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Where Money Really Does Grow on Trees
Scott Reynolds
Scott Reynolds
Apr 14, 2010


Most employees have the ability to contribute to a group 401K retirement savings plan through their employers. Most employers will even match their employees contributions up to about 6%. Some employers offer a full pension plan with no employee contribution. However, if you are self employed or your employer does not offer any type of retirement plan, you will want to look into starting an Individual Retirement Plan. These plans are a way to save for retirement while also receiving tax advantages for doing so.

There are basically 2 types of plans available for individuals. The Traditional IRA and the Roth IRA. They both have beneficial attributes. You must determine the right one for you. In a Traditional IRA your earnings grow tax deferred until after age 59-1/2. When you withdraw them they are taxed at your current rate. Contributions and earnings can be withdrawn penalty free after age 59-1/2. In addition, in a Traditional IRA your contributions may be tax deductible.

The Roth IRA is the other plan available. In a Roth IRA your earnings are tax free if withdrawn after age 59-1/2. Contributions (only) can be withdrawn tax and penalty free at any time. However, unlike the Traditional plan, contributions to the Roth IRA are not tax deductible.

In both plans you have the ability to choose your investments. Typically you have the option to select from thousands of stocks, bonds, or mutual funds. A mutual fund is a vehicle that uses combinations of investments and is managed by a fund manager. Investing with a mutual fund allows you to spread your risk over a larger pool of investments.

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