401K, Retirement Accounts, Retirement Planning, Financial institutions, IRA, IRA Basics, 401k fidelity, 401k limit   401K, Retirement Accounts, Retirement Planning, Financial institutions, IRA, IRA Basics, 401k fidelity, 401k limit 
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Retirement Accounts

Home > Retirement Planning > Retirement Accounts

Where to invest your IRA dollars
401K, Retirement Accounts, Retirement Planning, Financial institutions, IRA, IRA Basics, 401k fidelity, 401k limit
If you are considering setting up an IRA, there are a number of options open to you, each with varying risks, management involvement and costs. Financial institutions – banks, brokerage firms, credit unions, insurance companies and mutual funds are all competing for your business. The following is a list of the types of sponsors available for your retirement account:

Banks and Thrift Institutions. These institutions now offer various certificates of deposit and other investment vehicles designed exclusively for retirement accounts at whatever interest rate and terms the individual institution chooses to offer. There is no charge to open an account, and your initial investment can sometimes be as low as $1, though most institutions have higher minimums. The annual maintenance fee usually runs about $10 or less.

In general, you cannot invest your IRA funds in hard assets or collectibles, such as coins, antiques, etc. However, you may use an IRA to buy certain gold coins issued by the U.S. government.

An early withdrawal penalty imposed by the institution requires you to forfeit at least the last six months' interest when you withdraw the certificate's principal. However, you can withdraw the accumulated interest at any time without penalty.

Credit Unions. These institutions offer the same options as banks and thrift institutions, and don't charge you for opening an IRA account. However, credit unions can vary the term, as well as the rate, on any certificate they offer. There is usually no maintenance fee for your account.

Brokerage Firms. There are three types of IRA investments offered through brokerage firms: the self-directed account, the "load" fund and the no front-end load. A self-directed IRA enables you to buy and sell stocks and bonds as you wish, or control your own investments in real estate, oil and gas, or equipment leasing. You might pay more in fees for your IRA in brokerage firms than you would in a financial institution or credit union, usually up to $50 to open your account and an annual maintenance fee of $25 or $50.

Or, you can invest in professionally managed mutual fund packages that the firm sells, in "families" of funds. These packages usually include a money-market fund and several types of stock funds and bond funds.

"No Load" Funds. You can purchase professionally managed funds through investment companies. There is a minimal sales charge for setting up your account, and management fees are usually quite reasonable. If your employer offers a plan for joint employee participation in a fund, it could cost you less than investing directly.

Insurance Companies. Insurance companies offer what is called a deferred annuity guaranteed to provide a certain amount of income every year after you retire, based on average life expectancies and the value of the invest­ments purchased with premiums.

There are two types of insurance annuities. The "front-load" annuity normally carries a 6-1/2 percent sales charge for the first $5,000 you invest. Premature distributions from any type of tax-deferred individual retirement plan or annuity are normally subjected to a penalty.

For example, the additional income tax on amounts withdrawn before age 59-1/2 is 15 percent, similar to IRAs. However, the tax is waived if the withdrawal is one of a scheduled series of level payments over the life of the annuitant.

The second type, called "back-load" annuity, carries no sales charge. However, there is a penalty on early withdrawal in the first year which is reduced gradually until it disappears in the eleventh year. The annual maintenance fee is usually about $25.

Diversification of IRA programs. All investment programs should have a measure of diversification, even your retirement program. You can have this year's IRA program at a bank, next year's at a broker's, and the following year's with a mutual fund organization, etc. Additionally, you can contribute to all of them in one year, as long as the amount contributed does not exceed $2,000.

A second advantage of a self-directed IRA (particularly with a discount broker) is the diversification of investments you can have and the flexibility of moving the IRA money from stocks to bonds to options, etc. as you perceive the profit opportunities.

Each of the different sponsoring organizations mentioned above should be carefully considered in the light of your total investment strategy and its relationship to your retirement program.

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