If you are working and worried about saving enough for retirement, consider starting a self-directed Individual Retirement Account.

This is an especially good idea if your employer is not contributing matching money to your work-related 401(k) retirement savings plan or contributes very little. (Very little would be less than 6 percent at 50 cents to your dollar).

Julia Anderson's SMART MONEY column appears monthly in the Business Tribune.It’s also a good idea, if you can’t figure out what your 401(k) fund management fees are costing you in long-term reinvestment growth.

So what’s the difference between a 401(k) and an IRA?

Both are retirement savings accounts that can generate significant wealth accumulation over time through tax-deferred in the case of a traditional IRA or a 401(k) and tax-free with a Roth IRA. Earnings in the form of stock value appreciation, stock and fund dividends and interest payments are all reinvested inside 401(k)s and IRAs to accumulate without tax liability while you’re working.

But there are compelling reasons why IRAs may be the better choice even if you have a work-related 401(k) program through your employer.

First, it’s an additional way to protect earnings while growing your total retirement nest egg. Secondly, an IRA, as national financial-planning columnist, Scott Burns, says, “Gives you freedom.” You get the freedom to invest your IRA money where you want in anything from individual stocks to bond and stock mutual funds. The choices are far greater than with most 401(k) programs, which are usually offered through an outside money management firm.

IRAs typically have lower-cost management fees. Again - a 401(k) program may give you limited investment choices and cost more in management fees.

“Unless your employer offers a very low-cost plan combined with a substantial matching contribution, there is a good chance that you’ll do better on your own,” Burns says.

Playing catch-up

Let’s say, you need to play catch-up on retirement savings. First make a barebones household budget that you can live with. Give up the perks — fancy cars, big family vacations, eating out — you’ve heard it before. Don’t give money to your grown kids or grandkids. Get serious about saving and investing for the long haul.

You’ve got a 401(k) at work. Keep putting enough money into it to receive whatever matching amount your employer is providing. Check on investment performance at least twice a year.

Then set up a Roth IRA. Why a Roth? Unlike a traditional IRA, contributions to a Roth IRA are not tax-deductible on your current federal tax return. But that means you’ve already paid the taxes on this money so that later withdrawals at retirement age are tax-free. In general, Roth IRAs have fewer withdrawal restrictions and requirements. Transactions inside an account (including capital gains, dividends, and interest) do not incur a tax liability and there is no age requirement for withdrawals.

Contributions to a traditional IRA are tax-deductible against your current annual income but withdrawals are taxed as ordinary income at retirement. And federal tax law requires a minimum taxable withdrawal at age 70 1/2 — even if you don’t need the money.

Setting up an IRA

How do you set up a self-directed Roth IRA or a traditional IRA? You can seek the help of a financial adviser who will walk you through the set-up process with whatever brokerage firm he or she represents. Banks also offer IRA account services. Management fees make all the difference.

Or start a self-directed IRA account with an online brokerage firm such as,,,, or others. Electronically transfer money into your new account, invest it and watch it perform. Through your bank checking account, set up a monthly electronic deposit plan. Painless.

By managing your own IRA you get crystal-clear clarity in terms of transaction fees and fund management fees and performance. Despite new federal legislation that requires fee and expense disclosure it can be tough to figure out. Fees should amount to less than 1 percent of the assets held in the fund.

And please, if you have daughters who are working, encourage them to get interested in saving and investing now through a self-directed IRA while they’re young. The longer the money can grow tax-free or tax-deferred, the better. And for all of us, managing your own money is good practice for when you


Julia Anderson is the founder and ongoing contributor at where she writes for women about money, investing and retirement planning. She is a business news expert at KXL 101.1 FM radio in Portland. Send email to:

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