As you prepare for your retirement, there are many options available to you. Here, we break down each option and explain how they work.
Find the Appropriate Retirement Option for You
Individual Retirement Account (IRA)
With a traditional IRA, eligible contributions are made tax-free and are only taxed when withdrawn during retirement, often when you're in a lower tax bracket. There is no age restriction for Traditional IRAs, so anyone at any age can contribute if they are still working. Traditional IRAs are also subject to Required Minimum Distributions (RMDs) starting at age 72.
With a Roth IRA, contributions are taxed. However, qualified distributions are tax-free, regardless of your tax bracket or income level. Roth IRAs are also subject to income limits, restricting how much you can contribute depending on your earnings and filing status. Additionally, Roth IRAs are not subject to RMDs, allowing funds to grow throughout your lifetime, effectively fund education, and even transfer to beneficiaries.
Qualified Retirement Plan Rollovers
Qualified Retirement Plan rollovers are tax-free transactions in which your balance in a tax-qualified employer-sponsored retirement plan – such as a 401(k), tax-sheltered annuity 403(b), or governmental 457(b) plan – is rolled over to another tax-qualified account such as an IRA. When done properly, a rollover will preserve the tax-sheltered status of the retirement assets.
Prior to requesting a rollover from your employer sponsored retirement account to an Individual Retirement Account (IRA), you should consider whether the rollover is suitable for you. There may be important differences in features, costs, services, withdrawal options, and other important aspects between your employer sponsored retirement account and an IRA.
Mutual funds are professionally managed pools of investments that allow participation by a number of investors. Investors participate proportionally in the gains and losses of the fund. There are many kinds of mutual funds from which to choose, each one based on a set of investment guidelines. Mutual funds provide an opportunity for the average investor to participate in a broadly diversified portfolio of investments. Mutual Funds are offered by prospectsus only. The prospectsus contains important information about the fund, including fees, charges and expenses. For more information about a specific fund or to obtain a prospectus, contact a financial professional.
You’ll hear the term "rate" used, but money market mutual funds don't pay interest. They pay dividends to shareholders. These dividends are often expressed as a rate of return. A money market account at your credit union shares some characteristics but is very different. When you’re invested in a money market mutual fund, the fund tries to maintain a per-share value of $1, and your return fluctuates with the net asset value of the fund’s holdings. It is important to note, that although a Money Market Fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in a Money Market Mutual Fund. The dividends you receive from money market mutual funds are taxed as ordinary income unless you’re invested in a tax-exempt fund.
These mutual funds invest in a portfolio of individual stocks and seek primarily to increase the value of an investment through appreciation. Your profits on stock funds are taxable unless they’re in certain tax qualified retirement accounts or education accounts. (Whatever you do with stock funds, make sure to consult your accountant or tax planner.)
Bond funds are designed to produce regular income for shareholders by investing primarily in corporate or government bonds. Like any mutual fund investment, you’ll match the funds’ objectives and style with yours. Some strive to produce steady returns with less volatility. Some offer the possibility of higher yields. One of the main things investors look for in a bond is its tax status and tax-free income. There’s no federal tax on municipal bond distributions, and no state or local tax if you live in the municipality that issues your “muni.”
Exchange Traded Funds, or ETFs, are similar to mutual funds but trade like individual stocks. You can invest in large and small cap ETFs, a U.S. stock ETF, or an international stock ETF. They’re passively rather than actively managed, so they often have lower fees than mutual funds.
Managed accounts are portfolios designed for individuals to match their specific financial needs with portfolio objectives, and managed by professional investment managers. Often these accounts offer an avenue for individuals to access investment managers that are generally available only to institutional-level investors.
Fixed annuities allow you to protect assets from market volatility. These contracts with an insurance company often pay you an agreed-upon percent for a guaranteed number of years.
Investors with longer time horizons and the ability to withstand market fluctuations often choose variable annuities. The annuity has two phases: an accumulation phase (where you make periodic payments) and a payout phase (where you get a guaranteed minimum payment).
Index annuities can give you a chance for returns based on market increases with stability and principal guarantees more traditionally associated with fixed annuities. The interest you earn follows an index: Most use the S&P 500, Dow, or an international index. When the index gains, you do. But when that index loses your annuity stays steady at zero.
Single Premium Annuities
Purchasing a payout annuity – sometimes called an immediate annuity – is like buying a regular check for yourself. Payments start right away, usually within 30 days of your purchase and can last as long as you live. There are a variety of payout options. You may choose the security of a guaranteed monthly income or the potential for income to grow based on the variable investment returns of the market.
Check the background of this investment professional on FINRA's BrokerCheck.
*Education First Professionals are registered representatives of CUNA Brokerage Services, Inc. Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor, which is not an affiliate of the credit union. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc. is a registered broker/dealer in all fifty States of the United States of America.
**Representative is neither a tax advisor nor attorney. For information regarding your specific tax institution, please contact a tax professional. For legal questions, including a discussion about estate planning, please consult your attorney.