Putting money aside for retirement is an important step for any wage earner. Pension plans are going the way of the dinosaur, and the only option other than Social Security is if you save your own money in a tax-advantaged retirement account, such as a 401(K) plan at your place of employment.

There are many options available for retirement accounts, both employer sponsored and through your own brokerage account. At your job, your employer has an option to offer a 401(K) retirement account, which lets you put pre-tax wages into a retirement investment account. Not all employers offer this, and if you can’t take advantage of a 401K, you can use a traditional IRA, or Individual Retirement Account.

Don’t get confused, as there is no such account as a 401k IRA – they are two separate types of accounts. However, depending on how much you earned, and your tax filing status, you may be able to invest in both a 401k and an IRA. Once you earn over a certain limit, you can no longer qualify for the IRA.

The amount you invest in an IRA is tax deductible off your federal income taxes. However, the maximum you can invest each year is much less than a 401K, so if you have a 401K option at work, that is probably the better of the two if you want to stash as much money as possible.

Both types of accounts have specific limits. For the tax year 2010, the maximum you can invest in a 401K is decided by your employer, as a percentage of your income, but not more than $16,500, or $22,500 if you are over 50 years of age. For a traditional IRA, the maximum investment is $5,000, or $6,000 if you are over 50 years old. This is also limited to the maximum amount you earned in 2010. (You can learn more about retirement account limits at the U.S. Internal Revenue Service website.)

You can see that there is a big difference in how much you can put away for your retirement. If you are able to put aside the maximum amount of your wages, you should discuss it with a tax advisor or your employer’s benefits manager, to see what your individual allowances are. Putting as much aside as you can may be a good idea. But remember, you will also need to know what the investments are that you’re investing in, not just how much money you can put aside.

Remember also that you can always invest as much money as you want in other accounts – they are just not tax-deferred or otherwise tax advantaged accounts. If you put money into a self-directed brokerage account, you will pay taxes on the capital gains earned in that account. But you also have options such as tax-free municipal bonds, where you can invest with lower tax impacts. The bottom line is, don’t think you are only limited to your 401K and IRA options for financial security in retirement. Work with a financial advisory to consider all of your options, once you’re reached your retirement account limits.

A few of the blogs we read across the Web contain some interesting investing ideas, some familiar and some which may be new to the reader.  Whether you’re looking for new investing ideas or just trying to find the best investment today, here are a few of our discoveries across the web for anyone who wants more information about investing.

1 -  From Buy Stocks Online Now:  Learning how to buy and sell stocks takes time and research. There is a lot of good, informative information out there, and just as much that is out dated and inaccurate. Take the time to seek out books and websites that offer up to date and detailed information.

2 – The Biz Hunter offers this item:  Forex investment can be risky, but also very lucrative.  Critical skills are needed to profit in this highly competitive investment landscape, but these skills can be acquired through education, training and practice trading utilizing virtual (demo) accounts from the right broker. There is money on the table for those who can follow a system, control their emotions and practice good money management methods.

3 – This sounds interesting from Reveal Real Estate: Belize often flies under the radar as a property investment destination.  It’s known more for its diving.  But investors interested in Caribbean property should take notice.  Belize real estate is available at prices far below the more established parts of the Caribbean.  The areas that are attracting the most investor interest are Ambergris Caye, Placencia and Corozal.

4 – From Dallas Investment Property Guide:  A volatile stock market has sent individuals looking for more secure investments.  As the saying goes, “Buy land, since they’re not making anymore of it,” real estate is a time tested investment, especially income properties over time.  Dallas investment property is no exception, as Texas remains a stable economy.

7 - So You Want to Be a Real Estate Investor:   Have you been thinking about buying investment property for a long time?  Have you read all the books and watched all the infomercials, but just didn’t know where to start?  Here are some quick steps to get you started toward your investment property dreams.

Here at Saving Cash Tips, we’re hosting Part 2 of the Investing Carnival. We’ve been checking out some posts on investing blogs around the web, looking for good ideas about how to invest. Here are some posts we think you’ll find helpful in your investing efforts:

In this tough economy it can be hard to stay focused on saving for retirement. At
Retire Early Guide they teach you effective savings tips so that you can stay on top of saving for your future now! The site covers topics such as paying off your mortgage faster, saving for your childrens education and cutting variable expenses!

Jim Cramer has given me great insight into the stock market through a service he created called Action Alerts Plus which allows us to watch as he makes his own trades through a charitable trust portfolio. Read my review and sign up for a free two week trial.

And here’s some good advice about 401k rollover options: When deciding to leave your current employer, you have more to think about than your new job. If you have invested in the company’s 401k you need to decide what you will do with your retirement funds.  Educating yourself about your rollover options is crucial before taking action.

