Retirement Accounts

Online banks are also a great place to open a retirement account. You can open a retirement account for as little as $100 at many online banks.

Savings in a retirement account grow tax-deferred and, in some cases, are exempt from federal income taxes. You can't beat the tax advantages of a retirement account for long-term savings growth.

The workhorse retirement account is still the individual retirement account (IRA). Regular IRAs are also called traditional IRAs since they've been around longer. In 2008, you may contribute up to $5,000 a year to a regular IRA, provided you meet certain income and retirement-plan participation requirements. (Persons age 50 or older may be allowed to contribute up to $6,000.)

Regular IRAs are tax-deferred investments, which means you don't owe income taxes until you take money out of the account. You can begin to take distributions when you reach age 59-1/2. The IRS requires you to begin taking distributions from a regular IRA when you turn 70-1/2.

You may also contribute up to $5,000 a year to a Roth IRA. (Note: You may contribute up to a total of $5,000 for 2008 to either a regular or Roth IRA, or a combination of the two types of accounts.) Roth IRA contributions are not tax deductible. However, if you keep a Roth IRA open at least five years and are at least age 59-1/2 when you begin to take money out, the entire amount is exempt from federal income taxes. Roth IRAs do not require you to take minimum distributions.

Another way to open a retirement account online is to use a rollover IRA to handle a lump-sum distribution from your previous employer's retirement plan. Be sure to understand the difference between a direct and indirect rollover. A direct rollover takes you out of the process of moving funds between custodians and avoids triggering income taxes and withholdings.

You may also convert a regular IRA to a Roth IRA, but you will owe income taxes on the converted amount in the year of conversion. The IRS also lets you re-designate a Roth IRA as a regular IRA in a process called recharacterization. Because of their complexity, you may want to consult a financial adviser before doing a conversion or recharacterization.

Opening a retirement account online lets you use electronic funds transfer (EFT) to make periodic contributions (up to the yearly limit). You can also use the Web to monitor the investment performance of your retirement account.

You may also buy an annuity online. Many online banks sell annuities through their life insurance units. Annuities grow tax-deferred and are used to pad retirement income. You buy an annuity contract with after-tax dollars the same way you fund Roth IRA contributions. There are no dollar limits on how much in annuities you may buy. However, advisers recommend that you first contribute as much as you are allowed to an IRA or 401(k) plan.

Annuities come in many packages. There are both fixed and variable annuities. You may also buy an annuity that begins paying you immediately (an immediate annuity) or one that begins paying you in the future (a deferred annuity). Annuities tend to have higher fees than mutual funds but enjoy the benefits of tax-deferred growth. You may wish to consult an adviser before buying annuities.