A Primer on Retirement Saving (Part 4 of 5)

In Part 1 of this series, hopefully I convinced you of how important it is to save for retirement.  In Part 2, I talked about the different options that exist for retirement savings.  In Part 3, I discussed how to efficiently prioritize the options that exist for your retirement savings.  In this installment of the series, I will discuss how and where you go to sign up for your 401K, 403B and IRA.  Signing up for a 401K or 403B is quite easy.  Picking the right company for your IRA is more complicated.  In this post I will attempt to make picking a company for your IRA as easy as possible.

Where to Open a 401K and 403B 

If your company offers a 401K or 403B, opening one is quite easy.  Just contact the HR office of your company and ask them for the paperwork!   

Where to Open a Traditional or Roth IRA

1)    Full Service Brokerages – Merril Lynch, TD Ameritrade, Wachovia, etc.  These are my least favorite options unless you really feel like you cannot do this on your own.  They provide investment advice but are very expensive.  If you want to use this option you can go online to find your nearest branch office. 

2)    Online Discount Brokerages – ShareBuilder, Scottrade, Firsttrade, Zecco, ETrade etc. 
Discount brokers appeal to many people because they have low or no minimums to open an account. Short term, online discount brokerages can be a good alternative if you only have a small amount to invest (less than $1,000) and you are not willing to make automatic contributions of at least $50/month. If you are a mutual fund investor, opening an online brokerage account should only be a short term bridge to opening an account at one of the big three mutual fund companies.  Discount brokers are a good option if you’re primarily interested in purchasing individual stocks instead of mutual funds, but for most casual investors this is not advised.  

3)    Banks – Bank of America, Commerce Bank, Citizens Bank, Washington Mutual, etc. Another option if you’re short on cash to open an IRA at a mutual fund company is to open an CD-based IRA at a bank until you’ve saved enough for the minimum initial deposit at one of the three big mutual fund companies.  This is only a short term option. As soon as you have at least $1,000 you should be rolling you IRA over to a mutual fund company. 

4)    Mutual Fund Companies – In my opinion, mutual fund companies are the best place to open your IRA.  However, they have fairly high minimums for investing.  Fidelity Investments, The Vanguard Group and T. Rowe Price are the three largest mutual fund companies and signing up for all three can be done easily online.  I will provide key details for each company so that you can properly evaluate which company best suits your needs. 

Fidelity Investments

Fees: No fee.

Minimum Investment: $2,500 minimum initial deposit, but this is waived if you commit to at least $200/month automatic contributions.

Additional Contributions: Minimum of $250 unless you commit to at least $200/month automatic contributions.

The Vanguard Group

Fees: No fee

Minimum Investment:  $1000 minimum initial deposit to purchase the company’s STAR fund.  (The STAR fund is a mutual fund of mutual funds, a safe choice for beginners.)  Most other funds at Vanguard have a $3000 minimum.

Additional Contributions: Minimum of $100 unless you use their Automatic Investment Plan, in which case the minimum is $50.

T. Rowe Price

Fees: $10/year per mutual fund owned for Roth IRA accounts until you have a balance above $5,000 for each mutual fund or an aggregate of $50,000 invested, after which there is no fee.

Minimum Investment: Minimum of $1,000, unless you sign up to contribute at least $50/month in automatic contributions.

Additional Contributions: Minimum of $1,000, unless you sign up to contribute at least $50/month in automatic contributions.

How to Open an IRA

Some firms require that you download the forms and then to mail or fax them to the company. Most companies, however, provide online applications. Before you begin the application, you will need the following:

  • Social security number
  • Bank account information
  • Employment information
  • Money

Once you’ve completed the application process, you will be asked to transfer money to your account. This money will probably earn interest in a money market fund until you choose an investment. In the final installment – Part 5 of this series, we’ll discuss good investment options for IRAs and 401Ks. Stay tuned!

Please contact Dollars & Sense Education to bring our “Financial Health 101 seminar to your company or organization! 

Dollars & Sense Education – Raising Your Financial IQ!
215 – 499 – 3834


2 Responses to “A Primer on Retirement Saving (Part 4 of 5)”

  1. Daily Roundup: Retirement Planning, Free Credit Reports, and Structured Procrastination ∞ Get Rich Slowly Says:

    […] This is a fine introduction for people beginning to explore this subject. [Part 1, 2, 3, 4, […]

  2. A Retirement Accounts for the Self Employed (Part 1 of 5) - The SEP IRA « Dollars & Sense Education Says:

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