For some, retirement seems like a lifetime away, but it is imperative to plan planning your retirement early to ensure you are financially set. Today we talk about the basics of saving for retirement and tips on how you can plan for your retirement day!
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Your 401K
The 401K is the most common form of retirement plan. However, there are limits to how much you can invest per year. In 2019, the limit for those under 50 is $19,000 annually and $25,000 for those over 50. There are also other types of factors affecting this investment that may lessen the limit. Your contribution is tax-free and is also tax-differed until you begin withdrawing from the account. As you probably know, once you're 59 1/2 you're eligible to begin withdrawing, and when you turn 70 1/2 you'll be required to take out a minimum amount called a RMD or minimum required distribution.
Once you turn 50, you're allowed up to $6000 per yer to catch up on contributions you may have made less of when you were younger. Also be sure to check with your employer to see if they will match your 401K contribution or contribute a similar amount. Be sure to keep in mind that even if you have a 401K you contribute to, you can also save for retirement in other ways, such as IRAs or investments.
Your IRA
There are two types of IRAs: traditional and Roth. With a traditional IRA, you open a retirement savings account at your bank to contribute pre-tax dollars. However, with IRAs, only you contribute and the limits are lower than a 401K. For those under 50, the annual contribution is $6,000 annually and $7,000 for those over 50. Advantages of an IRA include wider investment choices and tax break on the money you contribute that year. Also be sure to look at your tax bracket, as this may affect the amount of taxes you pay on a traditional IRA. Roth IRAs are similar to traditional IRAs but are contributed after-tax and are tax-free once you start withdrawing the funds. You can transfer a traditional IRA to a Roth IRA for a fee, but speak with you financial advisor, as the fee may be less than the tax you would pay on withdrawals in the future.
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