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Considering a Million-Dollar Nest Egg? Explore These Two Investment Accounts

We all have our favorites, don’t we? “Moonstruck” is a favorite movie of mine, and “Lonesome Dove” ranks among my favorite books. I also have favorite investment accounts that can help both you and me build a million-dollar nest egg.

Here’s a closer look at my top choice for me, and perhaps for you too, along with another popular option that suits most people. Both of these accounts offer significant tax advantages.

My Preferred Account for Building a Million-Dollar Retirement Nest Egg – Suitable for Most People

Let’s start with my preferred account for building a million-dollar retirement nest egg for most individuals: the 401(k). To utilize a 401(k), you need an employer that offers one, and fortunately, many companies do these days.

One drawback of 401(k)s, according to some investors, is their limited selection of investment options – often just a handful of mutual funds or ETFs. However, this simplicity can be a benefit for many individuals who aren’t adept at picking stocks and find the vast array of investment choices overwhelming.

If your 401(k) offers low-fee funds that meet your needs, you’re in good shape. A popular choice, recommended by none other than Warren Buffett, is an S&P 500 index fund. These funds aim to mirror the performance of the S&P 500 index, historically averaging close to 10% annual returns. Here’s how your money can grow at an 8% rate over time:

Another advantage of 401(k) accounts is their generous contribution limits. In 2024, the limit is $23,000 (up from $22,500 in 2023), with an additional $7,500 catch-up contribution allowed for those aged 50 and above. If you can consistently save $30,000 annually, the growth potential is even greater.

Moreover, many employers offer matching contributions, effectively giving you free money. Once set up, contributions from both you and your employer are automated, making retirement savings more manageable.

My Preferred Account for Building a Million-Dollar Retirement Nest Egg – Personal Choice

Personally, the account I value most for my investments is an IRA, of which I have several. (You can have multiple IRAs, though total contributions cannot exceed the annual maximum.) Throughout my career, both IRAs and 401(k)s have proven beneficial for my financial growth.

What makes an IRA appealing? One downside compared to 401(k)s is the lower contribution limit. For 2024, the maximum contribution is $7,000, with an additional $1,000 catch-up contribution available for those aged 50 and above. If you have multiple IRAs, you can allocate a total of $7,000 or $8,000 annually, depending on your age and distribution.

However, the IRA offers greater flexibility in investment choices. Open an IRA with a reputable brokerage, and you can invest in individual stocks, specific mutual funds, or ETFs not available in your 401(k).

IRAs are particularly advantageous for those interested in stock-picking or specific investment strategies not covered by employer-sponsored plans. Additionally, self-employed individuals can explore options like the SEP IRA, SIMPLE IRA, or Solo 401(k), which offer higher contribution limits.

Traditional vs. Roth?

Lastly, consider whether to save through a traditional or Roth IRA or 401(k). Traditional accounts provide an immediate tax deduction on contributions, reducing your taxable income for the year. In contrast, Roth accounts accept post-tax contributions, but withdrawals during retirement are tax-free if certain conditions are met.

Building a million-dollar nest egg in an IRA or 401(k) is feasible. These accounts offer future financial security, so explore them to determine which one(s) align best with your retirement goals. Both can significantly enhance your retirement plan.

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