There are two pretty decent retirement plan options available to people of the current millennial generations. You’ll want to save as much money for your retirement as you can early on. If you do it right, you should have a very nice chunk of change saved up by the time your working days are through. Check out the best retirement plans and get an idea of what might work best for you.
One of the best retirement plans is a Roth IRA plan. As long as you meet certain easy-to-achieve income requirements, you can get one of these tax-advantaged accounts. This year, the most you can contribute to your Roth IRA in after-tax income is $5,500. Due to inflation and rising costs of living, the limit generally increases each year. If you’re just getting into the workforce, you were unemployed for some time or your taxable income is less than $5,500, the most you can contribute to your Roth IRA is your total taxable income. If you only made $3,000 at your part-time summer job, you can contribute no more than that $3,000 into your IRA.
A Roth IRA account is one of the best retirement plans because you can watch your contributions grow tax-free! That tax break will mean everything to you when you’re counting on making every last dollar stretch as far as possible. Once retirement time rolls around and you start withdrawing from your IRA account, you won’t have to bother with paying any taxes on those withdrawals since you paid taxes on your income during your working years. That means that if you saved $500,000 or even $1,000,000 by the time you’re ready to retire, every last cent in your account is yours, free and clear. A Roth IRA makes it easy to figure out just how much money you’ll have to work with when it comes time for you to depend on it.
- You can also withdraw your contributions while keeping the interest they’ve gained stored in the account which essentially doubles your IRA as the perfect emergency fund.
401(k) or 403(b)
Another one of the best retirement plans and more well-known routes is the 401(k) or 403(b) for an employee of a tax-exempt organization. In some companies, employee 401(k) contributions are met with a match that equals free money for your account. A 5% contribution match from your employer adds up rather quickly! If 5% of your salary is $1,000, and you contribute that 5% from every paycheck into your 401(k), your employer will match each one of those contributions with an additional $1,000. Each company can create their own rules on contribution matching and your employer might offer less than 5% matching. There are even still other companies that don’t match employee 401(k) contributions at all.
Even if your employer doesn’t match your contributions, a 401(k) plan is still one of the best retirement plans out there for you to choose because of the fact that it makes saving painless. Your contributions are taken automatically from your paycheck, so you don’t have to worry about setting something aside to contribute at a later time. Some employers enroll their employees in the program automatically and if your company doesn’t, you simply have to sign up to start saving up.
Unlike the Roth IRA plan, contributions made to your 401(k) or 403(b) are made with pre-tax money which means that although you’ll spend less on income tax now, you will have to pay tax on the money you’ve saved when you get around to retiring.
- For this reason, 401(k) and 403(b) accounts make it a little more difficult to know just how much money you’ve saved and can actually spend in retirement since it is impossible to know what tax rates will be at in the future.
Both Roth IRA and 401(k) accounts are some of the best retirement plans you’ll find out there to invest in. If you’re leaning toward either one of these options as a way to save for retirement, there’s really only one key difference between them, and it will be important for you to decide if you want to spend money on the associated taxes now or later. Both of these types of accounts watch the funds contributed grow tax-free, so they beat all other types of non-retirement savings accounts by a long shot. No matter which you choose, the point is to saving as early as possible. It is literally never too early to start saving for your future. Time flies so fast and gets away from us before we know it. You don’t want to find yourself in a difficult situation when you should be retiring that has you scraping the barrel trying to make ends meet month to month. Make a smart decision for your future and start that retirement savings account as soon as you possibly can!