Find The Best Penny Stocks

November 17th, 2010 by admin No comments »

Where do you find the Best Penny Stocks? It is not a simple process, but one well worth investing both time & a little money in uncovering. If you haven’t already tried calling your stockbroker, don’t bother. It’s a waste of time. He cannot, and will not, help you. Why? Because of the risks involved, all major firms prohibit their brokers from recommending or selling penny stocks. As if any stock is without risks (remember Enron?). And don’t run off to the newsgroups or forums either. Most of the postings on these will be from people who have bought a particular stock and are trying to inflate its value so they can get rid of it.

Most major brokerage houses employ hundreds if not thousands of analysts tracking tens of thousands of stocks – and the thousands of cheap stocks are not included. As a matter of fact, they will not even show up on the analyst’s radar screens until they get above the $5.00 level. This generally means the greatest profit potential is already gone.

    To illustrate my point, imagine you have $1,000 to invest. You find a good stock selling for 50 cents a share with lots of potential and spend your $1,000 on it. That means you have bought 2000 shares. Should the stock go to $5.00 a share, your $1,000 has now turned into $10,000. It is at this point that it shows up on the major firms radar & the analysts their start tracking it.

    Now, if you had waited until the stock got to the $5.00 price and received the recommendation of your broker, you would only be able to buy 200 shares. That means to turn that same investment of $1000 into a value of $10,000; the price of the stock would have to go to $50.00 a share! Should this unlikely event occur, and you still happen to have your 2000 shares, it would now be worth $100,000! And that proves my point that by the time the brokerages have picked it up, the real and best profit potential is gone! It is a mathematical impossibility for the buy at $5 a share to ever catch up with the 50 cents a share

Buy The Best Penny Stocks while minimizing your risks. The first rule of thumb in minimizing your risk is this: Never invest more than you can afford to lose. Even the Best Penny Stocks is somewhat of a gamble, so buy with your head, not over it. Next, you want to get the best guidance possible. You want to seek out the Warren Buffet of Penny Stocks, and he is out there, quietly making millions of dollars while the rest of us are busy earning a living.

You can Make Money in this arena if you have the right guidance. You need someone with the ability to find good companies, with solid potential. You need a system that tells you when to buy & when to sell. And you need discipline to follow the recommendations

Since brokers can’t do it, the only real way to find The Best Penny Stocks is Recommendations that comes to you through a Newsletter – and yes, their recommendations will cost you a few bucks. But remember, if it is worthwhile, it ain’t free! But, if their recommendations are good, the small cost is a drop in the proverbial bucket.

Part 2

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Benefits of Reinvesting Dividends

November 12th, 2010 by admin No comments »

There are two issues involved in ‘reinvesting dividends’. One is dividend and the other is investment.

What is dividend? A dividend is what you earn on your share. Usually a dividend is paid in cash, but sometimes the companies offer stock dividends. You are given shares of stock against the dividend you earn. While some companies issue dividends on yearly basis, in most cases the dividends are paid quarterly.

Though a one time dividend, whether quarterly or annual, may appear too insignificant to merit reinvestment, the economics of returns on reinvesting dividends over a long time makes a fascinating preposition. Here is an example:

Suppose you invested $ 5,000 in the stock of a company in the year 1976. If you opted for reinvesting your dividends, your total assets after the three decades might amount to $ 1.4 million. If, however, you did not opt for reinvestment of dividends on your investment of $5,000 your total earning might not probably exceed only $375,000. You would be making over one million less in your earnings because you chose not to reinvest your dividends.

What actually happens when you reinvest your dividends is that you allotted more shares of the stock, which in turn, allow you to compound the returns on your original dividends. Your shares earn more value when their prices go up. Moreover, you also make more money by earning extra dividends that have accrued by reinvesting them into the stock.

Another interesting feature of reinvesting your dividends is that as the prices of your stock fluctuate, you will be gaining more shares when they become low and, of course, fewer shares when the prices rise. In actual practice, therefore, you benefit from dollar cost averaging when you reinvest your dividends.

