SAVING FOR Retirement
WHAT IS A RETIREMENT ACCOUNT?
A retirement account lets you set aside money pre-tax from each paycheck so you can use it later in life. "Pre-tax" is money you earn before taxes are deducted, so you get to keep more of your paycheck. Many employers offer different types of retirement accounts and you can also open an individual account. Scroll down to learn about your options for saving for retirement! If you take the quiz at the end of the page, you'll enter a raffle to win $100!
RETIREMENT ACCOUNTS VS. SAVINGS ACCOUNTS!
There are many differences between retirement accounts & savings accounts. The major difference between both of them is this: Retirement accounts are a way to grow your money, while savings accounts are a way to preserve it.
Interest-bearing account that gives you easy access to money (cash) for short-term and emergency needs and goals. They don't offer any tax benefits, nor do they have the same potential for growth.
Good place to keep ready cash (i.e., emergency fund) or money for short-term goals (i.e., summer vacation, new car, etc.)
Safe place to keep money temporarily (i.e., proceeds from a home sale) before investing it elsewhere.
NO LIMIT TO AMOUNT DEPOSITED: The money you contribute to it is available at any time & for any reason with NO PENALTIES. You make deposits to a savings account at your own pace & there's no limit on how much you can deposit. You can withdraw money up to the allowed number of times per month, without any tax penalties.
The money stays as cash; it's not invested at all so you can access it very easily.
Tax-advantaged account that is specifically created to help people reach their long-term goal(s) of having enough money to retire comfortably.
Can also be used for emergency funds.
INVESTMENTS: stocks, mutual funds, bonds, and CDs
LIMIT TO CONTRIBUTIONS
You are only supposed to make withdrawals later in life; you will pay tax penalties if you want to withdraw money before then
401(k) and 403(b) Retirement Accounts
What is a 401(k)?
A 401(k) is an employer-sponsored retirement account that offers some big tax advantages. But there are some drawbacks you should know before deciding to invest. This video discusses two types of 401(k) plans: traditional 401(k) and Roth 401(k). It goes on to explain the tax advantages of both plans, limitations of 401(k) plans, employer matching benefits, and types of investments offered by 401(k) plans.
What is a 403(b)?
A 403(b) is an employer-sponsored retirement plan for employees of government agencies, non-profit organizations, and other 501(c)(3) non-profit employers. This video covers the following information:
What is a 403(b), and who can contribute to one?
What are the tax advantages and contributions of a 403(b)?
What are 403(b) Roth options and other additional features of 403(b) accounts?
401(k) and 403(b): Similarities & Differences
Similarities between 401(k) and 403(b)
This video explains some similairities between 401k accounts and 403b accounts: maximum contributions, pre-tax contributions, employer matching contributions, and withdrawals to name a few.
Differences Between 401(k) and 403(b)
The most common retirement accounts are 401(k) and the 403(b). While there are similarities between both accounts, there are also differences between them. This video explains some of the differences between them.
INDIVIDUAL RETIREMENT ACCOUNT (IRA)
If your employer does not offer a 401k or 403b, an Individual Retirement Account (IRA) is something you can open on your own. Individual Retirement Accounts (IRAs) allow you to make tax-deferred investments to provide financial security when you retire. The most common types of IRAs are traditional IRAs and Roth IRAs.
SIMILARITIES BETWEEN TRADITIONAL IRAs & ROTH IRAs
Similarities include the following:
Both offer tax advantages.
Both allow contributions of $5,500 a year under age 50 and $6,500 over age 50.
Both allow a broad range of investments, stocks, bonds, mutual funds, annuities, etc.
Possible penalties can be imposed if funds are taken out improperly before age 59.
The saver's tax credit is available for anyone who makes contributions to their IRA (both traditional and/or Roth IRA).
DIFFERENCES BETWEEN TRADITIONAL IRAs & ROTH IRAs
Differences Between traditional iras & roth iras
Individual Retirement Accounts (IRAs) can help you pay less in taxes when you’re investing for retirement. This video explores the differences between two types of retirement accounts: traditional IRAs and Roth IRAs.
INTERESTED IN LEARNING MORE ABOUT IRAs?
The required minimum distribution (RMD) is the minimum $ amount that you MUST withdraw from your account each year after you turn 70 or 72 (this does NOT apply to Roth IRAs). Click on the "Required Minimum Distribution" button to learn about the RMD rules for IRAs. You can also click the "IRA Distributions" button to read more about the distribution rules for IRAs.
RMD Worksheets: https://www.irs.gov/retirement-plans/plan-participant-employee/required-minimum-distribution-worksheets
IRA Contributions are annual $ amounts that you're allowed to make to your IRA. Click on the "IRA Contributions" button to learn more.
HOW TO SIGN UP FOR A RETIREMENT ACCOUNT
Decide how much money you need when you retire, which is usually around 65 years old. You can enter your income, age and other info here to estimate how much you need to save for retirement.
Open a retirement account through your employer if they offer one. Keep your eyes peeled for an email from HR asking how much you'd like to contribute from your paycheck toward retirement. This amount is usually a percentage of your paycheck and is taken out before taxes.
If your employer offers matching contributions, it means that they'll contribute the same amount you do to your retirement account. For example, if you contribute 5% of your paycheck and that's $100, your employer will also contribute $100 for a total of $200 going toward retirement each paycheck.
Open a retirement account on your own if your employer doesn't offer one. You can go to the website of a retirement account provider like Fidelity or Interactive Brokers, choose whether you want to open a Roth IRA or traditional IRA, fill out your personal information, and decide how you want to fund your retirement account. Funding your account usually involves automatically transferring money from your bank account to your retirement account on a biweekly or monthly basis.
QUIZ (and raffle!) On saving for retirement
Take the quiz below by answering all of the questions. Anyone who completes it will be entered into a raffle to win $100! Raffle winners are drawn each quarter.
DIRECTIONS FOR QUIZ: Read each question then check the box next to the right answer. This is a learning opportunity so you're entered into the raffle when you click "Submit" at the bottom of this form - it doesn't matter how many questions you get right. You can see which answers were correct by clicking "View Score" after you submit your response.