Save to Retire
It could be far into the future or a few years away, but it’s never too early to begin thinking about retirement. Many people depend on social security benefits received upon retirement. An article on Investopedia states that a 401k is important because social security only replaces 40% of your income. You can read the full article here. To replace more of your income when you retire, research investing in a retirement account. Most retirement plans are either 401k’s or Individual Retirement Accounts (IRAs). For both plans, you can usually choose either traditional or Roth investing styles. Here are some of the differences.
- IRA vs. 401k – While both plans are great for retirement, one of the most significant differences is that a 401k is usually offered by employers, and IRA’s are opened primarily through brokers or another financial institution. The contribution limits for both can differ each year. In 2021, 401k’s can have $19,500 deposited, and IRA’s can have $6,000 deposited annually.* If your employer offers a match in contributions, NerdWallet recommends choosing a 401k. You can read the full NerdWallet article and learn more about the differences between IRAs and 401ks here.
- Traditional vs. Roth – Once you select which type of plan to start saving for retirement, choose between a traditional IRA or Roth IRA if both are available. The main difference between them is when you pay your taxes. With traditional IRA plans, your deposits happen before you pay taxes on the money. You’ll pay taxes on your money once you start withdrawing from it when you begin retirement. With a Roth IRA, your deposits happen after you pay taxes on your money, which means when you withdraw from the account when you retire, it’s tax-free!
American 1 Credit Union offers IRA accounts. Request an appointment with one of our Financial Coaches to get started today!
*These numbers are accurate for individuals younger than 50. If you are 50 and older, you can contribute an additional $1,000 as a catch-up contribution to an IRA and an additional $6,500 into your 401K as a catch-up contribution.
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