You may have just deposited money in your IRA for 2013’s contribution. Good work! Now it’s time to start thinking your 2014 IRA contributions. Remember, you can contribute $5,500 tax-free into your IRA each year ($6,500 if you’re age 50 or older.) If you’re unsure whether to use a traditional or a Roth IRA, you can learn more here.
Whether you’re opening a new IRA or rolling over an old 401k, here are five tips to make the most of your IRA.
1. Make more money
Betterment analysis shows that funding an IRA in January—rather than December—can increase returns simply by being in the market longer. How much? If you maxed out your account every year in January, instead of December, since 1990 you would have averaged $705 more per year in returns.
2. Minimize your costs
Choosing a low-cost investment is one of the smartest ways to improve your retirement prospects—the difference between paying an all-in cost of 0.31% (the cost of a Betterment account with $100,000 or more) and paying 1% for a mutual fund is enough to buy a small house—$162,000 over 30 years. Just in fees.
3. Roll over quickly
An indirect rollover—or cashing out your old retirement account—is the fastest way to move your money from an old account into a new one at Betterment. Withdraw and deposit funds into your personal checking account, and then transfer the money to your new IRA within 60 calendar days of the distribution. Once you initiate a transfer into a Betterment IRA, it only takes two days or less to be fully invested in the market.Betterment automatically takes care of everything from auto-deposits, rebalancing and tax optimization—so you can grow your retirement savings with peace of mind.
4. Consolidate accounts
Two retirement accounts of $50,000 at different providers are likely to cost more in fees than one $100,000 account. Another cost to multiple accounts: the time to rebalance and manage them in different places (or lost returns from not rebalancing at all.) At Betterment you can consolidate your accounts, and save time and money.
5. Say ‘bye to target date funds
Target-date funds are a popular but simplified option for retirement investing because they are easy to set up and keep you on an investing path with an asset allocation that adjusts over time. The problem with these funds is they set your allocation based on solely on your target retirement date—rather than how much money you have saved. At Betterment we offer the similar all-in-one concept, but offer personalized advice based on your existing savings, your time horizon and your contributions.
New to Betterment? As the most trusted online financial advisor, Betterment offers a fully diversified investment portfolio of 12 global asset classes, optimized to provide you the best possible returns for retirement planning with both traditional and Roth IRAs. Betterment costs 0.15% of assets under management annually for a portfolio of $100,000 or more. Learn more here.
This article was published on January 9, 2014