strong>: </strong>Looks at the question of how much life insurance you need in a slightly different way. Most life insurance calculators differ in their approach, so it’s a good idea to run your numbers through a few.</li>\r\n</ul>\r\n<p class=\"article-tips tip\">Don’t fixate too much on how much life insurance you need. The biggest question is whether or not you need it. And if you do need it, don’t waste any time. Just buy it. An easy rule-of-thumb on how much you and your spouse collectively need is to buy? You’ll want a policy with a payout that’s 10 times your combined household income.</p>\r\n\r\n<h3>Buying life insurance</h3>\r\nTalk about a tough sell. How would you like to buy something that costs you money every year, doesn't benefit you personally, and pays out only if you die? Not exactly uplifting.\r\n\r\nThat’s why the moment someone hears that you’re interested in buying life insurance, sellers will come out of the woodwork to sell you a policy. Just search for <em>life insurance</em> online and you'll get life insurance ads on your screen for months.\r\n\r\nIf you do decide that you’re ready to buy a policy, first check with the carrier that provides your auto, homeowner’s, or umbrella coverage. Most also sell life insurance and provide a multi-policy discount. In addition, online insurance forums, such as LendingTree.com and SelectQuote, will shop your insurance needs against a network of bidders. You can then compare coverage and prices to get the best combination for you.","blurb":"","authors":[{"authorId":33279,"name":"Matthew Krantz","slug":"matthew-krantz","description":"<b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i>","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/33279"}}],"primaryCategoryTaxonomy":{"categoryId":34308,"title":"Retirement","slug":"retirement","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34308"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[{"label":"Check property and casualty coverages","target":"#tab1"},{"label":"Get ready for a rainy day: Umbrella insurance","target":"#tab2"},{"label":"Protect your family with life insurance","target":"#tab3"}],"relatedArticles":{"fromBook":[{"articleId":268853,"title":"How to Manage Your Pension","slug":"how-to-manage-your-pension","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268853"}},{"articleId":268848,"title":"How to Take Money Out of Your IRA","slug":"how-to-take-money-out-of-your-ira","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268848"}},{"articleId":268843,"title":"How to Manage Your IRA Contributions","slug":"how-to-manage-your-ira-contributions","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268843"}},{"articleId":268838,"title":"How to Get Online with Your IRA Provider","slug":"how-to-get-online-with-your-ira-provider","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268838"}},{"articleId":268829,"title":"How to Get Online Access to Your 401(k)","slug":"how-to-get-online-access-to-your-401k","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268829"}}],"fromCategory":[{"articleId":288529,"title":"401(k)s and IRAs For Dummies Cheat Sheet","slug":"401ks-and-iras-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/288529"}},{"articleId":268853,"title":"How to Manage Your Pension","slug":"how-to-manage-your-pension","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268853"}},{"articleId":268848,"title":"How to Take Money Out of Your IRA","slug":"how-to-take-money-out-of-your-ira","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268848"}},{"articleId":268843,"title":"How to Manage Your IRA Contributions","slug":"how-to-manage-your-ira-contributions","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268843"}},{"articleId":268838,"title":"How to Get Online with Your IRA Provider","slug":"how-to-get-online-with-your-ira-provider","categoryList":["business-careers-money","personal-finance","retirement"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/268838"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":281850,"slug":"retirement-planning-for-dummies","isbn":"9781119627579","categoryList":["business-careers-money","personal-finance","retirement"],"amazon":{"default":"https://www.amazon.com/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/1119627575-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/1119627575/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":"https://www.dummies.com/wp-content/uploads/retirement-planning-for-dummies-cover-9781119627579-203x255.jpg","width":203,"height":255},"title":"Retirement Planning For Dummies","testBankPinActivationLink":"","bookOutOfPrint":true,"authorsInfo":"<p><b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i></p>","authors":[{"authorId":33279,"name":"Matthew Krantz","slug":"matthew-krantz","description":"<b>Matt Krantz</b> is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at <i>Investor's Business Daily.</i> He's also worked in the financial industry and covered markets and investing for <i>USA TODAY.</i> His writing on financial topics has also appeared in <i>Money</i> magazine, <i> Kiplinger's</i>, and <i>Men's Health</i>. Krantz is the author of <i>Fundamental Analysis For Dummies</i> and co-author of <i>Investment Banking For Dummies.</i>","hasArticle":false,"_links":{"self":"https://dummies-api.dummies.com/v2/authors/33279"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;retirement&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119627579&quot;]}]\" id=\"du-slot-63221abe94ffd\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = 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Retirement Articles

When you're retired, you don't work, and yet you still need money. We're here to help you unravel that paradox, with all the info on retirement accounts, financial planning, and making ends meet.

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Retirement 401(k)s For Dummies Cheat Sheet

Cheat Sheet / Updated 12-07-2022

Knowing how to build your 401(k) retirement plan, devising investment strategies, and making the most of your plan can all help to financially secure your path to retirement. During economic difficulties, you may be tempted to tap into your 401(k) funds, but most often, you're much better off financially if you can leave the funds alone. And your 401(k) management duties don't end when you retire; you still need to invest and spend wisely.

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Retirement 401(k)s and IRAs For Dummies Cheat Sheet

Cheat Sheet / Updated 10-01-2021

When you’re ready to start setting aside (or withdrawing) money for your retirement — whenever that might be — take a look at the valuable benefits of each of these types of retirement plans. Consider investment recommendations including bundling, pre-tax contributions, and how life circumstances may change your opportunities.

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Retirement Retirement Planning For Dummies Cheat Sheet

Cheat Sheet / Updated 03-14-2021

No two retirement plans are completely alike. You might have heard that you'll have a comfortable retirement if you save a certain amount of money by a certain age. “Just save a million bucks and you’re good,” such advice goes. But how long a million dollars will last in retirement is up to you, which you can figure out pretty easily. Others say all you need to do is max out your 401(k). And for most people, that’s good advice. But if your goal is to retire really early, you’ll need to get more aggressive in saving money. Perhaps you're starting to fear retirement planning because you’re not doing something that the experts say you must do to retire. Don’t let the endless retirement advice you read and hear paralyze you. You can start a basic retirement plan in 15 minutes.

