Retirement planning starting in 2026 - need advice

[GreekGeek1222]

I'm in my 40s and just starting to plan a retirement fund. I'm a manager in our family business.
The only investing I have been doing thus far is the safe CD investing.
I was talking to my accountant and he told me the following,
Because I do not have a retirement plan at work, he suggests to open up a “traditional IRA” and deposit $7,000 for 2025 tax year. He goes on to say I have up to April 15, 2026 to deposit this amount for 2025. Going forward, I should actually put the $7k in this account every year since it will offset your tax liabilities.

Regarding the rest of the funds, he would also recommend I put away another $7,000 in a ROTH IRA (there is no tax benefit now but you will have a benefit when you draw the funds on retirement.)

I hate to admit how clueless I am, but I am starting this year to learn more and act accordingly. I see that my bank has an IRA account, 3 months for 3.68% with APY 3.75%
Here's my question:

I'm planning to open it through my bank at that 3.68% rate in January. How does this work? Is it like a cd? Does it continue to renew? I know it's only a yearly deposit of $7,000 is this case, and I believe $8,000 after 50.

Can someone please advise? I'm also planning to enter the stock market too, but I'll leave that inquiry on another post.

 

[Fermion]

I would open a IRA at Fidelity if I were you. Probably a Roth if you don't need the tax deduction. If you are married you can also fund your wife's Roth even if she doesn't work (assuming she is not already contributing to a IRA). This would let you put away $14,000 a year assuming your earn at least $14000 a year in earned income.

 

[junkanoo]

Welcome aboard.

If you share how your family business is structured, i.e., multi-member LLC, S-Corp etc., perhaps someone will be better able to weigh in.

So ... we know a bit about what you haven't been doing, what exactly do you have at this point in savings?

Candidly, investing in CDs seriously hurt your most important investment years ... which is when you are young. Please don't keep doing this. Over many, many years, risk is your friend. Getting conservative comes much later.

T-IRA and Roth contributions as a individual are pretty limited in the amount you can contribute. Which begs the question, why don't they put in a 401K plan?

 

[Kings over Queens]

Congratulations and welcome to the forum.

I agree with funding as much as you can and if it were me, at age 40 again, and I only had one choice, I'd do the roth before the deferral. You plan to do both which is excellent, but if it came to only doing one, I'd do the roth first.

I would not open the IRA's at your bank, instead, look at Fidelity or Schwab. As far as investments, you have plenty of time to be more aggressive, and CD's aren't going to cut it. I suggest very simple low cost index funds.

Look at QQQ and an S&P 500 fund. Fidelity's fund is FXAIX and Schwab is SWPPX. Both follow the S&P 500 and are low cost.

 

[sakowitzm]

Agree completely with Kings over Queens: Fidelity or Schwab; index funds with low cost. Looks like you have a good 20 years before withdrawing any funds. Even though we're at or near all-time highs now, the market has NEVER been negative over a 20 year period. And barely so over any 10-year period. NOW is the time to be investing in the market to the greatest extent possible, consistent with sleeping well.

 

[ArmchairMillionaire]

I also agree that you should not open an IRA through your bank. Go through a brokerage like Fidelity, Vanguard, Schwab, etc.

Not everybody here will agree with me on this, but I would read the book The Armchair Millionaire by Lewis Schiff and Douglas Gerlach. You can ultimately decide on your own asset allocation, but that book is really good at showing how an average person can end up with a nice retirement simply by following a few commonsense investing ideas.

I read the book (hence my username) back in the early 2000s and I was able to walk away from w*rking this past July at the age of 54. I credit following the concepts in that book and also a lot of help from and wisdom learned by discovering this site.

Welcome, and best of luck in your future early retirement.

 

[joesxm3]

As you can see from the many posts here, you should open your IRA at Fidelity or Vanguard rather than at a bank.

Once open and deposited for this year and next year you should decide how to allocate your investment.

One plan is to go heavy stocks. For this a low-fee total market index fund is probably the best choice. At your age and small amount of money involved I would suggest 100% into something like the Vanguard Total Market ETF (VTI).

Another plan would be 60% stock 40% fixed income. But you have non-IRA in CDs already so your total equity allocation will be very small.

