Introducing: IRA Service Center

Wouldn’t it be great if someone took the mystery out of Individual Retirement Accounts?

American 1 has done just that by launching IRA Service Center, a go-to online resource for all your IRA questions and documents.

Through our IRA Service Center, you can learn more about the difference between a Traditional and Roth IRA, download forms to get your retirement savings started, or modify your existing IRA.

Visit our Investment page to learn more about American 1 investment and retirement options.

Laid-off workers have options for retirement funds

So you’ve lost your job. Now what do you do with your 401(k) or saved-up pension dollars?

Greg Menges of Boston Independent Advisors has a few suggestions:

The first thing to do is contact your plan administrator and find out what the rules are. A company must have an exit plan for anyone with a 401(k) who gets laid off. All retirement plans are highly regulated to protect you, but some practical things to consider:

• Ask how long can you keep your 401(k) in your company’s plan after you leave.
• If your company matches your contributions, ask how much of your money is vested.
• If you aren’t fully vested some of the balance may stay with the company.
• Federal law says if you have less than $5,000 in your account the company must cut you a check. If you don’t want to face huge tax consequences, you have 60 days to get your money into an Individual Retirement Plan (IRA) or, if you get a new job, you may be able to roll the money into your new company’s 401(k) program.
• Instead of cashing out and taking a taxing check, you can also ask your plan administrator to roll your money over into an IRA of your choice.

US News and World Report has a few tips, too, including looking for good investment options like IRAs, rolling the funds over, and avoiding the temptation to cash out your funds and run with the money. Doing so could cost you in taxes and penalties.

Retirement: the power of compound interest

The Get Rich Slowly blog posted a video (above) about the power of compound interest, along with some visuals to help understand why compound interest is so cool.

Why is it so cool?

Because when you’re earning 3% or 4% on your money, it adds money to the pile, and then that pile earns 3% or 4%, and so on. It’s like a money-earning snowball running downhill.

You can try it yourself with the Money Chimp’s compound interest calculator.

Kids: start saving now, and you could get a great head-start on life!

How your IRA can grow: an example

As we wrote last week, Individual Retirement Accounts (IRAs) are a safe, steady way to save for retirement. But how much can your money grow when it’s in the IRA?

Here’s an example. Let’s say you rollover $4,500 to an American 1 IRA at our 4.05% APY rate. After that, you contribute $5,000 a year to the account. At the end of the three year term, you will have contributed $15,000 to the IRA, plus the $4,500 you rolled over into the account. That’s $19,500. At 4.05% APY, with dividends paid quarterly, your account would be worth $21,345.99.

You would have earned more than $1,800 in those three years. Pretty cool, huh?

We have longer terms available. Stop in to any branch to learn more about our IRA products.

Traditional vs. Roth IRAs: what’s the difference?

As the Motley Fool says, there are actually 11 different kinds of Individual Retirement Accounts (IRA), but we’ll stick with the most popular: Traditional and Roth IRAs.

The main difference we’ll focus on is tax-deferred versus tax-exempt savings.

A Traditional IRA means you pay taxes when you withdraw your funds at retirement, but you will qualify for a tax deduction on the money you contribute to the IRA. So say you make $30,000, and you contribute $2,000 each year to your Traditional IRA. Come tax time, you’ll pay taxes on $28,000. That’s tax-deferred savings.

Roth IRAs, on the other hand, let your savings grow tax-free. You pay taxes on contributions (In our $30,000 income case, you pay taxes on the full $30,000 even though you contributed $2,000 to your Roth IRA each year). But when you start withdrawing funds when you retire, you pay no taxes on them. That’s tax-exempt savings.

Got it? So with a Traditional IRA, you take the tax hit come retirement. With a Roth IRA, you take the tax hit now, but your retirement funds come out tax-free.

Now, you could opt to do both, but check with your tax advisor to see how things stack up.

There are a few other differences between a Traditional and Roth IRA. Investopedia has a good article on the contribution, income, and age limits that IRAs stipulate. The good news is you can start an IRA for just $50, and can contribute up to $5,000 annually ($1,000 more if you’re 50 years old or older – they call those “catch-up contributions”).

Young Money has an IRA calculator, where you can compare the tax rate situation.

As with any retirement decisions, be sure you talk either choice over with your financial advisor. American 1 provides both kinds of IRAs. You can stop in to any branch to find out more.