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Retirement How to Manage Your Pension

Article / Updated 03-04-2020

Keeping track of your pension, which is important for planning your retirement, isn’t as easy as logging onto your online brokerage. Most companies are eager to get out of the pension business, so they farm the entire thing out to firms that specialize in pensions, such as Willis Towers Watson. If you need to call for pension help, you'll probably be talking to people who work for the firm your employer hired to handle the pension plan. However, the site operated by the pension firm will usually look like it’s run by your employer. How to use online tools Getting logged into your company’s pension plan usually takes a bit of a work. You might need to call your employer’s human resources department. Then, if your employer has outsourced their pension plan management, you'll probably be handed off to the company running the pension plan. Most pension systems will allow you to look at the following information: Pension estimate: By entering your dates of employment, age, and beneficiary information, the site will tell you the payment you can expect when you retire, as shown in the following figure. As you can see in this example, the single-life annuity results in the largest monthly payout of $641.39. When you add a 50 percent survivor annuity, you’re looking at a monthly payment of $603.54. The survivor annuity payment is smaller than the single-life payment because the payments are likely to last for a longer period of time. Why? When the pensioner who worked at the company dies, a payout continues to the surviving spouse, who gets only half the payment, just $301.77. Lump sum calculator: The pension site should also show your lump sum payment if taken now versus later. This information will help you decide which choice to make. Scenario analysis: Pensions are complicated, with many variables affecting your payout amount. To help you understand the complexities, most pension sites offer scenario analyzers. You enter different retirement ages and whether or not your spouse will get benefits. The scenario analysis calculator then shows how these different choices affect your payout. You don’t have to be retired to take money out of a pension. If you leave a company, you can activate monthly payments or take a lump sum. However, your payments will be reduced if you start taking them before reaching full retirement age. Also know that if you take a lump sum payout and don’t roll it over into another retirement account, you might trigger a nasty tax surprise. How to calculate the value of a lump sum payment One of the trickier decisions with pensions is whether you should take monthly payments or the lump sum. The pension's website can help you make this decision. Although your decision is final, a workaround exists. You can create your own pension, in a way, by using your lump sum payout to buy an annuity. By using both your pension provider’s site and an annuity pricing site, you can easily put some numbers around this complex decision. Here’s how: 1. Use the pension's online tool to get your lump sum payout. Let’s say a 48-year-old worker left a company and wants to take her pension with her. As shown in the figure, her lump sum payout is $70,897.10. The monthly payout amount is $338.46 for a single-life annuity and $337.62 for a ten-year certain and continuous annuity. 2. Go to an annuity pricing site, such as www.immediateannuities.com and do the following: a. Enter the lump sum information. b. Enter your pension details and select the immediate payment option. For the amount to invest, enter the lump sum payout from your pension site. I entered $70,897.10. 3. Compare the monthly payouts. As you can see in the following figure, the monthly payout from the pension plan is higher than what our retiree can buy in the open annuity market. Using the lump sum amount, the payout from the privately bought annuity is $280 for a single life, which is 17 percent less than the pension payout. Similarly, the pension payout with the ten-year certain option is $675 a month. But with the annuity provider, it’s 6 percent less, or $637 a month. 4. Get another estimate. You wouldn't get only one medical opinion for a serious health condition, would you? The same is true for deciding what to do with a pension. Many online brokerages and mutual fund companies, such as Vanguard and Fidelity, tell you what size payment you’d get in exchange for a lump sum. For information on annuities, go to Vanguard's site, Fidelity's site, and Schwab’s annuity site (see the following figure). It’s typical for the payouts from a pension plan to be higher than what you can buy on your own from an annuity. An annuity has fees whereas an employer-sponsored pension doesn't. However, don’t make your decision solely on the size of the lump sum. If you’re young, you could easily invest the lump sum, and then, years later when you’re looking to retire, buy an annuity with the now-larger amount of money. Rolling over a pension Never assume you’re trapped in a pension. And that’s a good thing because many workers tend to not stay at the same job for more than five years. When you leave a job, you can take the pension with you by rolling it over. The rules around rolling over a pension are strict. Even a small mistake can make the lump sum you take from your pension a taxable event. You must rollover the pension into a qualified retirement plan, which for most people means a rollover IRA. Depending on how long you worked at the company, a rollover is likely a good option. You might consider rolling over your pension if you Know the pension won’t grow: Check the pension's documentation. Many pensions provide only a modest cost-of-living annual adjustment, which is just the inflation rate. If you put the money into a diversified portfolio of stocks and bonds, your portfolio will likely grow much faster than inflation. Don’t expect to retire in many years: The longer the amount of time you have to put your money to work, the better. If you don’t plan to retire in ten or more years, you still have time to put your portfolio into areas that are likely to grow faster. Have other forms of guaranteed income: If you have other options for a steady cash flow, it makes sense to try to get a better return from your pension assets. If you don’t have another form of guaranteed income, you can buy one, such as an annuity, by using other savings. How do you conduct a rollover from your pension to a qualified plan? The steps are straightforward: 1. Set up a rollover IRA. All the major online brokerages and mutual fund companies can help you with this task. 2. Initiate your distribution with your pension provider. Most pension providers’ sites allow you to begin the distribution process. You’ll need to take the lump sum distribution method. The pension provider will mail you paperwork to fill out. 3. Fill out the paperwork from the pension provider. Your spouse will need to sign a benefit waiver for you to get the lump sum. 4. Make sure the check is made out to the company you’re rolling into. This step is important. The pension lump sum amount must be made out to the financial firm where you have your rollover IRA. The check should not be made out to you. Depositing the lump sum and then immediately writing a check to the rollover IRA provider will not work. The Internal Revenue Service will think you took the money and want to tax it.

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Retirement How to Take Money Out of Your IRA