Ty Coon over at Stock Market Investing Today has started his Poor Man’s Stock Market Investing Challenge. He’s helping people use a stock simulator to learn how to start investing in the stock market.

According to Stock Market for Beginners Guide, for all newbies who wish to make money in the stock market the difference in making big bucks versus losing is the education. To begin it is important to understand how the stock market works and how the stock exchanges operate. Understanding the stock market today will help avoid a few costly mistakes while you are a beginner. It will also help as then you will be a notch above those who venture into the stock market with no knowledge and understanding of the markets.

At 401k Rollover Answers, they’ve pointed out that in this time when many people are facing a job transition, one of the important details that can fall through the cracks is the question of what to do with one’s 401k account. It is a good idea to do some research before deciding what to do with the retirement fund from your old company. This article demonstrates some of the common mistakes people make, from cashing it out early, to forgetting they’ll need to pay back a 401k loan.

Hope you find these Investing Carnival links profitable!

I finally heard Suze Orman say it last night – to set up a self directed IRA rollover account with a discount brokerage so that YOU are in control of your funds. I don’t think you can get video of her broadcasts, I will keep looking for the link.

At the beginning of the downturn in mid-2008, she had some typical, conventional  things to say, you know, the old “if you’re in the market for ten more years then stay put” crap, but she’s coming around.  Now she is telling folks facing imminent retirement that they need self directed accounts and to set up 401K rollover accounts – and not leave them at the mercy of a former employer.

She also answered one caller, whose employer has stopped the match and who makes too much to contribute to a ROTH, telling her NOT to “keep putting in the max to your 401k”.  Wow – she instead said do a non-tax deductible IRA, then roll it into a ROTH each year.  Go Suze!   BTW – so many money types say only put in up to the match, then go ROTH or otherwise – Jim Cramer, now Suze.  Maybe some folks will get the message.

So what do you do? Open a self directed IRA or a 401k rollover account with a top rated discount broker.  Learn to invest money in the markets.  LEARN what works, for YOU. Don’t expect anyone to tell you the right thing to do.  Then place your own investments. Today, you can even open a Roth 401k with a discount broker.

And while I”m at it – I’m passing this article around to all of my friends.  The article, by Jeffrey Goldberg, is titled “Why I Fired My Broker” and it explains why you should too.  Read it and understand why your employer’s 401k managers and financial advisors generally are a waste of your time.

Why I Fired My Broker, by Jeffrey Goldberg

Their job is to make money for their firm.  Not protect you from downturns.  As long as their losses aren’t as great as the losses in the index funds, they consider that a “win”.

There are many ways to invest money that are safer for the long term, but you will have to learn more about investing, learn more about the markets, and not just expect to park your money in a mutual fund somewhere and let it sit.  This is not just a “down” market. This is potentially a stagnant market, with little or limited growth for years, even decades, to come.  It requires a different understanding to be successful, as opposed to just waiting out a temporary downturn in a bull market as has happened in the past.  You will have to learn the best way to invest money for yourself, and not rely solely on tee vee talking heads or even experienced financial planners to help you. Keep your $$ in a CD or high interest checking account so you have cash available when you need it.

Stay tuned here in the next few posts as I list some publications you really want to read.  These will not give you the same old buy and hold bull – they will explain why the “advice” you’ve been getting has been skewed against you from the beginning.  Start with Crash Proof, by Peter Schiff  (the new edition, Crash Proof 2.0, is coming soon!).

Bottom line:  Take advice from NO ONE. Not even us.  And read outside the lines folks.  Don’t take conventional wisdom for truth.

When you have a 401k plan at work, and you leave your job for any reason, you can choose between taking a 401k rollover into another brokerage account, or leaving your funds with your employer’s plan.  For a variety of reasons, it’s nearly always best to roll over your 401k.

With so many people saving more today, and also facing an increased possibility of being laid off and changing jobs, using the 401k rollover option is a way to maintain some control oer your retirement security.  Unfortunately, the roll over is not very well explained or understood by most investors.  It’s something we advocate very strongly – to get your money out of the hands of mutual fund managers who do not have your best interests at heart!  It might mean you need to take the time to learn to invest money beyond your current knowledge, but that is FAR better – and more profitable – than sitting idly and helplessly watching your retirement nest egg vanish without any comment from your plan administrator or your company’s mutual fund managers…

When you have a retirement plan set up by your employer, the investment options are always very limited. They don’t want to pay a lot of money in admin fees, nor take a lot of risk, by offering a wide selection of investment vehicles to their employees. The management headaches are too great.  And, their plan consultants are probably telling them all the same conventional crap about perpetual growth, stock market returns, etc etc. 

