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Congratulations to: You graduated from college and just got their first job in the real world – all during a global pandemic.
While you may feel like spending your newfound income, it’s crucial that you take advantage of your old age and put some of that money into retirement. Your non-working years may feel incredibly far away, but the sooner you start building a nest egg, the bigger it can get.
“Young savers are the best savers because they have what every other saver wants: time,” says Andrew Meadows of Ubiquity Retirement + Savings, a 401 (k) small business provider. Thanks to compound interestThe money you keep today is going to grow exponentially.
“Think of compound interest like a snowball,” adds Meadows. “The more money you have, the more it can grow over time.”
This is where you should prioritize your income from your first job to make sure you are saving enough for the future.
Many companies offer their employees a 401 (k) retirement plan. These retirement accounts allow you to put money into investments that you would otherwise probably not have access to, as some investments are only made for 401 (k) packages, explains Meadows.
The money you contribute to your 401 (k) is not taxed, which means that adding to your 401 (k) can reduce your taxable income and lower your overall tax burden. Roth 401 (k) s are another option that is dollar-funded after-tax.
401 (k) s are only available through one employer, and some companies even offer a match if you put a certain amount into your 401 (k). A company match is extra money your employer invests in your 401 (k) to increase your savings.
“For example, if your company matches up to 4% [of your salary] and you contribute 4%, you double what you can put away, “says Meadows.
The IRS sets contribution limits each year, and in 2021 most workers will be able to contribute to their 401 (k) from $ 19,500. For people aged 50 and over, the maximum contribution limit increases to USD 26,000 (thanks to Catch-up fees of USD 6,500). Employer contributions are added to these specific limits.
If your employer offers appropriate contributions, make sure that your money is a priority. Otherwise the free money is on the table. If you can’t afford to play the game right away, get closer every year by increasing your contribution by 1%.
If your new employer doesn’t offer you a 401 (k) plan, you can still save for retirement by opening your own individual retirement account, commonly known as an IRA account. Unlike a 401 (k), you don’t need an employer to open an IRA account.
IRAs also offer a range of investments for your money, such as: B. Single stocks, bonds, index funds, mutual funds, and CDs. They are a great option for those who don’t have access to a 401 (k) or want to add another retirement account to their 401 (k). Just like with a 401 (k), you can set up automatic contributions to your IRA from a checking or savings account.
You can find IRA accounts that are offered through national banks, investment firms, and online brokers Robo-Advisor. You will most likely see both traditional IRAs and Roth IRAs. While the two types of IRA accounts have the same contribution limits – up to $ 6,000 in 2021 if they’re under 50 and $ 7,000 if they’re 50 or older – they offer different tax benefits.
Similar to a 401 (k), a traditional IRA can lower your taxable income, which means you owe a little less to the government each year you contribute.
Choose checked and compared over 20 different traditional IRA accounts to determine the best for all types of investors. (See our methodology For more information on how we choose the best traditional IRAs) When shopping in an IRA, choose an account that has no minimum deposit requirements, offers commission-free trading, and offers a variety of investment options.
Fidelity Investments IRA With its $ 0 minimum deposit, commission-free trading, and abundance of teaching aids and resources to get you started with investing, this is the best deal for beginners. Fidelity even offers its own robo-advisor, Fidelity Go, if you need more cash on your investments.
Information on Fidelity Investments IRA has been independently collected by Select and has not been reviewed or provided by Fidelity Investments prior to publication.
$ 0 commission fees on stock and ETF trades; $ 0 transaction fees for over 3,400 mutual funds; $ 0.65 per options contract
Stocks, bonds, mutual funds, CDs, and ETFs
Tools and calculators that show users the progress of their retirement goal; Fidelity Five Money Musts Online game in which you will learn how to manage money in the real world
Young investors, Meadows said, should also realize that they are on a path to building strong financial relationships.
This is why he suggests starting with an IRA account with your bank to show loyalty. “”[Doing so] could help you later when you are looking for a loan or other bank support, “he says.
To determine which individual retirement accounts (IRAs) are best for investors, Choose analyzed and compared traditional IRAs offered by national banks, investment firms, online brokers and robo-advisors. We narrowed our ranking by only considering those that offer commission-free trading in stocks and ETFs, as well as a variety of investment options so that you can maximize your retirement savings.
We also compared each IRA for the following characteristics:
- Minimum deposit of USD 0: All of the IRAs in our ranking have no minimum deposit requirements.
- Low fees: We have factored in the fees, commission trading fees, and transaction fees of each IRA.
- Bonus offered: Some IRAs have promotions for new account users.
- Variety of investment options: The more diversified your portfolio, the better. We made sure our top picks offer investments in stocks, bonds, mutual funds, CDs and ETFs. Most also offer options trading.
- An educational resource center: We chose IRA with an online resource hub or advice center to educate you about retirement accounts and investments.
- User friendliness: Whether you access your IRA at home on your laptop or smartphone on the go, a simple user experience is important. We have found that the investment platform is characterized by its ease of use.
- Customer service: Each IRA on our list offers customer service via phone, email, or secure online messaging.
After reviewing the features above, we sorted our recommendations based on the type of investor that would best suit you, from novice and hands-off investors to experienced and practical investors.
Your earnings in an IRA will depend on the fees involved, the contributions you make to your account, and market fluctuations.
Editor’s note: The opinions, analyzes, ratings or recommendations expressed in this article come exclusively from the Select editorial team and have not been reviewed, approved or otherwise endorsed by third parties.