Article / Updated 03-04-2020

When you turn 70-1/2, you’re no longer allowed to contribute to a traditional IRA. You can contribute to a Roth IRA at any age as long as you have earned income below limits dictated by the IRS. Remember that earned income is money you make from reportable income-producing activities—in other words, a paying job. Gearing up to take money out of your IRA requires a change in mindset. Fortunately, your IRA provider can be of help here, too. Getting money out early: 72(t) distributions Taking money out of a traditional IRA before you turn 59-1/2 is generally a no-no with retirement accounts because it triggers a bad tax day. You owe not only the taxes on the money you took out but also a 10 percent early withdrawal penalty—unless you know the 72(t) trick. This rule is named after an arcane section of the IRS code that says you can take money out without a 10 percent penalty if you do so in “substantially equal periodic payments.” You must take out the distributions, in equal amounts, for at least five years or until you turn 59-1/2. You can calculate how much money you must take out in three ways: the required minimum distribution method, the fixed amortization method, and the fixed annuitization method. As you can guess from their names, the calculations are complicated. If you’re interested in a 72(t) withdrawal, your IRA provider can help. You can take money out of an IRA before you turn 59-1/2 without paying the 10 percent penalty in a few other ways, without invoking the 72(t). A big exception for the 10 percent penalty is when you’re permanently or completely disabled. In that case, you can take money out of both a traditional IRA and a Roth IRA. Also, if you die, your beneficiary can take withdrawals. Taking your required minimum distribution When you blow out a cake with 70 candles, know that in six months you’ll be in for a big change with your traditional IRA. That’s when Uncle Sam says it’s time for your required minimum distribution (RMD). It must be taken out before April 1 of the year after you turn 70-1/2. The RMD is calculated using a complicated formula based on your life expectancy. You must take your RMD from all of your traditional IRAs. This requirement is another reason to have your retirement money in one place; you’ll deal with just one annual check. As part of their service, most IRA providers will calculate your RMD. Vanguard shows the calculation in its RMD calculator, shown in the figure and available. Don’t ignore the RMD. If you don’t withdraw the RMD and pay the tax, you’ll owe a 50 percent penalty tax on the money you should have withdrawn. Yes, half will be gone in taxes. Most IRA providers calculate your RMD for you and even withhold some of the tax due from what you’re paid. IRA providers will even deposit the money into your account electronically — almost like a paycheck. Setting up a beneficiary Your retirement funds are there for you and your spouse, if you have one, or other beneficiary to enjoy later in life. Make sure that your IRA provider knows who to give the money to if you die before your beneficiary. Yes, you could do this in a will, but it’s a better idea to set up a beneficiary. Your beneficiary instructions will take precedence over a will. When you die, the IRA provider knows to shift the ownership of the IRA to your beneficiary. Listing beneficiaries on IRA accounts is so important that many IRA providers won’t let you fund an account until you choose a beneficiary. If you have a large or complicated estate or unusual wishes for where your money should go when you die, you might want to create a trust. A trust is a legal entity that can take ownership of assets and follow your instructions in distributing them. Consult with an estate-planning attorney or pick up Estate & Trust Administration For Dummies, 2nd Edition, by Margaret Munro and Kathyrn Murphy (Wiley). A word about inherited IRAs Don’t keep your IRA a secret from the beneficiary. After you die and your IRA passes to your beneficiary, new rules kick in. The beneficiary will need to contact the IRA provider and let them know you’re dead. Most IRA providers require a death certificate. The rules surrounding inherited IRAs vary based on whether or not the IRA is inherited by a spouse. If spouses inherit an IRA, they have a choice on how to take it over: Make it their own: Spouses can choose to take over the IRA in their own name. This allows spouses to contribute or take distributions as if it were theirs in the first place. Turn it into an inherited IRA: If you go this route, you’ll need to follow rules set out by the IRS, which have many options. A beneficiary who isn’t a spouse has only one avenue: transferring the IRA into an inherited IRA. Again, your IRA provider will help with the details. If you’d like to read more about how inherited IRAs are handled, check out Vanguard's description. Schwab shows all the inherited IRA rules, too.

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Retirement How to Manage Your IRA Contributions

Article / Updated 03-04-2020

Getting money into your IRA is where the magic begins. You can’t build a portfolio until a source of funds exists. IRAs give you not only big leeway in what investments you buy but also lots of control over how you buy those investments. Set up IRA deposits When you’re talking about putting money aside that you can’t touch for decades, it’s easy to understand why lots of people put off retirement savings. Let’s face it, blowing $800 on a new smartphone is more immediately satisfying than putting $800 in an IRA. IRA providers know this, and go out of their way to make it easy for you to get money into your account. You can make ongoing contributions to your IRA in two main ways: One-time contribution: The IRA provider lets you connect multiple checking and savings accounts to your retirement account. You can then tell the provider to digitally pull money from one or more of those accounts as a contribution. Vanguard’s one-time contribution screen, shown in Figure 8-5, asks you to choose the investment you want the money to go into. It also tracks your annual contribution to date. Automatic contribution: You can also tell your IRA provider to take money from a checking or savings account, say every month or quarter. This method puts your retirement plan on autopilot. It’s up to you to make sure your contributions meet the requirements and don’t exceed limits. If you’re covered by a retirement plan at work, the IRS spells out whether you can deduct your IRA contributions. If you make too much money, the deducible amount of your contribution is reduced or eliminated. In a nutshell, if you made more than $74,000 as a single taxpayer or $123,000 married filing jointly and are covered by a plan at work, you can’t deduct IRA contributions. Roll over Beethoven: IRA rollovers Another way to fund an IRA is a rollover. You might opt to rollover your old 401(k) from a previous place of employment, which can be a good idea if your old 401(k) has high fees or poor investment choices. You can rollover funds also from one IRA to another, although that process is usually called a transfer. Generally, it's best to keep your retirement accounts in as few places as possible. Consolidating your retirement funds with one IRA provider helps you qualify for lower-priced investments and makes it easier to keep track of your money. A rollover involves three steps: Fill out your IRA provider's rollover form. The form is usually short, asking for the account number and the provider holding the funds now. You’ll also be asked if you’d like to roll the funds into a new IRA or an existing one. Notify the 401(k) or IRA provider you’re moving from. Tell them you’re moving the money and where you're moving it. The provider will cut a check for the money. Make sure the check is made out to the firm where the money is going, not to you. If the money goes to you, the IRS might think you took a distribution and hit you with a tax bill. Wait. A rollover can take a few weeks. Your new IRA provider will let you know when the process has been completed. Fund an IRA with a Roth conversion With traditional IRAs, you get a tax break now. With a Roth IRA, you pay now but take out the money later free and clear. Guessing which will be best for you is difficult. In general, a Roth is a good idea if you think your current tax rate is lower than it will be when you’re retired. Roth IRAs are preferable also if you think you might need to pull the money out sooner than in retirement, or if you think you won’t need the money and want to leave it for a spouse or an heir. Traditional IRAs require you to take money out when you turn 70-1/2. With a Roth, you can leave the money in. Given all the guesswork in choosing a Roth IRA versus a traditional IRA, you might change your mind about the kind of IRA you want. That’s where a Roth conversion comes in. You can turn a traditional IRA into a Roth IRA if you pay the taxes now. Converting a traditional IRA to a Roth can make sense. It’s also a back door way to open a Roth for people who earn too much to fund a Roth. A Roth conversion has several drawbacks, however. You must wait at least five years after a conversion to take money out of a Roth. The conversion also triggers a tax event — you’ll have a tax bill on those tax-deferred contributions. Does a Roth conversion make sense for you? To answer that question, you can use a variety of online tools, including the following: Schwab IRA Conversion Calculator: This tool helps you think about all the important variables that determine whether or not you should convert to a Roth. These variables include the amount of money you’d like to convert and your taxable income. CalcXML’s Roth Conversion Calculator: This tool does all the math to see whether a Roth conversion makes sense. The calculator considers the size of the conversion as well as your age and income needs.