It must be noted that most companies that pay dividends have DRIP or dividend reinvestment plans. These plans provide for reinvesting your dividends automatically in more shares of the stock. In most cases you are offered free services in reinvestment plans. This feature is more interesting to small investors who like to save funds for an extended period of time.

Some companies offer stock at discount from their spot price in the market if the investors opt for reinvesting dividends. Discounts can range from as little as 1% to as much as 10%. When these discounts are calculated with no-commission fee, the cost of these shares for an investor comes considerably down as compared to when he had bought shares outside the dividend reinvesting plans.

In case your dividends in any term are not sufficient to buy the high value stock, there is provision to buy fractional shares. It is, therefore, important to consult your stock broker and be sure before you invest whether the company whose stock you wish to buy offer options for automatic reinvestment of dividends in buying its stock. If you do not get the right broker to advise you on these issues, you may have to pay commission to your broker every time you reinvest your dividends. This may substantially reduce your earnings as the commissions will eat up most part of your dividends.

Moreover you must also check with your stock broker and tax consultant and plan for taxes on the dividends. It must be noted that reinvestment of dividends works best only when you have a long term perspective as the compounding effect would take place only over a long period of time. If you are looking for short short-term investment, dividend reinvestment may not prove to be a viable option.

The other benefits of dividend reinvesting are:

Opting for dividend reinvesting is easy. It takes only a few minutes to fill up the details. Your dividends are automatically reinvested. Once you join the scheme, the process becomes totally automated and requires no monitoring. You can also opt for partial reinvestment of dividend. You can continue to receive cash for some shares while reinvesting the dividend on the remaining shares.

The company offering dividend reinvesting options also benefits from such schemes as it gets low cost access to the public capital. Moreover the company ensures that its investor base remains intact and does not withdraw the capital easily as the investors do not exit the company when the value of its stock goes down. Since not all companies offer the dividend reinvestment plans, your broker can help you to reinvest your dividends at no cost.

Pricing and Features for Sogotrade Investment Packages: online investment
Sogotrade Interest Rates and Fees: trading stock options

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Covered Calls Vs Dividends – Option Trading For Income Investors

November 6th, 2010 by admin No comments »

By combining the power of trading options and dividend stock investing, income investors can actually double and sometimes even triple their yields on dividend paying stocks.

Selling covered calls is sometimes compared to taking out a limited insurance policy on your stocks, except that you get paid to take out this policy.

How? If you own a stock with options available, you can sell an option to call, (buy), your shares away from you at a given price, known as the strike price.

You’ll receive money, called a premium, for selling a call option. In fact, you’ll often receive a bigger $ amount per share by selling a call premium than you’re currently receiving as a dividend. This money reduces your net cost basis on the stock, hence the insurance analogy.

What’s the catch? By selling the call option, you’re obligating yourself to deliver x amount of shares of the underlying stock at a specific price – the strike price.

Each option contract corresponds to 100 shares of the underlying stock, so make sure that you own at least 100 shares of the stock BEFORE you try to sell calls against it.

Here are a few basic option terms that will help explain this option strategy:

Strike Price: The price attached to a given option contract, that a call seller is obligated to sell the underlying stock at to the buyer.

Call Bid Premium: The amount of $/share that call buyers are currently offering, (Bidding), for a given call option.

Expiration Date: The date that an option expires, which is normally on the 3rd Friday of the option’s contract month.

Option Chain: The listing of options available for a stock. These are arranged by calendar month. Normally, the months available revolve throughout the year: the front (current) month, the next month, one month per quarter, and the following January. Some more heavily traded stocks have more months available simultaneously.

What triggers the sale of your shares when you sell covered calls? If the price of the underlying stock rises to or past the combination of the strike price and the call premium you were paid, your shares will usually be “assigned”, (sold).

If you sold a $15 January call option and received $1.25, your shares would be assigned if the stock rose to or above $16.25.

Assignment normally happens at or near the expiration date.

