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How to Pick a Great IRA

By U.S. News & World Report

Opening an IRA is a logical choice for those without a 401(k) or similar workplace account to store their retirement money. IRAs offer tax incentives that make them an attractive place to park money.

[See: 10 Steps to Max Out Your IRA.]

However, not all IRAs are the same. There can be vast differences in their tax benefits, investment options and growth potential. “It’s probably the most complicated financial product we have,” says Nancy Coutu, co-founder and principal of Money Managers Advisory in Oak Brook, Illinois. According to finance experts, there are three components to finding a great IRA.

Select the right type of IRA. Christian Cordoba, a personal wealth manager with California Retirement Advisors in El Segundo, California, says you can break IRAs down into 10 different types. These include the myRA, offered by the government, as well as specialized products such as SIMPLE and SEP IRAs that are set up through a workplace. However, for most people, the decision comes down to either a traditional IRA or a Roth IRA.

Contributions to traditional IRAs are tax-deductible at the time of their deposit. Then, money withdrawn in retirement is subject to income taxes. With a Roth IRA, a worker pays taxes on the money in the year of the contribution, but withdrawals are tax-free. With either option, workers must wait until age 59 ½, with certain exceptions, to withdraw money or be subject to a 10 percent tax penalty on part or all of the distribution. “It really boils down to whether you want to pay taxes now or pay taxes later,” says Ron Brown, president of R.L. Brown Wealth Management in Lexington, Kentucky.

[See: 10 Ways to Avoid the IRA Early Withdrawal Penalty.]

Look for the proper custodian. Once someone has settled on the type of IRA, the next decision is which custodian to use. “The custodian is where the game is played so to speak,” Cordoba says. There are four major categories of IRA custodians. These include:

— Banks

— Mutual fund companies

— Insurance companies

— Brokerage firms

The type of custodian plays a role in which investments are provided for the IRA. For example, IRAs offered by insurance companies may hold annuities, and IRAs at banks are known to offer certificates of deposit. Mutual fund companies may allow people to put money into stocks, bonds or exchange-traded funds. Brokerage firms offer a variety of options at different price points.

Choosing the right custodian often boils down to which options people want for their money. Those close to retirement who worry about market losses might find peace of mind with IRAs offered by banks that provide relatively safe investments, while those seeking a simple option with guaranteed income may find an IRA with an annuity puts their savings on autopilot.

For those who want to put their money in the market, Coutu suggests people look for no-load investments, which are sold without any commission or sales charge. “The benefit of a brokerage account is you have multiple no-load options,” she says.

Pick the right funds. At some custodians, there are limited investment options, but those at mutual fund and brokerage firms usually have a variety of choices available. The right option depends largely on how many years a person has until retirement.

Those planning to retire within five to 10 years may want to shift to a more conservative strategy. “The next best thing to making money is not losing it,” Coutu says. Those with a longer time horizon can afford to be more aggressive.

Cordoba says the amount of money in the IRA can also play a role in determining the right fund choice. “If there are less dollars [in the IRA], you can afford to be more aggressive with them,” since less money means less to lose.

[Read: How to Pay Less Taxes on Retirement Account Withdrawals.]

However, Brown recommends that rather than trying to guess the right fund strategy, investors consult with a professional. Not only can a financial advisor help people find a great IRA, but they can also help determine the best way to minimize taxes when cashing out. Brown says financial advice comes at a price, but it can be money well-spent. “You can avoid costly mistakes with proper planning.”

More from U.S. News

How to Save for Retirement on Less Than $40,000 Per Year

5 New Retirement Account Rules You Need to Know About

6 Ways Roth 401(k)s Differ From Roth IRAs

How to Pick a Great IRA originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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