Traditional IRA

One option is a traditional IRA.  Your money will earn money, and you won’t pay taxes on it until you retire; this is especially nice because your income will be lower, placing you in a lower tax bracket.  It’s also tax-deductible until you withdraw, and there is no income limit to qualify.  You need to be careful here, though, as there is a 10% tax penalty for early withdrawal, and your spouse’s income or employer-provided 401(k) may affect your eligibility and/or your contribution limit.

Nondeductible IRA

A nondeductible IRA can be a good option if you are not going to be retiring soon but you have maxed out your 401(k) and do not qualify for a traditional IRA.  This one is not tax-deductible since you contribute after-tax money, but just like a traditional IRA, it is taxed as though it was ordinary income rather than other types of savings gains, and you won’t have to pay until it’s time to withdraw.

Roth IRA

A Roth IRA is a good choice if you are still working with no plans to retire soon.  This one is also not tax-deductible, but it is essentially tax-free.  You can start to withdraw money five years after opening the account without an early withdrawal penalty, but there is an income limit in order to qualify for this one.  If you file taxes as single, your income limit is $95,000.  Couples must make less than $150,000 combined.

Pay Off Debt

This one is always a good option.  If you’ve maxed out your 401(k) but have quite a bundle of debt, you’ll want to pay it off before you retire and are living on a lower income.  You can use all of your extra money that would be going into your 401(k) for your debt, or find a balance between this and depositing money into an IRA.

Other options include regular savings (which won’t net you as much gain), mutual funds, variable annuities, etc.  There is some debate over whether variable annuities are beneficial due to annual fees, contract fees, and the potential for loss, so if you’re considering this one, do some research and try to stick to annuities with low fees.

There are two big reasons that the same exact investment can vary in cost:

1. Fulfillment of order. If you place an order to buy your shares at the current market price through your online brokerage account, that order will get filled immediately. If, however, you call your broker, there is a process to fill your order. By the time your order is actually filled, the share price could have already skyrocketed.

Solution: Place limit orders, which allow you to name the price that you want to buy at. It will be filled when there is a seller at that price willing to take your offer.

1. Fees. Just about any time you buy or sell a stock, option or mutual fund, there is a fee assessed in order to place your order. Since online brokerages are completely automated, overhead costs are low. This savings is passed on to you. Your investment firm may charge a percentage of your investment. For example, most online brokerages charge about $10 no matter the size of the trade, but some firms charge 1.5%. That means a $30,000 investment would cost you $450, but the same exact trade would only cost $10 through your online account.

Solution: Do your own trading and eliminate fees entirely with Zecco, which offers 0% stock trading. They make up their costs with advertising revenue.

Not only can excessive charges cost you thousands of dollars, they are unnecessary. Using an online brokerage firm can eliminate these charges and can be more convenient.

Millionaire Money Habit: Investing is not just about what you invest in, but how you manage your assets as well. Keep your fees low and your losses to a minimum, and you can reach your financial goals at a much faster rate.