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Who said, “Compound interest is the eighth wonder of the world?”
A. Benjamin Franklin
B. Albert Einstein
C. Franklin Delano Roosevelt
D. Mark Twain
When it comes to finances, knowing what to do can be tricky. I mean, you've got student loans, auto loans, and other debt, and you've got other things going on - maybe you're beginning a career, buying a home or starting a family. That's a lot to think about, and on top of that you also have to start thinking about saving for your future. Believe me, the sooner you start, the fewer worries you'll have down the road.
The key reason to start thinking about the future now is the power of compounding interest. It is such a key concept, and it's the reason to start putting money away now - even if it's just a little bit.
Let's look at an example. One person opens an IRA with $1,000 at age 20 and contributes $1,000 for the next 10 years and stops at age 30. Another person opens an IRA at age 45 with $1,000 and contributes $1,000 for the next 20 years. At age 65 the person who started at age 20 will have more than $115,000 while the person who started at age 45, will have only $40,000 after contributing twice the amount.So what's the takeaway? Start putting away money now. Even a little bit per month can really add up. If your company offers a 401(k), and they offer matching savings, contribute at least the match amount or you're leaving free money on the table. If not, open an IRA and set up regular, automated transfers - that way you won't even have to think about it.
So, who said, “compound interest is the eighth wonder of the world?” The answer is B, Albert Einstein.
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Traditional IRA distributions are taxed as ordinary income. Qualified Roth IRA distributions are not subject to state and local taxation in most states. Qualified Roth IRA distributions are also federally tax-free provided a Roth account has been open for at least five years and the owner has reached age 59 ½ or meet other requirements. Both may be subject to a 10% Federal tax penalty if distributions are taken prior to age 59½. Wells Fargo Advisors is not a legal or tax advisor.
Please keep in mind that rolling over assets to an IRA is just one of multiple options for your retirement plan. Each of the following options are different and may have distinct advantages and disadvantages.
When considering rolling over assets from an employer plan to an IRA, factors that should be considered and compared between the employer plan and the IRA include fees and expenses, services offered, investment options, when penalty free withdrawals are available, treatment of employer stock, when required minimum distribution begin and protection of assets from creditors and bankruptcy. Investing and maintaining assets in an IRA will generally involve higher costs than those associated with employer-sponsored retirement plans. You should consult with the plan administrator and a professional tax advisor before making any decisions regarding your retirement assets.
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This video has been prepared for informational purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. The accuracy and completeness of this information is not guaranteed and is subject to change. Since each investor’s situation is unique you need to review your specific investment objectives, risk tolerance and liquidity needs with your financial professional(s) before a suitable investment strategy can be selected. Also, since Wells Fargo Advisors does not provide tax or legal advice, investors need to consult with their own tax and legal advisors before taking any action that may have tax or legal consequences.