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Retirement How to Get Online with Your IRA Provider

Article / Updated 03-04-2020

If you’re not online with your IRA provider, it’s time you were. If your IRA provider is keeping up with industry trends, you’ll be amazed at the digital resources available to you. You just need to know what to look for. It might seem tempting to skip the process of registering for online access of your IRA account. If you do that, though, you’ll seriously miss out. Yes, you could manage your IRA over the phone and through the mail. But even if you’re a hands-off investor, you’re much better off doing everything online. Be sure you know how to get online access to your 401(k)as well. How to open your IRA account Opening an IRA varies based on the provider, but you can expect a basic script similar to the following, which is the way Vanguard does it: Go to the IRA provider's website and find the button for opening an account. IRA providers make this button easy to find. On most sites, it's in the upper-right corner of the screen. Choose a new account or a rollover. Remember, you can always open a brand new IRA account if you’re just getting started. But if you’ve been saving for retirement somewhere else, you can rollover, or transfer, money from a 401(k), another IRA, or sometimes even a pension. Show me the money. The first thing the IRA provider will want to know is how you’ll fund the account. You can electronically move money from a checking or savings account. You can also rollover from another plan or transfer securities you own elsewhere. If you're funding your account through your bank, you need your bank account information. Do one of the following: If you already have another account with the IRA provider: You might have an older account with the IRA provider. If you do, sign in. By opening the new IRA with your existing login information, you'll avoid typing lots of information all over again. It’s also easier to manage your accounts if they’re associated with the same username. If you’re opening a first account with the IRA provider: Be prepared to answer a bunch of questions. You’ll need to enter information about yourself, including a Social Security number and address. Choose the type of account: You need to know the type of account you want to open. You'll be asked if the account is for retirement, general savings, or education (as shown in Figure 8-1). If you choose a retirement account, you’ll be asked if you want a traditional IRA, Roth IRA, SIMPLE IRA, or SEP IRA. Answer questions, set up funding, and e-sign. You’ll be asked to enter the amount of your initial investment. If you’re opening an account with this IRA provider for the first time, you’ll also need to enter a username and password for online access. Wait. Some IRA providers will open your account immediately if everything you entered checks out. Others, such as Vanguard, confirm your information, which can take a day or two. Log in and look around The long road to setting up your IRA is over and you're now an IRA owner. How cool is that? Next, it’s time to see what you can find on the IRA provider’s site. The list is long: Account information: All IRA sites can tell you how much is in your account (your balance) and your investments, or Account activity: Any time you put money into (contribute to), your IRA or take money out of (withdraw from), your IRA, the transaction is recorded. Your account activity shows the comings and goings of the money in your account. Money can come into or go out of your account, even if you’re not putting it in or taking it out. Is your long-lost rich uncle putting money into your IRA? Nope. If you own stock in a company that makes a profit beyond what it needs, the company might pay you, the investor. These payments are called dividends and appear in your account activity. What about money coming out? Fees. The IRA provider might take money out of your account for account-servicing costs. If you own mutual funds, the (sometimes large) fees they charge won’t appear in the account activity listing. Mutual fund fees are taken out of the fund itself. Performance: Remember getting a report card when you were a kid? Your IRA's report card is its performance tracking. Here you see how much your IRA is growing or shrinking during the year and over the long term. Asset mix: Your asset mix, or asset allocation, is the combination of asset classes in your portfolio, such as stocks and bonds. The more stocks in your portfolio, the riskier your portfolio but the more it's likely to grow in the long term. Understand your portfolio holdings If you want to dig deeper into what you own in your IRA, look for an area called Holdings. In this section, you’ll find the following important attributes of the investments in your account: Summary: Here you’ll find the name of each investment you own and its symbol. Mutual funds and other investment funds are identified by a multi-character abbreviation, or symbol. This symbol is useful if you want to look the fund up using a third-party site. Returns: The amount of money you make or lose from an investment is more than how much its price has changed. It’s also a tally of the dividends paid. The Returns section adds all this together. You can find your return on an investment during several time periods, such as one, three, five, and ten years. Cost basis: Your cost basis of an investment is how much you paid to buy it. If you paid $100 for a share of a mutual fund that’s now worth $110 a share, your cost basis is $100. If you sell the mutual fund for $110 a share, you have a realized capital gain, or profit, of $10. If you don’t sell the mutual fund but hold it, you have an unrealized capital gain of $10. Your IRA provider tracks capital gains for you. Tracking your capital gains is a big deal with taxable accounts but not with tax-deferred ones such as traditional IRAs. With a taxable account, you pay taxes on only your realized gains. But with an IRA, your entire withdrawal is taxable—even your cost basis because it hasn’t been taxed yet.

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Retirement How to Get Online Access to Your 401(k)

Article / Updated 03-04-2020

Many employers tout their 401(k) plans as a job perk. But, typically, you're on your own when it comes to setting up online access. In some ways, this situation is symbolic of how the responsibility for retirement planning has shifted to employees. Not only do employers want to scale back how much they contribute to your retirement, many don’t even want to help you manage the account. How to register for 401(k) access Most 401(k)s are established on paper. The paperwork you sign when you join a company opens the account and gives the 401(k) plan administrator the right to take money out of your paycheck. But you can’t do much with the account until you register for online assess with the 401(k) plan site. After that, you can see your balances, make changes, and evaluate how you’re doing. You might be surprised at some of the online tools you can pick up right from your 401(k) plan provider. Nearly all 401(k) sites offer useful calculators and information to help you better prepare for retirement. What kicks off the process of setting up 401(k) account access? Ironically, it’s probably snail mail. At some point after starting a job or signing up for a 401(k), you should get a letter in the mail from your 401(k) administrator with your summary plan description. This document, similar to the one shown, lets you know that the account is established and that you can set up online access. If you look closely, you’ll see a website address in the upper-right corner of the summary plan description in the figure. In this example, it’s www.voyaretirementplans.com. From here, you’ll want to follow these steps to register: Click the Register Now button. Just about all 401(k) sites put the button just below the log-in section, as you can see in this figure for the Voya example. Choose an identification method. Sites usually ask for either your personal identification number (PIN) or your Social Security number and date of birth. The PIN would have been sent to you in the mail. If you didn’t get a PIN, go with door #2, because you know your Social Security and birthday. Create your log-in information. You are asked to choose a username and password. Try to choose something difficult to guess—or better yet, use a password manager. Passwords are getting more complicated in an effort to keep hackers out. Choose a password that’s not a real word, and use a string of symbols, numbers, and uppercase and lowercase letters. Try to come up with something only you will know. For example, suppose you’re a Star Wars fan. Rather than using starwars as a password, use MT4ceBWY. (Get it? May the Force be with you.) Get to know your 401(k) tools The beauty of 401(k) plans is their hands-off nature. If you’re like many 401(k) investors, after you sign up for the plan, you don't want to think about it—and you certainly don't want to do is dig around the various features of the 401(k) provider’s website. But you might be surprised at some of the online tools you can pick up right from your 401(k) plan provider. Nearly all 401(k) sites offer useful calculators and information to help you better prepare for retirement. Using the tools on your 401(k) plan provider’s site is helpful because you already have log-in information with them, and many of the tools can be personalized because your details are already there. A few helpful tools to look for on your 401(k) plan provider’s site follow: Calculators: Most 401(k) providers will use your account details as inputs for calculators. You’ll likely find a contribution calculator that will tell you if you’re putting enough in your 401(k) to meet your full-year contribution goal. This tool is useful if you want to max out your 401(k), putting in the most legally allowed. The tool will also tell you what percentage you should take out of your paycheck to hit your annual contribution target. Also look for a retirement overview calculator. This tool helps you see how much money you should have when you retire based on your savings rate, income needs, and rate of return. Lastly, 401(k) providers offer retirement income estimate calculators. These tools look at how much you’re saving and your expected returns, and estimate how much income you might expect in retirement. Investing education: You’ll likely find useful articles and videos to coach you on the importance of diversification and asset allocation. You might also find information on related topics such as estate planning. Risk questionnaires: Some 401(k) sites feature basic questionnaires that will help you see how much risk you can handle. You’ll be asked how much you know about investing, how much volatility you can handle, and your age. Some 401(k)-planning sites use this information, paired with what the plan administrator already knows about you, to offer a possible asset allocation, as shown. Your asset allocation is the mix of asset classes expected to give you the best return for your level of risk. Typically, your appetite for risk is a function of how much volatility, or ups and downs in portfolio value, you can endure. For example, suppose that the target-date fund for your retirement year suggests a middle-of-the-road portfolio of 60 percent stocks and 40 percent bonds. But after taking the questionnaire, the 401(k) provider’s site might suggest a more aggressive portfolio with 70 percent stocks and 30 percent bonds. Check out your 401(k) performance Before you think about making your 401(k) work better for you, it’s wise to see how it’s doing so far. 401(k) provider sites help you track how much return you’re getting on your money. Measuring investment performance is important and something you should count on from your 401(k) provider. The results of the calculation tell you if your investment choices are delivering what you need to reach your goals. Performance statistics also tell you if you’re getting results that are at least keeping up with the average. If your portfolio returns are less than market returns, or indexes, that’s a big sign that you should optimize your 401(k). Most 401(k) sites will help you see your portfolio performance in two ways: At the fund level: Nearly all 401(k) plans have an Investments section. Here you can look up how the funds have performed over various time periods, including short periods (such as a month or year) and longer periods (such as five or ten years). The data is typically shown in a table like the one shown here. If you own only the 401(k)’s target-date fund, look up your particular fund in the investments list. This might be all the information you need to know how you’re doing. As a personal rate of return: 401(k) providers don’t just tell you how the funds in the plan have performed. They also keep track of how you have done. What’s the difference between the funds’ returns and your returns? Keep in mind that some investors spread their portfolios over multiple funds. They might also move money from one fund to another. The timing of your contributions matter, too. The personal rate of return incorporates all these factors to arrive at your total return.

