You guys are awesome.
@ JoseS -
Right now, both my wife and I work for companies that offer 401k retirement accounts. However, my 401K options are pretty limited (it doesn't even have the Vanguard Market Index Fund as an option - they are mainly date-based retirement options. IE target retirement year of 2040 etc.). We are putting in just enough to receive the employee match (4% dollar for dollar).
I may need to re-educate myself on the workings of an IRA - I was always under the assumption that I couldn't touch retirement accounts until a certain age or else I'd accrue a penalty. If that's the case, are dividend payouts a different category? Can i just not touch the principle until a certain age with Roth IRAs?
@ With This Herring -
Great feedback! Thank you for the advice!
Even if your 401(k) investment options aren't what you'd want, it's still generally better to put money into 401(k) accounts before taxable accounts. The expense ratios of the funds are going to be important. A target retirement fund is not necessarily a bad thing. Vanguard has target retirement funds with decent expense ratios that are simply a
blend of the total US and international markets for stocks and bonds. The further out the target retirement date, the higher a percentage of stocks contained in the target fund.
If you would like, you can post the full names and expense ratios of the investment options in your 401(k) and posters here can suggest to you which funds might be best.
No, dividend payments are not special. They stay in the same account. If an investment in your Traditional IRA generates a dividend, that dividend stays in your Traditional IRA. You can't take out the dividends in a retirement account without following the same rules as apply to the rest of the account. Do read
the link MDM posted on how to withdraw 401(k) funds early without penalty.
Roth IRAs are special in that you can withdraw the amount of the contributions without tax or penalty. So, if you put in $1,000 and buy VTSAX, and the investment in VTSAX increases to $1,300 from increase in share price and dividends, then you can take out just that $1,000 contribution at any time without paying taxes or penalties. The $300 of growth must be left in the Roth IRA until you hit the appropriate age or else you will pay penalties.