If your employer offers a 401k, then by all means you should make sure you are contributing (this is particularly good if they match your contributions, since that is basically free money you are missing out on if you don’t participate).  If you don’t have a 401k though, you should definitely have an IRA (and yes, you can have both a 401k and an IRA–a Roth IRA in particular–but you have to meet certain requirements and not everyone is eligible).  One of the best things about leveraging your retirement account is the tax benefits (and you miss out if you don’t have one of these accounts).  In many ways 401ks are easier for people–the money is deposited pre-tax (allowing you to earn interest on the income you normally pay as taxes) and each individual can select from a set of investment vehicles (usually stocks, funds, bonds, and money market, but the actual options depend on the 401k itself).  IRAs are a specific type of account where people can deposit after-tax money and allow those investments to grow tax deferred (or with Roth IRAs tax free), and some people can get a tax credit for their contributions (this means you can earn additional interest on money you would normally pay as tax).

As I am learning more and more about investments and getting the most out of your money I have been thinking about the role of retirement accounts and how they play into your overall money strategy.  An IRA your income can grow faster with tax benefits and it is just like a regular investment account (you can buy stocks and mutual funds and the account has the same set of fees as a normal investment account).  So this means you want  have a regular investment account and an IRA account (or other retirement account).  You should put as much as you can in your retirement account (because of the tax benefits)–that means as much as the government allows (for most of us that is $5,000 for 2008) or as much as you can afford (since in order to realize the tax benefits you shouldn’t withdraw the money early–which means you don’t want to put money in there you may need in the short term future).

The other important thing to think about has to do with the fees where you open your IRA.  Since most stocks in there you may want to hold for the long term and not actively manage, there are certain sites that are better than others.  You really have to investigate and weight factors like monthly/annual fees, cost per trade, and account minimums. For example, ShareBuilder allows you to make small monthly contributions and put that money into shares (they also have no minimum)–this is great for people just starting out to begin investing in stocks. This was the route I went, since I just started my IRA and have only this year’s contribution so far.  [BTW I have a link where you can get $25 free for opening and account so email me if you want one]  The new investing tool I am really excited about also has an IRA account option.  Foliofn charges a monthly fee though, so I think that will eat too much into my profits until my IRA gets a little larger so I might rollover my ShareBuilder IRA there in a year or two.  There are many others though, so do your research and find one that will work with your goals and plans.

As for what I am buying with ShareBuilder?  That is what I am trying to figure out and will be updating in the coming weeks with my progress and decisions.

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