Earn 25% or More on your Money

We have talked about the importance of Compound Interest and the 7 Steps to reduce Credit Debt, and while Drip and direct stock purchase plans are great now is the time to get the maximum return on your money.

Can you say 401K or IRA (Individual Retirement Account)? The IRA has replaced the traditional pension that used to be paid by companies for your 20, 30, or 40 years of service. The catch is with the IRA you need to sign up the process is not automatic till then.

Once you sign up you can reap the rewards. The plan lets you select how you want your money invested from low to high risk and how much to invest in each area.

Each plan is different my plan where I’m employed now matches 25% on the dollar for the first 6% that I contribute, and my wife’s employer matches 100% on the dollar for the first 3% that she contributes.
View the table#1 below to see how that works based on us both earning $400 a week.

As you can see between us we would be putting $36 a week into 401K and our employers would be putting $18 in a week for a total of $54 a week into our 401K. This example averages out to a 50% return on our money not counting any returns we received on our investments.
If we never got another pay raise and saved at this rate over the next 10 years we would have over $28,000 in our 401K before any returns we received on our investments.

The other benefit of a traditional 401K is the money you invest is pre-tax dollars; this means you do not pay taxes on the income you are investing. To give you an example I changed my contribution by 1% and put $22.47 more a pay period into my 401K, but my net income only dropped $13.68 a pay period because of the tax benefit.

The most common types of retirement plans are

• 401K
• 403B
• Roth Accounts

3 Mistakes not to make with your Retirement Account

1. Do not wait to sign up because you do not expect to be there long, get in as soon as you can!

   How many of us have started jobs and not gotten into their retirement plans because we did not plan on being there long and the next thing we know 2, 5, or more years have gone by and we have still not started a savings plan?

2. Do not cash out your 401K when you change jobs!

   I have made this mistake twice by switching jobs, not only do you get hit with penalties and taxes of 30 to 40 percent you also stop earning any rate of return on your investment, and you more than likely end up spending the money.

3. Do not have your 401K sent to you to reinvest when you change jobs!

   If you have the money sent to yourself you will still be subject to penalties and taxes even if you do start your own IRA. Have your account transferred to a bank, brokerage house, or mutual fund company that offers Roth or traditional IRA accounts. Also if your former employer allows you my be able to keep your account active where it is at.