Assigned Yield: The % yield a call seller receives when his shares assigned, calculated as follows: The difference between his basis cost on the underlying shares and the call’s strike price he sold at, dividend by his cost basis.

For example, if you sold that $15 call, and your cost basis on the stock was $14.00, you’d earn an additional $1.00/share, if your shares were assigned, which would equal an assigned yield of 7.14%. ($1.00 dividend by cost of $14.00).

Call Yield: The yield that the call seller receives for the call, calculated as follows: The call premium divided by the cost basis/share of the underlying shares.

In the above example, the call seller sold a call for $1.25, and the cost basis of the stock was $14.00. Therefore, his Static Yield equals 8.93%, ($1.25 divided by $14.00)

Most covered call sellers compare the amount of dividends they’d receive prior to the call’s expiration, to the amount of call premium they’d receive, to judge if it’s worth selling the call option or not.

Total Assigned Yield: The total of the dividends received, call premium received, and assigned yield received, all dividend by your cost basis of the stock.

In this example, if you’d received $.60/share in dividends during the term, plus $1.25 in call premium, plus $1.00 assigned yield differential, you’re total income on the trade would be $2.85, on a $14.00 stock. This equals a 20.36% Total Assigned Yield.

Total Static Yield: This is the combination of the dividends received or qualified for prior to expiration, plus the call premium received.

A Static Yield occurs when the stock DOESN’T rise to or above the combination of the strike price and call premium, and the call seller’s shares are not sold.

To sum up, you can add up to 2 new income streams to your dividend income on any optionable stock, by selling covered calls against it.

We took a stock with a $.60 dividend, (a 4.3% dividend yield), and earned over twice as much $ in call premiums immediately, $1.25, (8.93% call yield), plus, we positioned ourselves for an additional $1.00/share if assigned, (7.14% assigned yield).

Want to find out which high dividend stocks have even higher covered call yields? Subscribe to The Double Dividend Stock Alert for the best dividend paying stocks and covered calls. Visit http://www.DoubleDividendStocks.com and check out our free Covered Call Tables, High Dividend Stock Tables, and Investing Blog, where you’ll find trade examples on many dividend paying stocks.

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Best Penny Stocks – Invest in the Right Penny Stocks to Make Money

November 1st, 2010 by admin No comments »

When looking for great stocks to invest in you want to consider the opportunities that are available in penny stocks.  If investing in penny stocks you need to make sure that you understand how these type of investments work before you jump in. There is a lot of money to be made when you buy inexpensive stocks and the advantage is that you can own a lot of shares for a small amount of money.  You make money because the stock rises just a fraction and with having so many shares, your investment pays off.  It is always best to have as much good advice as possible when investing in the stock market.

There are many publications that can help you pick the best penny stocks that are available so that you can maximize the money that you make. Most penny stocks are regarded as stocks that have a value of less than five dollars so in many cases they are not just pennies in value. Once you get started and understand how the stock market works you can see that making a lot of money is very possible for you.  Even during a down time it is very likely that you can make money in penny stocks.  Make sure that you get as much advice as possible for you to begin so that your chances will greatly improve when you invest.

Remember it is not hard making money in penny stocks to have the best results it is important that you have as much information as possible so that your investments are solid.  Take advantage of the many publications that are available to you that will give you advice and tips on which penny stocks to purchase that will maximize your profit.

How to: Trade Penny Stocks

You Can: Get Rich Trading

Bryan Burbank is an expert in the field of Finances and Investing in Stocks

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Penny Stocks to Watch – How to Pick the Best Penny Stocks?

October 26th, 2010 by admin No comments »

So, you already have stocks in your portfolio.  The next step is to learn how to trade penny stocks for huge profits. Lets get started with the following rules of profitable penny stock investing:

Dont Invest Your Life Savings

Trading stocks especially of the penny variety is a highly speculative venture at best. In fact, the volatility of these stocks can swing wildly from 400 percent gains to 50 percent loss within a day.  As such, you must only invest money in penny stocks that you can afford to lose.  If you want to be bold with your money, then these investments are the not right for you – stable blue chip stocks are. Only when you have gained the right experience should you risk investing more money through these riskier speculations.

