The ABCs and 123s of Investing

It’s been a long and tiring process, but you paid off your last debt and built up an emergency fund of three to six months of expenses. Your budget is now flush with available cash with nowhere to go – at least that’s what you think. In reality, the available cash has a precise destination in the form of long-term investments. Whether it’s your company’s 401(k) or a personal Roth IRA, your leftover money does better in an investment instead of a bank account. The dilemma is where to put your money and how much should be added on a regular basis. To assist you, here is an alphabetical and numerical list of suggested investments for your investing.

401(k)

What is it? The 401(k) is a contribution-based program used by many employers in the United States. A pre-determined percentage of money gets removed from each paycheck and is distributed to the various 401(k) packages. Some companies offer matching amounts, allowing the investment to quickly grow.

How Much Can I Contribute? A maximum of fifteen percent each year by the employee or a mix of worker and employer, depending on corporate guidelines. Consult with your employer for more information.

When Can I Withdraw Money? 401(k) fund distributions begin at 70 1/2 years of age or April 1 of the calendar year after retirement, whichever is later. Earlier withdrawal of money may result in penalty and tax payments.

529 Plan

What is it? The 529 is an education savings plan administered by a state or an institute of higher education that allows families to set aside funds for future college expenses. Families can enroll in a 529  through a financial broker or a plan manager.

How Much Can I Contribute? There are no limits to how much one can put into a 529 plan. Some even allow single deposits of over $300,000. Consult with representatives for your particular plan for more information.

When Can I Withdraw Money? Regardless if assigned to a child or adult, 529 funds can be removed once they start their time in college. The plan is transferable to another family member when the funds are no longer needed by the original owner.

IRA

What is it? An Individual Retirement Account, or IRA, comes in two major flavors. The Traditional IRA is a personal account where tax-deductible funds can be stored for retrieval once the owner reaches retirement age. The Roth IRA allows after-tax deposits of funds, giving an owner the ability to remove tax-free money once retired. Other forms of the IRA are connected to employer-based contribution funds.

How Much Can I Contribute? Those under 50 years old and making less than $125,000 single or $183,000 as a married couple can contribute a maximum of $5000 to a Traditional or Roth IRA. Those over 50 are permitted to add an addition $1000 to their fund on an annual basis.

When Can I Withdraw Money? To avoid penalties, funds can be removed from an IRA when an individual reaches the age of 59 1/2. Those who begin to remove funds before that time are penalized with a 10% withdrawal fee.

Mutual Fund

What is it? A mutual fund is an investment package comprised of stocks, commodities, bonds and other assets. The funds are professionally managed and come in low and high risk varieties. Very flexible, owners of mutual funds can move their money around to various packages throughout their lifetime.

How Much Can I Contribute? There is no limit on how much you can contribute to a fund. Nevertheless, be aware of two caveats. First, the fund manager tends to take a percentage of the money you invest, somewhere around three percent, as their annual fee. Second, mutual funds are not secured by the Federal Deposit Insurance Corporation (FDIC), so you can lose a good portion of your assets if the pool of fund investments fails.

When Can I Withdraw Money? You can withdraw your money from a mutual fund at pretty much any time. Still, it’s best to consult with your financial adviser to see if there are any limits to your particular fund. Consider one item before you remove any money – most mutual funds are for long-term investment. Removing cash ahead of time can hurt more than help.

 

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  1. […] How to Buy a House in the Cayman Islands » The ABCs and 123s of Investing Its been a long and tiring process, but you paid off your last debt and built up an emergency fund […]

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