However, once you set up a self direct IRA using your 401k rollover, you can start investing in all types of vehicles for retirement that were previously unavailable.  Now, you can start taking control over your money,and not leaving it to the mercy of conservative – or worse, convention – mutual fund managers.

To roll over your 401k account, you first open a new, self-directed IRA account with your new broker of choice.  As you complete the paperwork, you’ll se that they ask if this is a rollover account.  If so, they will give you all the appropriate paperwork to have everything transferred from your employer’s plan.  As long as you aren’t taking any withdrawals from your retirement account, there are no penalties or taxes required. 

You have four main options when you leave your employer, as to what to do with your 401k rollover.  They are, in order of preference:

1) Cash in your account. BEWARE: if you cash out your account prior to your statutory allowance, you will pay taxes and penalties!
2) Stay with the retirement plan from your previous employer. This is where you could stay if you really just don’t care about what happens to your money. 
3) Transfer the balance of your prior retirement account into the retirement plan offered by your new employer. At least here you can keep an eye on it.
4) Open a Self Directed 401k Rollover IRA account with another broker or mutual fund of your choice, and transfer all retirement funds into that account.

We don’t recommend you ever do #1 unless you are in serous, dire financial difficulty.  You will lose roughly 40% of your account in fees and penalties.  As for options #2 and #3, these are both  conservative, hands off type decisions.  If you just don’t want to think about making your money work for you, or even think about it at all, then leave them in the hands of the mutual funds your employers have chosen for you.  But don’t complain when you lose money! 

Only by choosing #4 will you have a new chance to really build up your account balances for retirement.  With this account you will learn more about investing,  and have the option of buying and selling whatever investments you choose that fit your personal financial plan.  It’s not for everyone, but by learning a little about investing, you can gain a lot more secure retirement.

The biggest problem with employer retirement plans offered to employees is that they include a very limited number of investment choices. Of the ones offered, many overlap in the types of stocks and bonds they invest in. A study from Columbia University found that the median number of mutual funds made available to employees was just 13. And this included all funds, even money market funds, fixed income funds, and balanced funds, as well as stocks.

Since you have fewer investment choices within your 401k, your employer-sponsored plan hampers your ability to profit during different market trends and to reposition your retirement balance into accounts with stocks, bonds, mutual funds and ETFs that offer higher risk-reward profiles.

The best thing you can do is to set up a 401k Rollover account with a brokerage that will give you access to all the types of investments available in the market.  (We use TradeKing for all of our accounts, since they have great educational materials and really low fees.)  By opening up a 401k roll over IRA at another company, you can break out of the limits of your employer-sponsored plan and thereby increase exponentially the number of mutual funds, stocks, bonds, ETFs, money markets and more that you have available for investing. Choose a broker that has great resources for investors to learn, such as large investor discussion groups, materials about how to invest, training videos and so on. There’s always something to learn to grow your retirement account to its fullest potential.

It’s easy to see how you might improve our retirement account returns.  If you transfer $50,000 out of your 401k plan, and move it to the Rollover IRA, having a wider range of investment choices can mean that your annual return increases from 8% in the old 401k, to 12% in the Rollover IRA. After 20 years, your roll over IRA will be worth $482,315, more than twice the $233,048 that you would have had if you’d kept your funds in the employer-sponsored plan – and that assumes you haven’t added any deposits to your Rollover IRA.

So how do you set up a 401k rollover account?  There are two ways you can do it.  You can start by opening a Rollover IRA account with your new broker (also known as a self directed IRA, because now you call the shots!)  After that account is set up, you can contact your plan administrator from your former employer and ask to transfer your assets into the new account.

After that your two choices are to have the money sent directly from your previous 401k plan, into the rollover IRA account. This is known as a direct rollover. The second alternative is the indirect rollover, where you you take a distribution of the funds from the retirement plan, then deposit them yourself into your new roll over account.  Other than in the event some exception applies, you are given 60 days to get that distribution into the new account and avoid any taxes or penalties for a withdrawal.  Check with your old and new plan administrators to see which is right for you.

Now that you have set up your 401k rollover account, you can continually leverage that account each time you switch jobs, by moving any accumulated 401k investments into the rollover account.  You just have to instruct your employer’s retirement plan administrator to transfer your assets to the new IRA account.

There is also an option for your to continue to deposit funds to your new IRA, however check to see whether you are subject to limits regarding annual contribution amounts.

The bottom line is, why leave your retirement funds to sit in an account where they are not going to work as hard for you as possible?  Opening up your own self-directed IRA by transferring to a 401k rollover is your best option for growing your future retirement nest egg.   Your new 401k rollover, now opened up as a self-directed IRA, will give you much more control over growing your retirement savings.