Retirement

February 15, 2024 | Saving for Retirement (Money Geek)

February 26, 2019| Deciding between a Roth IRA and Traditional IRA (CNBC)

Napkin Finance

• PAYING FOR RETIREMENT

  • • Social Security

    • Retirement Savings for Contractors

• INVESTING

  • • Risk Tolerance

    • Target-Date Funds

• RETIREMENT ACCOUNTS

  • • IRA vs. 401k

    • Roth IRAs

    • Rollovers

    • Rebalancing

• ESTATE PLANNING

• • • Power of Attorney

    • Wills

    • Trust

      • Trustee

      • Revocable vs. Irrevocable Trusts

      • Charitable Remainder Trusts

    • Fiduciary Duty

    • Estate Tax

• FINANCIAL PLANNING

• Financial Advisors

• Robo-Advisors

See investing for more information.

Types of retirement plans

401(k) plans

Traditional 401(k) plans: Try to contribute as much as you can to your employer-sponsored retirement plan, mostly commonly a 401(k). Some may offer a 403(b) or 457 plan. Contributions to a traditional 401(k) are made pre-tax, so it reduces your taxable income. 

Roth 401(k): This plan works like a traditional 401(k) but contributions are made after tax. Unlike the Roth IRA, there are no income limits.

Maximum contribution amount: $19,500 in 2021, plus a $6,500 “catch-up” contribution if you’re 50 or older.

Bonus: You may also get “free money” if your employer provides a matching contribution to your account. If you can’t afford to contribute the max, then at the very least put in as much as the employer’s match so you aren't leaving any money on the table. 

Types of IRAs

Deductible IRA:  If you are not covered by a company plan, you can deduct your IRA contribution from your taxable income. If you are covered by your employer’s plan, your eligibility for this IRA depends on your income and tax filing status. 

Nondeductible IRA: Contributions are made with after-tax dollars. This is the only option if you aren’t eligible for a deductible IRA or Roth IRA.

Roth IRA:  Contributions are made after tax, which means you pay no taxes when you take out funds in retirement. You can start to do that once you hit 59½ and have funded the account for at least five years. There are no mandatory withdrawals starting at age 72, like in other types of IRAs, but there are income restrictions.

State-run retirement plans: Some states, including California and Illinois, now offer retirement savings options to workers whose employers do not have a company plan. Most are similar to a Roth IRA but are run by the state.

Maximum contribution amount: $6,000 in 2021, plus a $1,000 “catch-up” contribution if you’re 50 or over.

Sources: CNBC Newsletter 9/17/21