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Retirement How to Manage Your IRA

Article / Updated 03-04-2020

Your IRA is an important part of your overall retirement plan. One of the great perks of using an IRA is the full control you have over it. You’re free to choose the financial firm you’ll work with and your investments. But this extra control means you’ll have to do some additional legwork to get things set up to your specifications. Don’t let the choices stymie you. Know what you’d like to own It might be tempting to call the usual suspects — the financial firms that always advertise their IRA services during golf matches. But first think a bit about what investments you plan to buy. The number of financial firms offering IRA services is almost infinite. All the big players and many smaller ones will let you set up an IRA. Most will also waive setup costs just to get you in the door. IRA providers are distinguished by their investment menus. You'll typically put the following investments in an IRA: Individual securities: If you want total control, consider choosing individual bonds or stocks. Rather than owning a mutual fund that holds hundreds of stocks, you might want to own the ten stocks you like best. Mutual funds: A mutual fund is the most common investment in IRAs. You put money into a fund that’s used to buy individual securities. You then pay a fee. With index funds, you own all the securities in an index, such as the Standard & Poor’s 500. With active funds, you pay fund managers to select the best investments. These funds usually cost more than index funds. Mutual funds are priced at the end of the day. Exchange-traded fund (ETF): With an ETF, you own a portion of a basket of investments. Most ETFs are based on indexes and have very low fees. ETFs are priced like stocks, meaning their value changes during the day. ETFs are increasingly popular due to their low fees and no minimum investment. If you want to actively trade individual stocks in your IRA, you might not get what you’re looking for from a traditional mutual fund company. Consider a discount broker instead. Similarly, if you like the products from a particular mutual fund company, you might want to work directly with that fund company to create an IRA. Keep your investment strategy in mind when you look at IRA providers. Choose someone to handle your IRA The company you choose to house your IRA is important because it will be your financial wingman. If you call just about any financial firm and ask if they’ll take your IRA, the answer will always be yes. IRA customers are dream clients. They invest large sums of money, typically have jobs, and usually don’t touch the money for a long time. And many don’t pay attention to the fees they’re paying. With that said, most of the firms you’ll want to consider for your IRA needs are in one of three main categories: mutual fund companies, traditional and discount brokerages, and robo-advisors. Robo-advisors are making waves in the IRA business. Originally, robo-advisors were a handful of tech startups with smart people who found a way to make the investing process easier. You’d go to a website and answer a survey, and the site would choose your investments and diversify your holdings. Robo-advisors measured your appetite for risk and spread your money over low-cost investments. But the world of robo-advisors has become blurry. Although many firms that are exclusively robo-advisors are still in action, mutual fund companies and brokerages are into the game, too. For example, mutual fund company Vanguard offers one of the most popular robo-advisor services. Keep the changing robo-advisors landscape in mind while considering which route is best for you. If you like your online brokerage, inquire to see if it offers a robo-advisor before moving your money to another firm. Mutual fund companies All mutual fund companies are happy to handle your IRA account, and most make the process as simple as possible. However, it’s difficult to paint them all with the same brush. For instance, just a few, such as Fidelity, have impressive technology tools. And only some mutual fund companies, Vanguard among them, have adopted innovations such as exchange-traded funds. If you’re interested in using a mutual fund company, you need to understand the advantages and disadvantages it offers for your IRA. The advantages of mutual fund companies follow: If you buy the company’s own funds, you can often avoid paying trading commissions. Customer service representatives have a good understanding of the investments. The companies typically have long track records. These firms are focused on long-term retirement plans. You won’t be urged to buy hot stocks or to trade. Some mutual fund companies offer excellent educational materials to help you avoid making short-term decisions that you’ll regret later. The disadvantages of mutual fund companies follow: You’re typically encouraged to use the offerings from just one fund family. This restriction might be a problem if you like, say, one fund company for bonds and another for stocks. Mutual fund companies are typically slow to innovate and might not offer some investments you're interested in. Their technology tools can be rudimentary. Popular target-date funds are made up of their own funds, which may or may not be the best for you. Some of the largest mutual fund players follow: Vanguard is the king of low-cost passive investing. The company’s founder, John Bogle, created the company based on the idea that most mutual fund companies spend too much money trying to beat the market, when so few reliably do. With a Vanguard IRA, you can invest in the fund company’s massive suite of best-in-class index funds. You can open an account with an initial deposit of $1,000. To buy many of Vanguard’s mutual funds, you must invest at least $3,000. There’s no cost other than the low Vanguard fund fees. And if you sign up for electronic documents, Vanguard will waive the $20 annual fee. Vanguard is a leader in increasingly popular exchange-traded funds (ETFs). You can buy them for no commission at Vanguard, and many ETFs don’t have minimum deposits. Fidelity shows that a mutual fund company can have major technology chops. The company’s website and mobile apps keep up with those offered by brokers and robo-advisors. Meanwhile, Fidelity is challenging Vanguard on the fees front. Fidelity offers a number of index mutual funds that do not charge an expense ratio, which is the annual fee you pay to own a fund and is measured as a percentage of how much you’ve invested. For example, if you have $10,000 invested and a fund has a 0.2 percent expense ratio, you'll pay a yearly fee of $20. Fidelity offers the Fidelity ZERO Large Cap Index Fund, which is even less expensive than the rock-bottom 0.05 percent annual fee charged by Vanguard’s comparable fund. Fidelity seems aware of its head-to-head competition with Vanguard, as you can see in the following figure. Fidelity also offers a range of actively managed mutual funds, which hire people who try to find