Types of Retirement Savings Accounts to Consider

Retiring with enough money to live comfortably can seem challenging and even overwhelming when you are just starting out. One of the best steps to take to get started with your retirement saving efforts is to choose the right retirement accounts to deposit your funds into. There are several options to consider that each have their own unique benefits. With a closer look at the options, you can better determine how to start saving and investing.

401K

A 401K is perhaps the most well-known type of retirement account available, and this is most commonly offered through your employer if you work for a mid to larger-sized company. Your employer may offer a matching contribution program that can help your account balance to grow more quickly. With a 401K, your deposits are made with pre-tax dollars, and they grow tax-free. You pay taxes on the money when you take it out of the account in retirement.

IRA

An IRA is another retirement account option that is open to anyone. You invest pre-tax dollars into the account, and the money grows tax-free. There are limits to the amount that you can contribute, and these limits adjust annually. Some people will max out their contribution limits to a 401K, and they will then contribute additional funds into an IRA.

Roth IRA

With a Roth IRA, you contribute money that has already been taxed. The money grows tax-free, and you will not pay taxes on the money when you take it out of the account. There are income limitations on this type of account as well as contribution limits, and these adjust yearly.

HSA

If you are looking for an affordable way to pay for your medical expenses, a smart idea is to contribute to an HAS, or health savings account. With this type of account, you invest pre-tax dollars into the account up to the limit established by the government. This limit adjusts yearly and varies based on your age and marital status. You can withdraw the funds from your account to pay for co-pays, surgery, prescription drugs, eyeglasses and much more.

As you can see, you have a variety of options available to consider for your retirement planning efforts. The tax benefits and contribution limits are among the key differences between these options. Take time to examine how the benefits of each of these accounts can be used in your favor to assist with your retirement planning efforts.


David Milberg is a financial analyst from NYC.