Retirement Planning – start saving now

When it comes to retirement planning, it’s never too early to start. In fact, starting earlier can be extremely beneficial (even if you can only save a little bit at first) because you have more years to save, more time for your money to grow, and less to worry about saving as you get closer to your desired retirement age.

When your money grows in a retirement account, it accrues interest, and the interest compounds. The earlier you start saving, the more time your money will have to grow and compound, ultimately giving you the chance to have more in your account by the time you retire.

It is also important to note, that life happens and there could be unforeseen circumstances that cause you to take a break from work (like starting a family, caring for a sick family member, an illness, etc.), or retire earlier than planned. The earlier you start saving while you can, the better off you’ll be in the long run.

There are several different types of retirement savings accounts to consider and you may be eligible to open more than one. Some are typically accessed through an employer, and each have various tax benefits.

401(k) Plan

401(k) Plans can typically be accessed through a for-profit employer. Ask the human resources department at work about how to sign up. Typically, you’ll have to determine what percentage of your paycheck you want to save, and your employer will deposit the amount in an account with an investment company. This system allows you to save automatically, which has many benefits.

Some employers offer a 401(k) matching plan by either matching everything you save up to a certain percentage point, or matching 50 cents for every dollar you save, up to a certain percent of your salary. Employer matching is typically referred to as “free money” and it’s a great thing to take advantage of. Think about it like you’re getting an instant raise.

The federal government sets a cap on how much money can be added to a 401 (k) each year, and it typically goes up a little bit each year. Make sure to check the cap number before deciding how much to contribute.

When you save money into your 401 (k), you don’t pay income tax on that money that year, however, you will have to pay taxes when you take the money out.

403(B) Plans

These plans are typically what you will receive if you work at a non-profit organization. The money in a 403 (b) account is commonly put into an annuity instead of a mutual fund, which can sometimes have higher fees.

Traditional IRA

IRA stands for individual retirement account, and it is a great option for someone who is self-employed, or who wants to grow their retirement savings outside of the options offered by their employer. Make sure to learn about the fees associated with the account, and the deposit limits which vary depending on your income.

With a Traditional IRA, you may get a tax break when you put the money into an account (consult with a tax advisor), but you’ll have to pay taxes on the money when you withdraw it during retirement.

Roth IRA

Roth IRAs are similar to Traditional IRAs but you pay the taxes up front before you deposit them into the account. When you withdraw the money, you don’t have to pay taxes on it, as long as you follow the withdrawal rules. These types of IRAs are a good deal for younger people with lower incomes who are in a lower tax bracket.

Other retirement account options

There are also other types of retirement accounts like Simplified Employee Pension (S.E.P.) and a Solo 401 (k). Each option has rules such as fund limits, and tax requirements, so be sure to research the options to determine which is right for you.

Although retirement savings can seem a bit confusing, the best thing you can do is get started. If you have any questions, please contact a member of our team, and we would be happy to help you. If you have questions about the tax aspects of the accounts, it would be beneficial to contact a tax advisor. Ultimately, we hope you are inspired to get started, and begin saving for your future self.