Retirement Savings Account

Deciding Which Type of Retirement Savings Account To Get?    

There are a number of different retirement accounts that you can use in order to save up for retirement. These include 401K plans, Roth IRAs, and Traditional IRAs. Each type of retirement savings account has its pros and cons.  

When doing your retirement planning, it is important to consider all of your options so you can put your money into the most beneficial type of account for you. These days most people don't have pensions to rely on, so they need to plan carefully and start putting money into the bank so that they will have something to live on once they retire. Most of these accounts allow you to invest the money in the stock market, or in bonds or CDs or another type of investment that earns you interest on your money. 

If your employer offers you a 401K account and will match your contributions at some rate, it is a good idea to take advantage of this. You can invest the maximum amount that the employer will match and then, if you still want to invest more, you can open another account as well if you qualify. 

Those who don't have the option of an employer matched 401K retirement savings account will need to choose between a Traditional IRA and a Roth IRA. The main difference is that the contributions to a Traditional IRA are tax deductible, and you don't have to pay taxes on them until you withdraw the money, and with the Roth IRA you cannot deduct your contributions, but do not need to pay any taxes on the distributions (including any earnings from your contributions). This means that in many cases it is a matter of choosing rather you want to pay taxes on the earnings now, when you might be at a higher tax rate, or later, when you might fall into a lower tax bracket. 

Another difference between these two types of retirement savings accounts is the fact that with a Roth IRA you have a lot more flexibility on when and for what purpose you can take money out of the IRA. With a traditional IRA there are penalties for early withdrawal (before the age of 59 1/2). You can use the Roth IRA money to help pay for your children's education, for your first house, or for a car if you need to without paying huge penalties.