According to a recently released survey from TD Ameritrade, most Americans want to be settled enough to retire by age 67. However, another TD Ameritrade survey found that 66% of millennials (born between 1980 and 1995) don’t feel on track when it comes to saving or making retirement plans.
Planning for retirement isn’t always a straightforward process, especially with questions around savings and investments. There are many different types of routes to go down, and it can be confusing for anyone. So, what is the best retirement plan? What retirement plans in the United States should someone look into?
Here’s a breakdown of different tax-sheltered retirement plans for individuals.
Traditional Individual Retirement Arrangements (IRAs)
This retirement savings option is one of the Best retirement plans for professionals in any state of their career. IRAs can be opened and funded by an individual, not through an employer. The individual may receive an income tax deduction on contributions, the balance in an IRA will grow tax-deferred, and withdrawals will be taxed.
A traditional IRA is best for people who can make deductible contributions and want to lower their tax bill. It’s also helpful for people who earn too much money to contribute directly to a Roth IRA, and can also be used for consolidating and rolling over 401k retirement plans.
Like a traditional IRA, a Roth IRA is an individual retirement account that can be opened and funded by an individual. When it comes to income taxes, an individual will contribute with after-tax money, which means they will not receive an income tax deduction for contributions. The balance will grow tax-free and can be withdrawn tax-free in retirement as well.
This kind of retirement plan is best for someone who wants to take advantage of the flexibility to withdraw from an account in retirement without paying taxes. Furthermore, it can be beneficial for people who are currently in a low income-tax bracket, but expect to be in a higher tax bracket in the future.
If someone’s income exceeds specific levels, they may not be able to make tax-deductible contributions to their regular IRA account, or the amount of their contribution may be limited due to certain stipulations. But they can still save for their retirement with a non-deductible IRA. Although a non-deductible IRA’s contributions won’t reduce their taxes in the year they make them, an investor can tax-defer the earnings on them.
This is a key tax advantage of a regular IRA. Although someone will not receive any immediate tax benefits from a non-deductible IRA contribution, the tax-deferred growth may make the contribution a worthy effort.
401k Retirement Plans
A 401k plan is a workplace retirement account that’s offered as an employee benefit. The account allows investors to contribute a portion of their pre-tax paycheck to tax-deferred investments. Every dollar that is contributed reduces their taxable wages. Investment gains grow tax-deferred until the individual withdraws the money during retirement. If funds are withdrawn from the plan before age 59 ½, they could pay a 10-percent penalty on top of additional federal and state income taxes.
Investment choices for these types of plans are usually limited, and management and admin fees can come in at high rates. The IRS imposes contribution limits every year, although limits for 401k retirement plans are more generous and expansive than those for other savings plans.
The Hilb Group
Deciding what coverage you need and what limits and deductibles make the most sense can be tricky. Founded in 2009, the Hilb Group has been helping clients to make sense of their options and make the smartest choices for their circumstances. Whether you need Warehouse Insurance or any other type of business or personal coverage, we encourage you to contact our friendly, experienced, and capable team today. Call us at (800) 776-3078 for a consultation.