stocks that they think will do better than index funds. These funds typically charge more than index funds, up to 1 percent. Rowe Price is a well-regarded traditional mutual fund company. What makes T. Rowe Price unique is that it focuses on actively managed funds. (It also offers a few index funds, but not as many as Vanguard or Fidelity.) Unlike some other actively managed fund companies, though, T. Rowe Price works directly with investors instead of only through financial advisors. The fees charged by T. Rowe Price funds tend to be higher than the fees for index funds. Some of the other mutual fund companies that offer IRAs, such as Franklin Templeton, work directly with investors to set up accounts. If you're interested in a particular mutual fund company, see if they work directly with individual investors. Some other large mutual fund companies, such as BlackRock, Invesco, and American Funds, typically work with financial advisors or brokerages. So, if you want a BlackRock fund in your IRA, you must hire an advisor to buy it for you or buy it yourself through a brokerage. You see how to do this later in the "Connecting with a Financial Planner" section. Traditional and discount online brokerages Sticking with a mutual fund company may be comfortable and convenient, especially if you opened an IRA because your employer doesn’t provide a 401(k). But using a mutual fund company for your IRA takes away one of the reasons why you may have opened it: control. Using an IRA allows you to be in the driver’s seat of your retirement. Buckle up! Following are the advantages of an IRA: You’re the boss. You can mix and match investment products from different providers. The brokers, especially discount online brokers, usually have best-in-class websites and apps. You have access to brokerage services. Many of these firms started as places to buy and sell stock. If you’re interested in online investing, you might want an account here. Many of these brokerages can not only hold your IRA but also help you with checking and savings accounts. Many brokerage firms have branches, so you can head to an office and meet with a person face-to-face. Online brokers are quick to add new features such as ETFs, robo-advisory services, and human help. Following are the disadvantages of an IRA: Commissions might be charged on investments you could get free elsewhere. This is especially true with some mutual funds. Brokers might steer you toward certain products. Some brokerages are more geared for online trading rather than long-term investing. Some of the major players are the most popular names in financial services: Charles Schwab: It’s hard to talk about do-it-yourself IRAs without mentioning Chuck. An industry pioneer, Charles Schwab has just about any product you could want. You can buy mutual funds, including thousands with no commission. You can open any type of IRA with no fees and no minimum requirements. The company also offers its own ETFs and provides a robo-advisor, as shown in the following figure. And if you want to buy or sell individual stocks to avoid annual fees charged by funds, you can do that, too. Schwab used to charge $4.95 a trade. But in late 2019, Schwab, along with most of the major online brokers, cut stock trading commissions to $0. If you buy any of the 500 ETFs in its Schwab ETF OneSource, there’s no commission. Schwab also has offerings for people who are not interested in choosing their own investments. Its Schwab Intelligent Portfolios, which is essentially a robo-advisor, will assess your risk appetite and put your money in Schwab ETFs to fit your goals. There’s no fee for the service, but there is a $5,000 minimum. You’ll also pay the fees on the Schwab funds, which may not be the lowest. If you want a more customized portfolio, you can use Schwab Intelligent Portfolios Premium, which costs $300 upfront and $30 a month thereafter. The minimum deposit is $25,000. Don’t be fooled by the so-called free nature of Schwab Intelligent Portfolios. You pay the underlying fees of the ETFs. Also, Schwab will put part of your portfolio in cash. That cash will get next to no return, which costs you in lost interest. For example, suppose Schwab puts $50,000 of your portfolio into cash. If you instead put that money in a savings account at 2 percent interest, you’d get roughly $1,000 a year in interest. TD Ameritrade: TD Ameritrade is another behemoth in the IRA business. The company, whose roots are in stock trading, is a leader in providing top-notch tools for monitoring your portfolio and the market. They also provide state-of-the-art stock and bond research tools. TD Ameritrade in 2019 cut its $6.95 per stock trade commission to $0. It also has no minimum and no ongoing fees. If you’re looking for more help, check out TD Ameritrade's Essential Portfolios, a robo-advisor that will put your money into low-cost ETFs to match your goals. You pay 0.3 percent a year for Essential Portfolios and up to 0.9 percent for more customized portfolios. Ally: Ally has rapidly grown from being an online bank to a legitimate option for retirement investors. Ally is focused on two types of retirement investors: do-it-yourselfers and those looking for a turnkey solution. If you’re a do-it-yourselfer, you can buy and sell stocks, including ETFs, for no commission. If you’re looking for more automated help, Ally offers its Ally Invest Managed Portfolios, a service that is essentially a robo-advisor. You answer questions about your financial goals and Ally puts your money in a number of low-cost ETFs. The service charges a 0.3 percent fee on your balances. E-Trade: This online brokerage firm has come a long way since its Super Bowl ads featuring a talking baby. Like TD Ameritrade, the company’s roots are in low-cost online stock trading, and it offers online stock trades for no commission. E-Trade has since broadened its offerings. In addition to the standard traditional IRA and Roth IRA, it also has an E-Trade Complete IRA that helps you manage withdrawals after you turn 59-1/2. You can choose from a number of prebuilt portfolios that match your risk tolerance. For an initial deposit of $500, you can build a portfolio made up of mutual funds. If you prefer ETFs, the minimum deposit is $2,500. You do not pay a fee for the portfolio, but you must pay each fund’s fee. For a 0.3 percent annual fee, E-Trade also offers a robo-advisor that is more customized than the prebuilt portfolios. You can choose from five sample portfolios. This option also gives you more control to increase or decrease investments to make your portfolio more or less aggressive. JPMorgan Chase’s You Invest: JPMorgan is competing aggressively with its You Invest offering. If you want to decide which investments you want, you can. The You Invest Trade offering lets you buy stocks and ETFs for $2.95. If you meet certain balance requirements, you may qualify for free trades. A separate offering called You Invest Portfolios is JPMorgan’s robo-advisor. You pay 0.3 percent of your portfolio balance, and JPMorgan puts you into its lineup of