Plan an Entry and Exit Strategy

There is a saying in the stock market:  Bulls make money and bears make the money … pigs get slaughtered. In other words, you can make money if you control your greed. The best way to do this is to follow a well-planned entry and exit strategy for each of your trades. You can have different entry and exit strategies for the penny stock categories.  Just remember to stick to said strategies instead of letting your emotions of greed, your hot tips, and your alleged insider information make the decisions for you.  Again and again, let your head with its bank of reliable information rule your decisions. 

For example, if you decide that you will sell the penny stocks once it reaches a 50 percent profit margin, sell it as soon as it reaches that point.  Or if you set a target of $100 profit for the day, walk away as soon as that target is reached.  This also goes for losses.  If you set a loss limit of $100, pack your bags and leave when your losses reach that point.  Otherwise, you will be setting yourself up for more disappointments when you try to recoup the initial losses. You can learn many things about yourself in particular and about stock trading in general when you realize the importance of this tip in how to trade penny stocks for huge profits.

Utilize Stock Filters

Sometimes, the hassles of tracking and making computations for many penny stock categories can get the best of any stock trader. Fortunately, here are stock filters or stock screeners to assist with the job.  You will have the opportunity to filter through thousands of penny stock investment opportunities, which will allow for an initial list of hot penny stock list.  Just keep in mind that stock filters are only tools to make good decisions and, hence, must never be used as the be-all and end-all of how to trade penny stocks for huge profits.

There are few more tips to keep in mind before trading the best penny stocks. Visit http://www.stock-trading-made-ez.com/ to learn more.

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Finding the Best Stocks to Invest In

October 21st, 2010 by admin No comments »

If you are thinking of the best stocks to invest in then you must remember that apprehension is required. For those that have never traded before, this can be quite a daunting experience but you should start with modest investments to ensure that you do not lose more than you can handle. Being fresh to the world of trading, you must first educate yourself with as much knowledge as you can get your hands on and take a look at the statistics – which are the best stocks to invest in. From there you can build on your knowledge and learn in the world of trading.

There are so many top quality stocks that you can trade in from a variety of different organizations. Depending on the level of commitment that you want to put in, you should take a look at the stability of the various stocks and shares that you are looking at to see whether or not it is a good investment. There are both stocks that are great for long-term investments as well as short-term ones and you will find that many of these are very reasonably priced – perfect for a beginner. The short-term stocks however, will have a fluctuating value and these are considered slightly riskier.

Making the right choice in stocks is a difficult task. With the advances of communication and information technology, you can now use many resources to better your knowledge of stocks. Fast moving stocks generally have short-term benefits and you will need to use the surrounding resources to see how they are doing. You must keep a vigilant eye on the market and the way that the stocks are moving as well as the fluctuation in prices. As much as we would like it to be, there is no such word as stable in the world of stocks and it moves continuously as do the prices. When the stocks themselves are still, it should set alarm bells ringing and you should make sure that you keep a perceptive eye on them.

There are, of course, many other options that you have available to you when you are looking for the best stocks and shares to invest in. Organizations including pharmaceutical ones are always a great place to start and the stocks are generally at the majority. We all know at least two or three of these companies by name and the beauty and pharmaceutical industry is constantly gaining so this would be a great place to begin. Their stocks are considered to be stable making them a long-term stock commitment as well as having reasonably priced stocks and an ever growing market.

As well as pharmaceutical companies, banking and also mining companies are also considered to be less risky to invest in. Of course, you will have to research and maybe even get professional advice with industries such as these – paying particular attention to the market trends and fluctuations but these can also be very profitable investments when you are looking for the best stocks to invest in.

For more great information and resources on the best stocks to invest in visit our new site www.beststockstoinvestin.net/ today.

