Retirement Planning: Navigating Td Ameritrade's Investment Options

TD Ameritrade, now part of Charles Schwab, offers a range of investment options for retirement. These include a Traditional IRA, which provides immediate tax benefits and tax-deductible contributions, and a Roth IRA, which allows tax-free growth and withdrawals. TD Ameritrade also offers a Rollover IRA for consolidating retirement savings from previous employers, as well as small business retirement accounts such as the SEP IRA and Solo 401k. Additionally, TD Ameritrade provides educational resources and tools like Thinkorswim, making it a good option for both beginner and advanced investors.

Tax-free, tax-deferred, or low-taxed investment options

When it comes to retirement, there are a variety of tax-free, tax-deferred, or low-taxed investment options to choose from. Here are some options to consider:

Tax-Free Investment Options:

• Roth IRA: With a Roth IRA, you can make tax-free withdrawals of your contributions at any time, provided your account has existed for at least five years and you are 59½ or older. Additionally, earnings can be withdrawn tax-free if you meet certain requirements, such as using the funds for a first-time home purchase or becoming disabled. There are no minimum initial deposit requirements or maintenance fees for this account type.
• Municipal Bonds: Investing in municipal bonds can offer tax advantages, as the interest earned on these bonds is often exempt from federal income taxes.

Tax-Deferred Investment Options:

• Traditional IRA: A Traditional IRA offers the potential for immediate tax benefits, as contributions are often tax-deductible. Taxable distributions can be taken without penalty starting at age 59½, and there are no minimum initial deposit requirements or maintenance fees for this account type. However, Required Minimum Distributions (RMDs) are mandatory after reaching age 72.
• 401(k) Plans: These plans allow employees to contribute pre-tax earnings, lowering their taxable income. Taxes are paid when the funds are withdrawn in retirement.
• SEP IRA: A Simplified Employee Pension (SEP) IRA is a tax-deferred retirement plan for self-employed individuals and small business owners. It offers flexible contributions, simple administration, and no specific annual funding requirements.

Low-Taxed Investment Options:

• Index Funds: Investing in index funds can be a low-taxed option, as they typically have lower turnover rates, resulting in fewer taxable events.
• Real Estate Investment Trusts (REITs): REITs can provide tax advantages due to their structure, allowing them to pass tax liabilities to their investors.

It's important to carefully consider your income, tax bracket, and financial goals when choosing between these options. Consulting with a tax professional or financial advisor can help you make informed decisions about your retirement investments.

Traditional IRA

A Traditional IRA is a personal retirement savings account that offers tax benefits and a range of investment options. It is one of the most common retirement options, alongside the Roth IRA and Rollover IRA.

With a Traditional IRA, you can contribute pre-tax or after-tax dollars. Your contributions may be tax-deductible depending on your situation, which can give you immediate tax benefits. Your money will grow tax-deferred, but you will have to pay ordinary income tax on your withdrawals. You must start taking distributions after age 73. There are no income limitations to opening a Traditional IRA, and you can contribute up to $6,000 of tax-deferred income, with an additional $6,000 allowed for a non-income-earning spouse. Account owners over the age of 50 can contribute an additional $1,000.

A Traditional IRA may be a good option for those who expect to be in the same or lower tax bracket in the future, as you will pay ordinary income tax on your withdrawals. It also offers flexibility in terms of investment options, allowing you to choose from stocks, bonds, ETFs, mutual funds, CDs, and more.

Compared to a Roth IRA, a Traditional IRA offers the benefit of immediate tax advantages. However, with a Roth IRA, there are no taxes on withdrawals, and contributions and earnings grow tax-free.

Roth IRA

A Roth IRA is an individual retirement account that you contribute to with after-tax dollars. While there are no current-year tax benefits, your contributions and earnings can grow tax-free, and you can withdraw them tax-free and penalty-free after age 59 1/2 and once the account has been open for five years.

There are several benefits to choosing a Roth IRA. Firstly, there are no contribution age restrictions, meaning you can contribute at any age as long as you have a qualifying earned income. Secondly, your earnings grow tax-free, and you can make qualified tax-free withdrawals after age 59 1/2. Thirdly, there are no mandatory withdrawals, unlike with a traditional IRA. Finally, if you pass your Roth IRA onto your heirs, their withdrawals of contributions are tax-free, and earnings are generally tax-free, although they may be subject to income tax if the account is less than five years old at the time of the withdrawal.

It is important to note that there are income limitations to opening a Roth IRA, so not everyone will be eligible for this type of retirement account. Your eligibility and contribution limits are determined by your Modified Adjusted Gross Income (MAGI). For example, for the tax year 2024, if you file as a single person, your maximum contribution starts to reduce at $146,000, and if you file jointly, your combined MAGI must be below $230,000.

Additionally, there are specific rules regarding early withdrawals from a Roth IRA. While withdrawals of contributions can be made at any time without penalty, withdrawals of earnings may be subject to a 10% early withdrawal penalty if you are under age 59 1/2 and have not met the five-year minimum account holding period. However, there are certain situations where you may be eligible for tax-free withdrawals before age 59 1/2, such as in the case of death, disability, higher education expenses, first-time home purchases, or birth or adoption expenses.

Rollover IRA

A Rollover IRA is a good option if you're figuring out what to do with an old 401(k) retirement plan. It's a holding account for funds distributed from an employer's qualified retirement plan, such as a 401(k) or 403(b). Moving funds into a Rollover IRA allows the account owner to return the funds to another employer's qualified retirement plan in the future.

There are several benefits to a Rollover IRA. You might gain access to a broader range of investment choices compared to a 401(k). There may also be flexibility later on to convert the IRA to a backdoor Roth account. You may also have lower fees compared to 401(k) plan fees. Additionally, your investments will retain the same tax advantages.

However, there are some downsides to consider. You won't be able to take out a loan against your IRA, as you could with a 401(k). There may be trading commissions, and the exact same investments might not be available to you.

When initiating a direct rollover from a qualified retirement plan, you should contact your plan administrator. It's important to follow the right steps and understand the type of account you're looking to roll over. If you're rolling over into an existing IRA, you don't need to set up a new account. But if you are setting up a new account, many brokerages, including TD Ameritrade, offer rollover and Roth IRAs.

To initiate the rollover, your new broker should provide you with account information and an address to send the funds. Once the new account is set up, inform your current plan administrator to send the money to your new broker. Make sure the check is made out to the new broker with "For Benefit Of" (FBO) as your name.

It's important to note that rolling over to an IRA can sometimes result in certain tax consequences. For example, if you have company stock or options, you may have net unrealized assets with associated tax consequences. Therefore, it's recommended to consult with a tax professional before starting the process.

SEP IRA

A SEP IRA, or Simplified Employee Pension Plan, is a retirement plan for self-employed individuals and small business owners and employees. It is a great option for those whose businesses are new or have variable profits.

The business owner has complete flexibility in contributions, and employers can change the percentage contributed every year, skip years, or contribute one year and never again. Employers may contribute up to 25% of each eligible employee's income, but no more than $69,000 per person for 2024 ($66,000 for 2023).

To be eligible, employees must be 21 or older, have earned at least $750 during 2023, and have worked three out of the previous five years. Employers may adopt less restrictive eligibility requirements to ensure they can also participate in the plan.

A SEP IRA must be established and funded before the employer's tax return due date, and contributions can vary by year. All contributions are reported in the tax year they are received on tax form 5498.

Frequently asked questions