Retirement planning is essential when planning personal finances. Financial planners strive to create a suitable living situation for today to enjoy a comfortable retirement later. Starting to save for retirement while young is important for wealth accumulation. Having the right plan, such as the right type of 401(k) or IRA, is an important step in accomplishing this goal.
Traditional Individual Retirement Account (IRA)
With a traditional IRA, you can contribute pre-tax dollars, which is tax-deductible in most circumstances. Upon withdrawal, the funds are taxed as regular income. IRA plans are not employer-sponsored and generally have lower contribution limits than 401(k) plans, but IRA plans typically offer a wider range of investment options. Withdrawing before 59½ may be penalized.
Roth IRA
Roth IRAs work exactly like traditional IRAs except for tax treatment. Instead of making your contributions before income tax, you contribute after tax. Contributing after-tax dollars allows you to make qualified withdrawals during retirement tax-free. Your expected tax bracket while in retirement may affect whether a Roth or traditional IRA may be more beneficial. As usual, early withdrawals may still be subject to penalties.
Simplified Employee Pension IRA (SEP IRA)
SEP IRAs are for self-employed individuals, small business owners, and eligible employees. As a business owner, contributions are typically tax-deductible and can be made to employees on a discretionary basis. Like traditional IRAs, withdrawals are taxed as income, and early withdrawals are penalized, as usual.
Retiring Comfortably with an IRA
Finding the right retirement plan doesn’t have to be complicated. To discuss other retirement options or build a customized retirement portfolio, contact the financial planners at First State at (918) 492-1361.
This overview is for informational purposes only and is not a recommendation. It should not be the sole deciding factor in making an investment. Investing is a risk and, as with all risks, a positive return is not guaranteed. Past performance does not indicate future results.