ETFs. What’s a bit different is that you don’t pay any fees for the underlying investments. For a summary of the offerings described in the preceding list, check out this table. Five Brokers to Consider for Your IRA Broker/Bank Stock Commission Commission-Free ETFs Available Robo-Advisor Fee (Annual) Charles Schwab $0 All trades free, including ETFs $0 for basic, $300+$30 a month for advanced version TD Ameritrade $0 All trades free, including ETFs From 0.3% to 0.9% plus investment fees Ally $0 All trades free, including ETFs 0.3% plus investment fees E-Trade $0 All trades free, including ETFs 0.3% plus investment fees JPMorgan Chase’s You Invest $2.95 (after the first 100 free trades) First 100 trades free; some customers get more free trades if they have other relationships with the bank 0.35% Most major banks offer their customers IRAs. If you already have a savings or checking account with a bank, see whether an IRA account at the same bank makes sense. You might get additional perks if your balance is high enough. Robo-advisors Online shopping has made it easy to get a Bart Simpson chess set delivered to your door the next day. Technology is trying to bring the same convenience to your IRA. Some financial firms are first and foremost robo-advisors. Betterment and Wealthfront were pioneers in the robo-advisor business, but they broadened their offerings as traditional brokers launched robo-advisory businesses. Why are online brokers opening their own robo-advisors? For people who don’t want to think about IRAs, a robo-advisor can be a good option. Just answer a risk questionnaire, and the system chooses a handful of investments that fit your risk profile. Most robo-advisors charge 0.3 percent or so a year, which is much less than the 1 percent or more charged by human advisors. In addition to simplicity, robo-advisors offer the following advantages: Automatic rebalancing: All robo-advisors, including those from the mutual fund providers listed in the “Mutual fund companies” section and the brokers listed in Table 6-2, handle rebalancing. This is the process of shifting money from one asset class to another if one is doing so well you own too much of it. Automatic tax-loss harvesting: If you’re losing money on an investment and sell it and then wait more than 30 days to buy it back, you might get a tax write-off. Most robo-advisors are smart enough to do this for you. Instant diversification: You know to not put too many eggs in one basket. The same is true for investing. You can let a robo-advisor handle it for you. Dollar investing: This perk is subtle. If you want to invest a set amount in your robo-advisor account, you can. The robo-advisor handles all the math on how many shares you can buy. No commissions on transactions: Typically, after you pay the annual fee, there’s no commission when you buy or sell. Most of these advantages of robo-advisors apply to the robo-advisory businesses of the brokers, too. Following are the disadvantages of robo-advisors: Fees: All this robo-magic isn't free. You can save money by doing everything the robo-advisors do, including rebalancing. A 0.3 percent fee might sound small, but it adds up fast. The fee is $300 a year on a $100,000 portfolio. If you don’t trade much, a broker might cost less. Little to no control: If you want any say in what you’re buying, a robo-advisor might frustrate you. Some robo-advisors allow you to customize what you’re buying, but fees might rise. Difficulty seeing what you’re buying: Robo-advisors can be a black box. You might know only that you’re buying a stock ETF or a bond ETF, not that you're buying an ETF from BlackRock, Vanguard, or State Street, or another provider. If you’re looking to team up with a pure-play robo-advisor, consider the following: Betterment: When you get to Betterment’s site, shown here, you immediately get a sense of its mission: simplicity. The site breaks down the three objectives you might have: Getting started for the first time, completely automating your portfolio, and having more of a say. Unlike some robo-advisors, Betterment gives you more control and lets you tweak its suggestions. Prefer to be 30 percent invested in bonds rather than the 40 percent Betterment recommends? You can change the allocation. Betterment’s basic offering costs 0.25 percent a year, plus the fees of the underlying investments. If you want access to a financial planner, you can get the Premium service for 0.4 percent. Wealthfront: Wealthfront is the chief pure-play robo-advisor rival to Betterment. Wealthfront is more focused on people who want total automation. It also adds some nice banking features. For instance, Wealthfront offers a high-interest savings account where you can put cash you don’t want to invest right now. Many brokers pay next to nothing for cash sitting in your account. The service charges 0.25 percent of the amount in your portfolio, including cash. Personal Capital: At first, Personal Capital looks similar to a money-tracking service such as Mint.com. It has two powerful tools: The financial accounts monitoring tool helps you pinpoint your spending, and the retirement planning tool looks at your balances and tells you how you’re progressing toward retirement. But Personal Capital is also an advisory service, including a robo-advisor. For a 0.89 percent annual fee, Personal Capital will recommend a portfolio of ETFs. Personal Capital also offers live financial planners who will help you online not only with retirement planning but also other goals. Acorns: When planning for retirement, you just have to get started—even if you have only a small amount to invest. Acorns takes this theory to the extreme. This robo-advisor lets you save and invest your pocket change. Acorns offers several services to help you with your spending and investing. And its Acorns Later service can give you a hand planning for retirement. It all starts with an Acorns debit card linked to an Acorns checking account. When you buy goods and services with your Acorns debit card, Acorns will round up the amount and invest the rest. If you buy a can of soda for $1.50, Acorns will round up to $2 and invest the 50 cents. You might decide to put this round-up money to work for retirement. If so, Acorns will recommend the right type of IRA for you. Everything is automatic, and Acorns will spread your money in a variety of ETFs, primarily from Vanguard. The Acorns IRA service is a reasonable $2 a month—until you’re a millionaire. Then it’s a pricey $100 a month per million invested. Bill Gates, you might want to put your IRA somewhere else. This table compares the major robo-advisors. Comparing Robo-Advisors Broker/Bank Account Minimum Robo-Advisor Fee (Annual) Betterment $0 for basic digital and $100,000 for premium 0.25% for basic digital and 0.4% for premium, plus investment fees Wealthfront $500 (more for additional services) 0.25% plus investment fees Personal Capital $25,000 0.89% for first $1 million invested Acorns Later $5 $2 a month with under $1 million invested, and $100 per million a month after $1 million

