My Top 3 Must-Haves in a Retirement Account

It's easy to fall into the trap of thinking one retirement account is as good as the next. You might stash money in a 401(k) just because you have access to one. But that doesn't mean it's the best place for your savings right now.

Taking the time to understand the benefits and limitations of all the retirement accounts available to you is key to growing your savings quickly. Here are the three main things I look for when deciding where to invest my retirement funds.

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1. Tax advantages

All traditional retirement accounts, like 401(k)s, IRAs, and even self-employed retirement accounts, offer tax advantages. Some accounts are tax-deferred, which means you get a tax break for contributing to one of these accounts this year but then you owe taxes on your withdrawals later. Other accounts hold Roth savings. You don't get an up-front tax break when you contribute to one of these, but your earnings grow tax-free.

The right time to pay taxes depends on how you think your income will change between now and retirement. If you believe you'll be in a lower tax bracket once you retire, tax-deferred savings usually make the most sense. Otherwise, Roth accounts may be a better option.

You may not always get a choice in when you pay taxes. For example, if your employer only offers a traditional 401(k), you have to defer taxes if you want to use this account. But those who really want Roth savings could open a Roth IRA on their own and put their savings here first. Then, if they max out their Roth IRA, they could switch back to their 401(k).

2. Flexible investment options

Some investment accounts, like IRAs, enable you to invest your savings in virtually anything and change your investing strategy as often as you'd like. This kind of flexibility allows you to tailor your portfolio to match your goals and timeline. However, not all accounts permit this.

Most 401(k)s include only a handful of investment options that the employer selects on behalf of its employees. Sometimes, these might be just what you need, and that's great. But if you don't like the investments you're offered or they carry expensive fees, that 401(k) might not be the ideal place for your retirement savings.

There are a few ways you could handle this. First, as discussed, you could open an IRA and put your money here until you've maxed it out. Then you could return to your 401(k). Or you could use your 401(k) first until you've claimed your full employer match, if you're offered one, before switching to an IRA or another retirement account that offers greater flexibility.

Or you could try the direct approach and talk to your employer about adding more investment options to choose from. Index funds are a popular, low-cost investment that enables you to quickly diversify your portfolio. These can serve as a great foundation for your nest egg if you can convince your employer to offer them.

3. Simple account management tools

A great retirement account should enable you to quickly see how much money you have in your account and what you're invested in. It should also let you change your contribution amount and investments without jumping through too many hoops.

You don't need to review your retirement account every day, but you should check it at least once or twice per year and rebalance your portfolio as necessary. You may also want to increase your annual contributions over time if you can. But you may be less likely to do any of this if accessing your account information is cumbersome.

What are your must-haves?

There are other factors I look at when weighing potential retirement accounts as well, like their annual contribution limits and fees. But these three are what I look at first.

It's OK if you evaluate your retirement options a little differently, but keep these ideas in the mix. It's a good idea to look over all the possible investment accounts available to you and weigh the pros and cons once in a while to make sure you've got your money in the best place.

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