Investment FAQs
Here are the answers to some of the most common investment questions you’ve always wanted to ask.
1. When should I start investing?
When you have the means to do so. One of best places to start investing is with your employer’s 401K or 403B plan, particularly if they offer a match on contributions. If your employer doesn’t offer this option, consider investing in an individual IRA. Investing in stock should be a consideration when you’ve paid off student loans and no longer have credit card debt to consider. You also don’t want to leave yourself cash poor in case of unexpected illness or unemployment, so always have some cash available when putting anything in the sometimes-volatile stock market.
2. What’s better - a 401K or an IRA?
There are advantages and disadvantages to both. A 401K offers much higher maximum contribution levels, but you can only invest in one if your employer offers one. The maximum contribution level of a 401K is $18,500 annually, while an IRA basic limit is $5,500 annually. Both options offer an increased contribution level for those aged 50 and older; $6,000 for a 401K and $1,000 for an IRA. But even if you’re lucky enough to have a 401K offered at work, that doesn’t preclude you from investing in an IRA as well. IRA’s also tend to offer more flexibility in where you can invest your money, and a 401K plan expense can be costly over the long term. For even more flexibility, consider a Roth IRA, that doesn’t offer tax-free benefits upfront, but offers tax-free withdrawals.
3. At what age can you start withdrawing from a retirement account without penalty?
A 401K allows you to start to withdraw without penalty at age 591/2, though if you’re still working, your current employer will likely not let you withdraw those funds. At age 70 1/2, you are required to start minimum distributions. With a traditional IRA, you can also begin withdrawals at 591/2 without paying a penalty, though federal and state taxes will be due. As with a 401K, you’ll have to begin taking a required minimum distribution at age 70½ to avoid penalties. Roth IRA’s offer more flexibility since you won’t be hit with a large tax bill from an early withdrawal, and there are no required minimum distributions.
4. What reasons can I take an early withdrawal from my retirement account without penalty?
There are numerous qualifying reasons for early withdrawal from a Traditional IRA or 401K, but remember that although you won’t pay a penalty, you will have to pay tax on any funds withdrawn. Qualifying reasons include higher education for you, your spouse, or your child; a first-time home purchase; and medical expenses or insurance costs, but only if your unreimbursed medical expense is more than 10% of your adjusted gross income. Keep in mind that if you need money short-term, a loan against your account is a much better option than an early distribution.
5. How do I choose a financial advisor?
Look for an advisor that is a Certified Financial Planner (CFP), first. If you’re not sure where to look, ask friends and colleagues for recommendations. Be sure to take a look at their fee structure, and their code of ethics prior to making any decisions.
Resources
https://www.personalcapital.com/blog/retirement-planning/can-withdraw-401k-ira-penalty-free/
https://money.cnn.com/retirement/guide/IRA_Roth.moneymag/index7.htm
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.