I would also suggest that you also open a Fidelity taxable brokerage account and start saving in that as well. It offers the opportunity to invest in stocks or fixed income. If you retire early it is good to be diversified across tax types (taxable, taxable IRA and ROTH).

If your income is not over the limit, ROTH IRA is probably a better choice.

Congrats on getting started and focused. Once you open and fund the IRA accounts you can focus on learning more about managing your finances. Plenty of good threads to read here.

Also, if you want to go slow and learn before deciding, you can just leave your deposit in the core money market account for a few months, No big rush. The key is starting now and compounding for 20 years. But learning more is very important and you have taken the first step !!

 

[Fermion]

I think the core money market at Fidelity is actually paying higher than his bank's CD rate?

 

[imjustawarrior]

I do not believe you can contribute $7k to an IRA and $7k to a Roth IRA for the same year. It is $7k max split between IRA and Roth IRA.

Maybe you can work on getting a workplace retirement plan going.

 

[pacergal]

Welcome to the forum. I agree with many others to open account(s) at Fidelity or Vanguard.

There are many books on investing, it is never too late to learn.
A free pdf, great info: William Bernstein. "If You Can", about 20 pages.
John Bogles "The Little Book of Common Sense Investing" is good too
Coffee House Investor
Millionaire Next Door

 

[USGrant1962]

I agree with all the prior posts, and recommend that you see if your family business can start a 401(k) plan for retirement savings and that you move beyond bank accounts for your investments.

Welcome aboard and good luck.

 

[Gallaher]

I say Schwab but I’ve had accounts at Vanguard and still have a Fidelity account. Doesn’t matter. Just don’t open at a bank.
Three points:
1) figure out if you CAN invest in an IRA or Roth. Your income could be too high.
2) I think 100% stock index funds for 10 years. Especially, given, you are playing catch up. Forget about CDs
3) you are playing catch up. Most of us on this forum have been saving/investing since we were in our twenties. Allegorically, you may need to set your hair on fire.

You don’t mention goals, assets or income. Probably good to know. Get a plan together.
Myself, I grew up poor, lazy and not very smart. I had to work and save hard now I’m just not very smart.

 

[Fermion]

I do not believe you can contribute $7k to an IRA and $7k to a Roth IRA for the same year. It is $7k max split between IRA and Roth IRA.

Maybe you can work on getting a workplace retirement plan going.

But he can contribute $7k to a IRA or Roth and then have his wife do the same amount to her Roth even if she has no income herself. This is an important point that new players might miss.

 

[SnowballCamper]

Open three accounts at the big name brokerage house of your choice (Schwab, Fidelity, etc.)

• Self directed traditional IRA (contributions are limited and tax deductible)
• Self Directed Roth IRA (contributions are limited and tax deferred)
• Regular (taxable) brokerage (contributions are unlimited and realized gains are generally taxed as you go)

Read about asset allocation (stocks vs bonds vs cash) and decide on your asset allocation. There isn't an optimal answer. A good enough answer is one that doesn't change when the stock market tanks.

Buy low cost index funds in accordance with your asset allocation. Do this at every pay period because you will end up buying more at lower prices, less at higher prices, and be in the market longer. It's called dollar cost averaging.

When the market tanks, rebalance to your asset allocation by selling appreciated (or less depreciated) assets, and buying highly depreciated assets (stock index funds). Repeat as necessary.

Welcome to the club!

 

[Al18]

A target date fund in the year you plan to retire, 2045 is a good recommendation. Just deposit the IRA and/Roth IRA money into a Money Market fund (which pays interest at the end of every month) now, and purchase the target date fund at the beginning of February. I would not purchase now, because dividends and capital gains are lowering the value of these funds now.

 

[TheWizard]

A target date fund in the year you plan to retire, 2045 is a good recommendation. Just deposit the IRA and/Roth IRA money into a Money Market fund (which pays interest at the end of every month) now, and purchase the target date fund at the beginning of February. I would not purchase now, because dividends and capital gains are lowering the value of these funds now.

It's fine to buy a target date fund in either type of IRA right now. If the fund's NAV is a bit lower after a dividend, that's just fine.

I would NOT buy a TD fund in taxable account. Buy separate a stock index in taxable to allow TLHing from time to time.

