There are two basic types: those offered through your employer and those you can open on an individual basis. Both types are designed to help you accumulate the wealth you will need to fund your retirement.
First, those offered by your employer. These plans typically have various investment choices that are like mutual funds selected by the employer or plan sponsor. Contributions a usually tax-deductible and the money grows tax deferred, but withdrawals are subject to standard income taxes rules at the time of withdrawal. Often times the employer offers a match for a portion of the amount contributed up to a limit. These plans may allow contributions up to $24,000 depending upon your income and age. There are special rules as to when you can withdraw the money and rules for when you must withdraw assets. The rules are stricter than those that apply to IRAs.
Second, are those you can establish yourself. There are two basic types: Traditional IRA and a ROTH IRA. They both accept post-tax dollars as contributions, however, in some cases the contributions to the Traditional IRA can be tax deductible. The current maximum contribution is $6,500 per year per person. They both allow the assets inside to grow without tax liability. Depending upon with whom you open the account, there may be access to thousands of different types of assets ranging from stocks, bonds, certificates of deposits, mutual funds, exchange traded funds, and others. The Traditional IRA requires distributions near age 70 ½ and these distributions are subject to standard income taxes at the time of withdrawal. The ROTH IRA assets can be held until death and no taxes are applied to the withdrawals.
Many times it is worth using as many types as legally possible within your current budget needs. Look to them to build your retirement nest-egg.
This video and text is for information use only and is based on information believed to be true. Much of the information is readily available, but some is drawn from Advisor Products and FAClient articles. The reader acts on these ideas at their discretion and should consider consulting an accountant, financial advisor, or attorney. No promise is made that an idea or concept is appropriate or would work well for the reader. This is not an offer to provide legal advice or act as an attorney.
Contact Steven Erickson JD, MBA, CFP(R), Accredited Wealth Management Advisor, Chartered Retirement Planning Consultant at 573-874-3888 steve@EricksonFinancialSolutions.com, if you have questions or to set an appointment. Serving Clients in Columbia, Jefferson City, and the surrounding counties.