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Aggressive Vs Defensive Stock Investing

October 16th, 2010 by admin No comments »

Aggressive stock investing means taking greater risks. The risks can take numerous forms. You invest in highly volatile market when the fluctuations in prices defy all the techniques of analytical and fundamental research. There are rises and falls in prices of stocks which occur contrary to the investors’ expectations. There are daring and imaginative investors who manage to make money even in these uncertain circumstances.

Another form of aggressive marketing is that you invest in stocks which appear to be ‘gone cases’ according to popular calculations. But quite contrary to all the wise counsel, they show high growth and deliver rich dividends. Of course, they may also fall further down since they are already gone cases.

On the other hand, you invest in some stocks like Wal-Mart, fully aware that they are costly and their price may not rise in near future. Few people know that buyers of such high value stocks do not invest in them to make money through the rise in their prices, but rather these companies pay rich dividends to their investors year after year so that they become a source of their regular income and livelihood. The dividends paid by such blue chip companies almost nullify the high prices of their stocks which people pay to buy them.

There is no doubt that those who dive deeper into the ocean either come out with invaluable gems or just lose their lives.

But Aggressive investing is not everybody’s cup of tea.

Defensive approach

As a part of the defensive approach, some people recommend that the best investment option is government treasury bonds. They argue that since you buy a debt obligation of the United States, you can be sure that you are going to get paid. All that government needs to do is to raise taxes or sell off assets to pay its debts.

This, however, is not an approach of an entrepreneur who believes that you cannot make money without incurring certain amount of risk. A defensive approach, therefore, does not mean not taking any risk at all, but simply means taking affordable risks and deriving optimal returns at the same time. It must be understood that risks in stock trading are neither higher nor lower than in any other business.

An ordinary stock investor, especially the one who is a beginner should have a defensive approach and be careful while trading in stocks.

A slow, cautious and conservative approach may not yield high profits in the beginning. In fact the profits may appear to be negligible, almost discouraging at the initial stages, but they can turn out to be phenomenal over the time. You will appreciate their value when you retire. This approach exemplifies the truth that slow and steady wins the race.

So as a defensive stock investor, you should calculate how much money you can easily spare every month without cutting down your essential expenses. Consult your stock broker and also do your own research to find out which stocks you should invest. It is always advisable to invest in stocks that yield high dividends. If you can easily pull on with your existing resources of income, the best option is to go for dividend reinvestment plans.

Through time, stocks with dividends yield higher returns than long-term treasury yields. Not only are the dividends higher in stock investment, but they also get favorable tax treatment. Dividends from stock investments attract a maximum of 15% Federal tax rate while the income from treasury bonds, although exempt from state and local taxes, can come in as high as the 35% tax bracket. Moreover, you get the capital gains generated from an increasing stock price. [It is like having a cake and eating it too.] Don’t know if this analogy is necessary.

The high dividend yielding stocks protect you when the market goes down. As the stock prices fall, the dividend yield rises because the cash dividend can exceed the buying price of a share by a large percentage. It can be illustrated by an example: You buy a $100 stock of a company with a $2 dividend which is 2%. Suppose the price of the stock falls by 50%, the dividend yield would go up to 4 %.( this is arrived by dividing $2 by $50 and multiplying by 100.). What often happens is that the dividend paid by certain companies goes so high and attracts buyers in such large numbers that its stock price is driven high even during a fall in the market.

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Stock Market Timing – Get In at the Right Time

October 11th, 2010 by admin No comments »

To help you recognize market cycles, you should have a good grasp on technical analysis. Stock market timing is a very important aspect when you are trading stocks.  Stock market bubbles have led to market crashes numerous times in history, and learning to watch for the common signs leading up to the event is crucial. There are phases that a market goes through, and learning at what phase it is in will help you form a strategy to give you the best return from your stock picks. There are four phases that a market will go through.

Markets behave in a cyclical manner, they increase, peak, decline, and then bottom out. Once a cycle is complete, another cycle begins. The trick to staying ahead is to know in which phase of the cycle you are. Many investors fail to recognize these phases and forget that the market’s increase will at some point come to an end. There is no way to exactly pinpoint where the market phase will change. But by looking for certain signals, we can get a general prediction or where it might occur. This knowledge of stock market timing will help you avoid losing money.