If making a large purchase in taxable account, it's often said to wait until after an approaching dividend has been paid, but I don't worry excessively about that...

 

[GreekGeek1222]

I'm currently single at the moment, also with zero debt.
Regarding Fidelity and Schwab, there is a Fidelity near my residence. Should I go there to open the IRA? As opposed to online? I just don't want to make any errors, while also getting some advise would help (though I am not sure at what cost.) I have to wait until mid January when that cd matures in order for me to start allocating my funds. Until then, I'll look to also read up on these suggestions as well.

 

[junkanoo]

A target date fund in the year you plan to retire, 2045 is a good recommendation. Just deposit the IRA and/Roth IRA money into a Money Market fund (which pays interest at the end of every month) now, and purchase the target date fund at the beginning of February. I would not purchase now, because dividends and capital gains are lowering the value of these funds now.

The NAV is the NAV. In a tax-deferred account, it makes no difference whether you purchase a target-date fund before or after the distribution. A higher NAV reflects the pending distribution and the lower NAV comes after the payout. Either way, (market conditions aside) there is no free ice cream or advantage.

 

[junkanoo]

I'm currently single at the moment, also with zero debt.
Regarding Fidelity and Schwab, there is a Fidelity near my residence. Should I go there to open the IRA? As opposed to online? I just don't want to make any errors, while also getting some advise would help (though I am not sure at what cost.) I have to wait until mid January when that cd matures in order for me to start allocating my funds. Until then, I'll look to also read up on these suggestions as well.

Someone suggested a reading list. I'd start there.

I vote for convenience every day and twice on Sunday. The difference between Fidelity and Schwab is a nothing burger. However, when you need to get something notarized or (worse) a medallion stamp, that short trip to Fidelity will be sweet.

 

[Al18]

There is no cost to visit a Fidelity location. You can visit or do it online. There is good info about opening an IRA at Fidelity.com
You may want to read it first.

 

[Fermion]

I would imagine you are actually going to get better advice on here than at a Fidelity location lol. They will probably try to sign you on with an advisor who will "only" charge 25% of your SWR.

 

[TheWizard]

I would imagine you are actually going to get better advice on here than at a Fidelity location lol. They will probably try to sign you on with an advisor who will "only" charge 25% of your SWR.

Perhaps, but nowhere near as bad as Edward Jones, which the OP should obviously avoid...

 

[Kings over Queens]

I'm currently single at the moment, also with zero debt.
Regarding Fidelity and Schwab, there is a Fidelity near my residence. Should I go there to open the IRA? As opposed to online? I just don't want to make any errors, while also getting some advise would help (though I am not sure at what cost.) I have to wait until mid January when that cd matures in order for me to start allocating my funds. Until then, I'll look to also read up on these suggestions as well.

If I were to rate the 3 big "sites" Id probably list them 1. Fidelity 2. Schwab 3. Vanguard.

If you search these threads or youtube you might find a post/video with a comparison of each.

Fidelity is super easy to use, and if they have a local office, sure, why not go chat with someone. Opening an IRA is pretty simple. You'll need information on a beneficiary should you die, so they get the money.

My only concern is that you might get talked into investments that you don't know or understand. The reason I suggested low fee/cost index funds is because they are essentially idiot proof. They are perfect for an investor with limited knowledge or experience in picking stocks or mutual funds, and arguably the most important benefit...LOW COST.

I'm an experienced investor and the overwhelming majority of my holdings are in QQQ and S&P index funds. Set it and forget it.

 

[joesxm3]

You can visit the Fidelity store and it might be easier to get started. They will probably let you use their tablet to open the accounts using the same online method but they can guide you.

The main benefit is you can hand them the check instead of mailing.

As was mentioned, just open the accounts. Don't let them trick you into a deal where they manage your investments and get paid for doing so.

Just a detail, but if your wife has no income and you want to open an IRA for her and contribute based on your income, you must be filing taxes as married filing jointly.

 

[TheWizard]

...Just a detail, but if your wife has no income and you want to open an IRA for her and contribute based on your income, you must be filing taxes as married filing jointly.

He's single, no wife presently.

OP also should link his checking account to his Fidelity account to facilitate future transfers.

OP appears inexperienced at investing in equities so I have some concern what he might do when the next correction happens...