Iggy aka IG
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Location: Good ol' USA
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Post by Iggy aka IG on Jan 13, 2020 16:41:09 GMT -5
I've been doing some research online about this, and want to query YM experts. Which is better for long term savings in your opinion: A SEP IRA or an online savings account with a better than a local bank interest rate? Or both? (I'm self-employed and have a Roth IRA which I plan on maxing this year before putting additional savings avenues in place.)
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CCL
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Post by CCL on Jan 13, 2020 20:28:34 GMT -5
I wouldn't choose an online savings account at all for long-term funds. I'd go with a brokerage account and dollar-cost average into a fund, either a balanced fund or S&P 500 index fund depending on how comfortable you are with investing.
I know nothing about SEP IRAs, so don't have an opinion on those.
It seems like you are confusing the type of account with the choice of investments. Choose the type of account, online savings, SEP IRA, or brokerage. Then choose the investments within that account. Or vise versa. If all you want is a "safe" account, you might go with the online savings.
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jerseygirl
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Post by jerseygirl on Jan 13, 2020 21:19:30 GMT -5
With a SEP IRA (self employed) you can save a larger amount tax free than an IRA, good opportunity Mutual funds, ETFs or individual stocks can be in either type of account
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MN-Investor
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Post by MN-Investor on Jan 14, 2020 0:48:55 GMT -5
An online savings account might be fine for an emergency fund where you aren't as concerned about outpacing inflation, but investing for a secure retirement requires investing in assets which will do better than inflation, i.e., stocks and bonds. The longer you have until retirement, the more your investments should be in stocks.
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resolution
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Post by resolution on Jan 14, 2020 8:14:20 GMT -5
It depends on whether you are saving for retirement or whether it is an actual long term savings that you plan to spend before retirement age.
A SEP IRA has the same age restrictions as a traditional IRA or a 401K, so if you withdraw the money before age 59.5 there will be a 10% tax penalty in addition to it being taxed as regular income. It is a decent way to save for retirement with taxes deferred, but not good if you are planning to make withdrawals before the age of 59.5.
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Deleted
Joined: Mar 28, 2024 3:59:34 GMT -5
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Post by Deleted on Jan 14, 2020 8:25:20 GMT -5
Your two options are different decisions, really. The on-line savings account is one type of investment (along with mutual funds, individual stocks, etc.). The SEP IRA is one type of "box" in which to hold it. The other "boxes" include on-line savings account, discount brokerage account, 401(k), etc. You can, for example, put your savings into a money market account at a brokerage.
If the money is truly long-term and not for an emergency fund, you're better off with some mutual funds or an ETF such as the S&P 500 as long as you can tolerate the ups and downs. Whether it's in a SEP IRA or not depends on when you're likely to take money out. If you truly plan to keep it there till retirement, yes, a SEP IRA is a good idea. Otherwise you can put it into an after-tax brokerage account. You won't get the advantage of deducting the contribution now but you won't pay a steep penalty if you withdraw it early.
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Iggy aka IG
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Joined: Oct 25, 2012 12:23:23 GMT -5
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Location: Good ol' USA
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Post by Iggy aka IG on Jan 14, 2020 12:39:29 GMT -5
Thank you all for taking the time to respond with this helpful information. My goal is to put as much as possible into whatever account appropriate in order to make up for the money I haven't yet saved for retirement. As you know, the Roth IRA only allows for the max of $7K at 50, so I'm looking for more "boxes" as athena53 calls them. Ideally, I wouldn't have to touch the money until age 65 or older, which is 13 years from next month.
I use Fidelity for the Roth, and they do offer SEP IRAs according to their website. From the comments above, a SEP might be the way to go.
Does anyone have an opinion about specific brokerages?
Again, thank you for your input and patience with me as I am in the learning stage of all this.
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CCL
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Post by CCL on Jan 14, 2020 17:52:54 GMT -5
We've been with Fidelity for about 20 years and have been fine with them. They have dropped their account minimums and most trading fees, so affordable even if you don't have a lot invested to start. They have plenty of options to choose from.
Most people are happy with Vanguard, so they should be fine, too. I think you would do well with either one.
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Deleted
Joined: Mar 28, 2024 3:59:34 GMT -5
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Post by Deleted on Jan 14, 2020 20:23:34 GMT -5
I have Fidelity as well and really like them. I even have my checking account with them. The interest is a lot higher than I was getting with USAA. The only bad thing I've heard is from some family members who signed up for an account where you pay a % of assets under management and they do tax-loss harvesting, which involves many transactions at blinding speed. I don't have that and they haven't bugged me to sign up for it. I love their Visa, too- straight 2% cash back, no categories, no BS. The 2% can go straight into your Fidelity account (after-tax, not retirement).
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