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Retirement How to Protect Your Retirement Money with Insurance

Article / Updated 03-04-2020

Protecting your retirement funds from disaster is a critical part of retirement planning. That’s where insurance comes in. You want to make sure your plan can withstand an unexpected event. Typically, health scares are the culprits in disrupting a plan, but home and auto accidents can be major expenses, too. Find your insurance declaration pages. These documents will tell you how much coverage you have, which you’ll need to evaluate your plan and make certain you’re protected. Check property and casualty coverages If you’re planning for retirement, it’s important that you have in place the right amount of automobile and homeowner's (or renter's) insurance coverage, in addition to healthcare coverage: Automobile insurance: Your car can be the source of enormous financial losses, not only to your vehicle but to someone else's vehicle and other personal property. Additionally, the financial hit from injuries can wipe out a financial plan overnight. If you’re nearing retirement age, you likely have significant assets to protect. Simply accepting the minimum coverage required by your state is likely not enough. Homeowner's (or renter's) insurance: If you own your home, it might be one of the pieces of bedrock in your financial plan. If you don’t have rent or a mortgage, you’re well ahead of those who spend 30 percent of their budget for housing. Protecting your home from a devastating fire or other catastrophe is important. Don’t count on the insurance company to verify that you have enough coverage. Renters insurance can help safeguard your personal belongings. Insurance needs remain fairly unchanged as you near retirement—you need to protect your home whether you’re 34 or 64. But one factor that you might want to modify as you age is your deductible. Your deductible is how much of a loss you’re responsible for in an accident. Let’s say your car sustains $1,500 in damage. If you’re young, you might not have the financial resources to handle a large hit and so you opt for a lower $250 deductible. The lower deductible comes at a cost, in the form of a higher monthly payment. As you age, however, you probably have a larger financial reserve. One easy way to save money on insurance is to push up your deductible to $1,000 and save on your monthly premiums. Log into your insurance provider’s site, as shown, to see whether a higher deductible is available. You’ll also want to double-check that the limits are appropriate. Get ready for a rainy day: Umbrella insurance Knowing your coverage limits on your automotive and homeowner’s insurance policies unlocks the next phase of insurance. As you age and amass more money, you have more at risk from a big accident. Not only do you have more money to lose, you have less time to recover from a financial blow. After looking at your limits on your homeowner’s and automotive plans, you might see a disconnect. If your net worth exceeds your insurance limits, that’s a red flag. If you’ve accumulated a big nest egg, you don’t want to see it evaporate if you’re caught in a massive car pileup on the freeway. Similarly, if someone gets seriously hurt on your property, lawsuit damages can be enormous. How do you protect yourself other than never leaving the house or never inviting someone over to visit? Enter umbrella insurance, which unlocks millions of dollars of extra coverage beyond what your homeowner’s and auto policies cover. Umbrella policies don’t kick in until the limits of your homeowner’s and automotive policies are exceeded. Because the umbrella policy doesn’t pay anything until your homeowner's or auto policy’s limit is topped, the rates on umbrella policies tend to be reasonable. It’s common to buy $1 million of coverage for $100 or $200 a year. It’s a small price to pay for such a large amount of protection and peace of mind. How much umbrella coverage to you need? You could figure it out yourself, but I like Kiplinger’s How Much Umbrella Insurance Do I Need? calculator. The calculator, which is shown here, helps you buy just enough umbrella insurance to safeguard you from a major financial shock. To use the calculator, start with your net worth and work backwards: Enter your net worth. Your net worth is the value of what you own minus what you owe. To err on the side of safety, consider buying an umbrella policy valued at your net worth. Yes, some of your money is protected against creditors, as you’ll see in Steps 2 and 3. But when you take the money out of protected accounts, such as retirement accounts, it’s exposed. This approach isn’t necessarily recommended, but it's a conservative way to go. Enter your home equity value. The equity value is the market value of your home minus mortgages or loans. Most states protect at least some of your home equity. The Kiplinger calculator can tabulate how much of your home equity is at risk. Enter your retirement plan balances. Enter the value of your retirement plans, including 401(k), IRA, Roth IRA, SIMPLE IRA, and SEP IRA. Assets held in these accounts are protected from creditors. Set a limit to your homeowner's and auto policies. Remember that your auto and homeowner’s liability coverage pays injury claims first. Most umbrella policy insurers will require your homeowner's liability limit to be $250,000 or higher. And you’ll likely need to have a per-person liability limit on your auto policy of $250,000 or more and $500,000 per accident. You’ll usually get the most bang from your insurance buck if you raise your auto and homeowner's liability limits to the lowest required by your umbrella policy provider. Because you buy umbrella coverage in giant $1 million chunks, you can usually boost your total protection at a lower cost with an umbrella than with homeowner's or auto policy limits. Also, to save money on premiums, see if you can get your umbrella policy from the same company that provides your auto and homeowner’s policies. It’s also easier to coordinate payments from a single company. Protect your family with life insurance Thinking about all the things that can go wrong in life is no fun. That’s why I left the chapter on insurance for the end of the book. Planning for retirement should be fun. It gets you thinking about what’s most important in life and how to enjoy what you have for as long as possible. But you need to prepare for unhappy events, too. Understanding the benefits of life insurance Life insurance isn’t for you. It’s for your beneficiaries. You buy a life insurance policy on your life with the idea that it will cover your financial role if you pass away. Life insurance is especially critical when you’re starting a family. If you’re the primary breadwinner and you die, imagine the financial hardship your family would suffer. To combat this potentially cataclysmic crisis, you can buy a term-life insurance policy. By agreeing to pay an annual premium, if you were to die in a certain amount of time (or term), the insurance company agrees to pay out a pre-determined sum of money. The premium is the fee you pay to keep the policy active. Life insurance is there only to take care of people who count on you financially, after you die. If you’re not supporting anyone financially, you probably don’t need life insurance. Also, other forms of life insurance wrap savings and investment plans in with the death benefit. These plans are called whole-life plans. Whole-life plans might make sense for a subset of people, but they’re so complicated and potentially expensive that you should consult with an expert before buying one. Or you could just buy a term-life insurance policy and keep it simple. Estimating how much life insurance you need If you decide that you need life insurance, the next question is how much coverage you require. Some excellent online calculators, such as the following, can help you make the calculations: LifeHappens Calculate Your Needs calculator: Steps you through the important questions you need to answer to decide how much life insurance coverage you need. As you can see in Figure 16-8, the site shows you the two variables that determine how much money your dependents would need if you died and in the future. The site helps you measure both. LifeHappens Human Life Calculator: Puts a price tag on your existence by showing how much of a financial blow your family would suffer if you died today. Putting a price tag on your life is another way to think about your life insurance needs, as you can see in the sidebar, “What’s a Life Worth?” The calculator is an eye-opening tabulation of what a human life is worth. Bankrate Life Insurance Calculator: Looks at the question of how much life insurance you need in a slightly different way. Most life insurance calculators differ in their approach, so it’s a good idea to run your numbers through a few. Don’t fixate too much on how much life insurance you need. The biggest question is whether or not you need it. And if you do need it, don’t waste any time. Just buy it. An easy rule-of-thumb on how much you and your spouse collectively need is to buy? You’ll want a policy with a payout that’s 10 times your combined household income. Buying life insurance Talk about a tough sell. How would you like to buy something that costs you money every year, doesn't benefit you personally, and pays out only if you die? Not exactly uplifting. That’s why the moment someone hears that you’re interested in buying life insurance, sellers will come out of the woodwork to sell you a policy. Just search for life insurance online and you'll get life insurance ads on your screen for months. If you do decide that you’re ready to buy a policy, first check with the carrier that provides your auto, homeowner’s, or umbrella coverage. Most also sell life insurance and provide a multi-policy discount. In addition, online insurance forums, such as LendingTree.com and SelectQuote, will shop your insurance needs against a network of bidders. You can then compare coverage and prices to get the best combination for you.

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