Save Your Way to Wealth: Where Should You Save Your Money?
Want to save your money? Here's where you should store your cash.
Congratulations! You've finally decided to commit to saving money.
Now, where to put your hard earned cash?
From CDs to 401(k)s, there are plenty of options out there to help you save your way to wealth. Here's a look at some of the places where your savings can really grow.
Company Retirement Plan
Find out if your employer offers a 401(k) or 403(b) plan. You get a tax deduction on your contributions. The contribution limit for 2013 is $17,500 ($23,000 if you're 50 or older). The funds grow tax deferred until withdrawn at retirement. Your employer may offer a matching contribution. There is one downside, “Investments are limited to choices provided by the plan sponsor,” says Jocelyn Wright, a certified financial planner with Ascension Wealth Management.
Individual Retirement Account (IRA)
One option outside of a qualified retirement plan such as a 401(k) and 403(b) is an IRA. A traditional IRA provides for tax-deferred growth, along with the opportunity to potentially reduce your current year income taxes. A Roth IRA allows you to withdraw money in retirement without owing any additional taxes on your IRA contributions or your account earnings. A big advantage says Karen Mayfield, client advisor for SunTrust Bank, “Your money can continue to grow tax-free because a Roth IRA has no required minimum distribution.”
Bank Savings and Money Market Funds
Bank savings and money market funds are very safe and stable, says Danny Freeman, principal advisor, Darda Financial Services. What's the downside? Rates of return are very low. In other words, don't expect to get rich.
Annuities are designed to protect assets set aside for a specific use, such as retirement. An annuity is a contract between you and an insurance company. You will not pay income tax on your earnings until you withdraw your money or begin receiving payouts, allowing your money to grow faster than it would in a taxable account, says Mayfield. Do know that, unlike a qualified retirement plan or an IRA, a tax-deferred annuity has no contribution limit. There are different types of annuities that are designed to meet different investment goals. You will want to consult a financial advisor to determine which might be best for you.
You can buy individual stocks directly or own them indirectly through mutual funds. Dividend paying stocks are a good bet right now, says Freeman, because they offer the dual benefit of income, along with the opportunity for capital appreciation. For savers with longer term goals, he says more aggressive stocks or mutual funds will be more volatile, but offer the opportunity for higher rates of return, which can help you achieve your goals faster.
If you want to learn more on these topics, you can start studying up here:
Where do you tend to keep your savings?