Retirement
What is covered
Planning for retirement starts with understanding the tools that help your money grow over time. This page covers the most common retirement and savings vehicles. These are 401(k)s, high-yield savings accounts, Traditional IRAs, and Roth IRAs. Each option serves a different purpose, from employer-sponsored retirement investing to tax-advantaged individual accounts and short-term savings. Learning how these accounts work, their tax benefits, and when to use each one is a key step toward building long-term financial security.
Thoughts for retirement
- What options do I have?
- Is it easy to open an account?
- How much should I put in and how often?
These questions are answered in this section of the learning modules. We will talk about an IRA vs Roth IRA, 401k, High yield savings (and more), where to put money, how to use each account, and the guidelines with each one.
As we saw investors are subject to capital gains taxes, along with others, and these accounts are some ways to invest without the fear of all of it being taxed away.
Now a 401k or 403b are retirement accounts offered through an employer so while we will talk about them to figure out how they work they are subject to some different rules.
IRA
An individual retirement account is a tax-deferred account the IRS created to help anyone save for retirement.
401(k)
A 401(k) is an employer-sponsored retirement savings plan. Commonly offered as part of a job benefits package, employees may save a portion of their salary in a 401(k) account, subject to annual limitations.
High Yield
A savings account with a high interest rate that is often used for saving for emergency situations, downpayments, or other expenses.
How much to put away and where
A general rule of thumb is putting 20% of your income into savings accounts. This is subject to change depending on financial situations and other factors but is still a good rule to stand by. If you can save more go for it (remember the key is compound interest).
EX. If you make $120,000 USD a year and live in GA, your take home pay after taxes is about 86,000 (I used this Tax calculator). With the 20% rule that means you are putting about 17,000 away. A Traditional 401k will take a percentage of your pre-tax income; the rest will go towards an IRA or other savings. It is also a good idea to have the cost of 3-6 months of expenses in a high yield savings account so you can access it easily in case of emergency.
Starting one of these accounts is very easy and does not take much to get approved for. Almost every investment firm or bank offers all of these options and there is rarely a minimum balance needed for a basic account. Going to whoever your bank or firm is and seeing their options as soon as possible can help you start your growth early on. We have a list of the best firms and accounts here.
As for which account you should use that is up to you to decide with the information provided. Keep in mind a 401k will most likely be provided by your employer, so you do not have to worry about that. Otherwise look at the tabs and look at the age you have to pull your money out, the tax benefits, and returns of each one.