Saving for retirement is one of the most important financial goals most people make. This is a crucial aspect of any financial plan; a solid retirement savings account can provide a degree of financial security in your later life that might otherwise be unattainable. Social Security or pensions alone may not cover your living expenses, healthcare costs, and unexpected expenses. A retirement account provides an additional safety net, allowing you to control your financial future.
Understanding the different types of retirement accounts can be initially overwhelming. From traditional 401(k) plans to Roth IRAs, there are numerous options available. While we wholeheartedly recommend consulting with a financial adviser to determine the most advantageous route for your personal situation, it is also possible to make selections on your own.
It is likely that your employer offers a 401(k) plan. This type of savings account consists of pre-tax contributions. This can benefit many people because 401(k) contributions reduce yearly taxable income. Many employers also offer a 401(k) match of some sort, which provides an immediate return on your investment. When you are ready to withdraw your contributions, you will pay taxes upon withdrawal. If you attempt to withdraw your contributions early, you may incur penalties.
IRAs, or Individual Retirement Accounts, typically are one of two accounts: Roth IRAs or traditional IRAs. Roth IRAs consist of contributions made after-tax, which allows withdrawals in retirement to be tax-free. A traditional IRA, on the other hand, grows tax-deferred, but taxes must be paid upon withdrawal. While these plans have many advantages, they are limited by annual income, and there are yearly contribution limits.
A 403(b) plan is offered to some occupations, specifically public schools, churches, and tax-exempt organizations. These types of retirement plans allow employees to defer part of their salary; these contributions are tax-exempt until they are withdrawn. Some employers also contribute to these accounts, similar to 401(k) plans.
In addition to employer-sponsored accounts, some individuals choose to utilize a traditional savings account as a retirement account. These do not have the attractive tax benefits of the previously mentioned options, but they do offer increased flexibility. Contributions can be withdrawn without penalty at any time, so investors are not limited by retirement age or potential tax penalties.
After identifying which type of retirement account – or accounts – you choose, the next step is funding them. In some cases, such as with a Roth IRA, your contribution amount might be limited. With others, like a traditional savings account, the sky is the limit. By beginning to invest in your retirement now, you set yourself up for success in the future. Automating your savings and maximizing your contributions will go a long way toward helping your future self enjoy the retirement of your dreams.
As always, do not hesitate to reach out to our GDS team if you have any questions. Whether you are considering which account is the best fit for you, talking through a retirement budget, or seeking investment advice, we are here to help. You may reach our office at (469) 212-8072 or visit www.gdswealth.com. Let us help remove the stress of retirement planning so you can focus on the things that truly matter to you.
Investment advice offered through GDS Wealth Management, a registered investment adviser in Flower Mound, TX. This blog does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for informational purposes only and on the understanding that the recipient has sufficient knowledge and experience to be able to understand and make their own evaluation of the proposals and services described herein, any risks associated therewith, and any related legal, tax, accounting, or other material considerations. To the extent that the reader has any questions regarding the applicability of any specific issue discussed above to their specific portfolio or situation, prospective investors are encouraged to contact GDS Wealth Management at (469)212-8072 or www.gdswealth.com or consult with the professional adviser of their choosing.
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