The accumulation phase is where the market sentiment is still relatively bearish but has bottomed out. Many stocks have excellent value and are attractive to buy; this is good time to start stock picking. The mood turns from negative to neutral.

The next cycle is the mark up phase, and sees the market relatively stable and it is slowly increasing. As time continues, sentiment is starting to be positive and the bulls are cautiously stepping in.  More investors start getting into the market, prices rise further and the sentiment is now very positive. Those who had invested at the accumulation stage now start selling to profit, causing the increases to start leveling off. Meanwhile those who were at the side lines see the market as being stable and start jumping in causing another increase. This situation in stock market timing sees the biggest gains in a short time, a sign the phase is coming to an end.

The distribution phase sees sellers start to dominate. This causes mixed sentiment. This can cause the market to stay locked in this position for many months. However, the distribution phase can come and go quickly. Investors at this time may be gripped by periods of fear as the markets decline and then start to rise as sentiment improves. This is a very confusing time for investors who are not sure which way the markets are moving.

The mark down phase is where the market is in decline, with investors who stayed on watching their stock picks going down in value. This phase will continue until the market starts to bottom out again, ending this cycle. Stock market timing is extremely important and investors should be aware of the risks if they get in at the wrong time.

If you’re interested in learning more about Stock Market Timing or you looking for Stock Picks ready to breakout, go to Stock Market Video the best source on the Internet that is recognized as the leading provider. Visit http://stockmarketvideo.com and get your FREE Daily Video!

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Why Dividend Funds Will Outperform This Year

October 6th, 2010 by admin No comments »

After the market turmoil of the past two or three years (depending on where you live on this planet), trying to get a head start lead on future growth opportunities has never been more difficult. With credit remaining tight for smaller companies, the advice of the past where advisors insisted on pouring thousands into small-cap funds or individual companies may not be such a wise recommendation. In fact, even large cap companies have seen their credit ratings cut and, as a consequence, are paying higher rates on their bonds and other debt, a harsh reality that cuts deep into bottom-line profitability.

In fact, there has been such a monumental shift in the way that corporate American lends money that what was formerly considered higher rates based on higher risk is now the only rate out there… and that higher rate is only available for the strongest companies.

But if an investor has little or no faith in the fixed-income asset class (or more likely, little understanding of the class) and prefers to steer toward the equity class, where should they turn?

One recommendation that is sure to be popular is the Dividend Growth class. Such funds will invest in dividend-paying companies. What makes this area a potentially hot investment in the coming years is that Dividend funds will invest only in companies that pay dividends. When companies cut or drop their dividend payments, they are essentially sold off, sending the stock price down real low real fast. So it makes great sense why companies will exhaust all options before making the dreaded announcement that dividends are being cut or eliminated altogether. Just look at how GE’s stock price reacted after it announced a temporary reduction in its dividend back in 2008/2009!

Most convincing is the fact that Dividend funds incorporate a fair amount of conservative investments (only the strongest companies pay dividends) while simultaneously ensure that the investments are safe. The dividends also serve a great benefit to the fund managers: it helps reduce the amount of growth needed in order to meet or exceed benchmark returns. For example, a dividend fund paying 2.5% will only need to achieve growth of 7.5% to match a benchmark return of 10% (not including fees). In the end, this means less risk for the investor.

Since most benchmarks will consist of dividend-paying securities to begin with, Dividend Funds which hold dividend-paying securities exclusively will stand to benefit financially over the coming years. The reason for this that unlike the past where small-cap companies led recoveries, mid- to large-cap securities will be the leaders now. Why? Because small-cap companies are unable to affordably obtain the credit they need. Larger companies, on the other hand, can obtain credit, albeit at a higher cost than they are used to. Where Dividend securities stand to gain even further is in their ability and commitment to paying dividends. Not only will investors benefit from the stronger quality of securities in a Dividend fund, but will enjoy the steady stream of income that dividend-paying securities offer.

