Retirement Accounts Explained: Where To Start

📆This Week’s Topic

This week we will be talking about retirement accounts. Retiring is a goal that most working people share. Although, navigating through the different accounts, account eligibility, and whether taxes on contributions now or later is a very important thing to learn about and apply. Today I am going to break down those different options. Finally, you should be on a lookout for a free guide on how to navigate different retirement accounts.

💳 Why A Retirement Account?

Retirement accounts are very useful and important because they can allow you to save thousands on taxes while investing your money into a variety of different high earning markets. This allows you to get generous returns over the lifespan of the account as well. For example, if you had a salary of $65,000 and you put 20% into retirement starting at 16 assuming a 3% salary increase annually you would have about $9,510,000. Another thing to note is every dollar you invest in a growth fund with an annual rate of 8% will be worth $88 by the time you retire.

Ready to figure this out? I created a comprehensive guide with account comparisons, a step-by-step priority system, and action steps you can take this week. → [Download the free guide]

📊 Traditional IRA VS Roth IRA

One of the most common retirement accounts are individual retirement accounts (IRAs). They accounts are Traditional IRAs and Roth IRAs. Traditional IRAs follow a format where you get tax deductions now although you must pay taxes upon withdrawing the money. You also are not allowed to withdraw money before the age of 59 and ½ without incurring a 10% penalty. Roth IRAs are quite a bit different. In a Roth IRA you must pay taxes when making the contributions but you get the earnings tax free when when you withdrawal it. Similarly to the Traditional IRA, you are not allowed to withdraw funds from it before turning 59 and a ½ unless you are willing to incur a 10% penalty on those funds. For both accounts there are certain exceptions to the penalty, for example you can withdrawal money for medical expenses without the penalty if the medical expenses are more than 7.5% of your annual adjusted gross income.

🔚 401k Account

In the United States 59% of US adults have a 401k as at least part of their retirement plan. They are by far the most common type of retirement account and sometimes you employer will offer you a match. This means that if you put away $10,000 per year in your 401k and the match is 4% the employer will contribute $400 to your 401k. Similar to the previous accounts if you make withdrawals before you are the age of 59 and a ½ you will be subject to income taxes and a 10% penalty on the amount withdrawn. One of the many benefits of a 401k is automation. The amount you contribute gets automatically deducted from your paycheck so it is pre-tax.

Tax teams are stretched thin and spreadsheets aren’t cutting it. This guide helps you figure out what to look for in tax software that saves time, cuts risk, and keeps you ahead of reporting demands.

Download the Guide

⏳ Final Summary

In summary, retirement account are a very good way to save for retirement in a tax advantaged account as well as giving you returns. The 3 main retirement accounts are 401k, Traditional IRA, & Roth IRA. These account let you either withdrawal, or make contributions tax free although for any of these accounts if you withdrawal money before the age of 59 and a ½ will be subject to income tax and a 10% penalties. Of course there are many retirement accounts I didn’t cover like 403b or other accounts. Although, these accounts like 403B are very similar to exactly the same as 401k.

🙏Thank You & Important Information

Anyway, thank you so much for reading this edition of Friday Finance. I am so thankful the being able to create these articles in a community who is interested in it. Don't let confusion stop you from building wealth. If you missed the earlier link you can grab the complete retirement account guide and figure out your priority system this week. → [Get your free guide here]

Jacob Gans

Friday Finance