October 22, 2022
Planning for your retirement early on in your career is key to ensure you have enough time to build savings for your desired retirement lifestyle. Understanding the different types of retirement accounts can help you find the best fit for your needs. Keep reading to see a comparison of some of the most common retirement plans.
A 401(k) is a common savings plan offered by employers. Contributions to the plan are automatically taken out of employee paychecks and invested into a list of available funds. While there can be some limited investment options, 401(k)s are generally easy to set up and manage. Many employers even match a portion of your contributions to increase your retirement deposits! This plan also offers tax advantages since you won’t be paying taxes on your retirement contributions.
For business owners with no employees, a one-participant 401(k) plan might be a good option. This plan is commonly referred to as a solo 401(k), solo-k, uni-k, or one-participant k and offers coverage for you and your spouse. Contributions and plan expenses are generally tax deductible for the business and you can pick the tax advantage that works best for you. Keep in mind that this option still holds contribution limits.
A traditional IRA (individual retirement account) is a personal retirement savings account with commendable tax advantages. These accounts are available to anyone and are usually opened and managed by individuals. Traditional IRAs offer great tax benefits since earnings and gains are not taxed until you withdraw from the account, although contribution limits are lower than that of some other accounts Traditional IRAs can be set up at a bank or brokerage without the help of an employer.
While the contributions to this type of retirement plan are not tax deductible, withdrawals (depending on when you make them) are oftentimes tax-free. It is important to keep in mind that your Roth IRA contribution amounts might be limited based on your tax filing status and income. These accounts are generally best for individuals who think their taxes will be higher in retirement than they are currently.
If you are unsure about the pros and cons of different retirement plans, or just want to talk with a financial expert, visit to Citizens First Bank for help. We offer a variety of savings plans as well as loans to help you secure your finances! Stop in, give us a call, or visit our website today to learn more about how we can help!