–>Learn More About Top Dividend Funds at MutualFundSite.org.

With more than 16 years of financial services experience, Chris is the Fund Advisor for the Mutual Fund Site. He remains bullish about Dividend Funds. He provides additional information for people looking for ways to Invest 10,000 in their portfolio.

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401K and IRA Plans and Their Tax Advantages

October 1st, 2010 by admin No comments »

IRAs and 401(k) plans, in addition to a regular income during retirement, provide tax savings that are well worth the effort they require. These savings plans are swiftly overtaking the traditional company pension as the primary source of retirement income for today’s workforce.

Before we look more at the benefits of IRAs and 401(k) plans, let’s examine what defines these plans.

The term IRA stands for Individual Retirement Account. An IRA can be set up by a person as a way to save money that can be used for retirement. This money is placed in various investments like mutual funds. IRAs come in several varieties; two of the more prominent are the Traditional and the Roth IRA. Any contributions and dividends paid to a Traditional IRA are not taxed until the individual begins withdrawing the money in retirement.

The 401(k) plan was created by the federal government in 1978 (Source: http://invest-faq.com/cbc/ret-plan-401k.html). The 401(k) plan is essentially a savings account that is created for you by your employer. The way a 401(k) plan works is you authorize your employer to deposit a percentage of each paycheck to an account. The money in a 401(k) plan is used to purchase shares of various investments like mutual funds, stocks, etc. In many cases, an employer will actually deposit an additional “matching” amount to your 401(k) balance. You will be able to withdraw money from your 401(k) plan to use in retirement once you have reached a specified retirement age (usually at least 59 1/2 years old). The contributions to a 401(k) are usually automatic, which makes it easy for even the most undisciplined saver to get a nice retirement nest egg started. Since its inception, the 401(k) plan is being offered by an increasing number of employers as a benefit.

One very important benefit of both IRAs and 401(k) plans is the tax advantage. Deposits made to both of these plans are tax deductible. In the case of a Traditional IRA, your contributions are tax deductible. The contribution amount made through a 401(k) is deducted from the taxable amount on your pay for the year, so you do not pay taxes on that money or on any dividends paid into the account at that time.

To better understand the tax benefits of investing in an IRA or 401(k), think of it this way: if you make $20,000 a year and are taxed 15% of your income, you will be paying $3,000 in taxes. If you invest 10 percent, or $2,000 of your $20,000 into an IRA or 401(k), you will only be taxed on $18,000 which would make your hypothetical tax payment $2,700.

While the tax benefits and savings are considerable, you will however need to pay taxes on Traditional IRA and 401(k) money once you begin to withdraw it in retirement. You should also keep this in mind: avoid at all costs the temptation to withdraw money from your 401(k) and Traditional IRA before retirement, as to do so means you will be facing stiff penalties (often up to 1/3 of your saved funds will be lost to taxes if you withdraw early).

Roth IRAs provide a slightly different tax advantage, in that the money is only tax free once you begin to withdraw it in retirement. Any contributions you make along the way before retirement are subject to normal taxes. The bottom line here is you are going to be paying some sort of tax on whichever option you choose. The best thing you can do is to look for an option that will minimize the amount of tax you will need to pay.

Preparing for retirement is one of the most important things you will ever do in your life. The important thing is to start some savings plan and keep it going. If your employer offers a 401(k) plan with a match, you are essentially being offered extra money from them if you just sign up for the plan. Even if your employer’s 401(k) plan doesn’t offer matching funds, the savings in your income tax will still amount for a considerable benefit. If your employer doesn’t offer a 401(k) plan of any kind, you still have the option of an IRA, provided you can supply a minimum opening balance which usually isn’t very much (maybe the $2,000 range – shop around).

You owe it to yourself to have a comfortable retirement. Taking action like enrolling in a retirement plan is the first step to get there. Remember that while no one will do your retirement planning for you, you can contact a financial planner for help. Getting started, however, is your move to make.

Educate yourself for retirement investing – you won’t regret it. Find more resources at http://prhsolutions.com/retirement

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