When planning for retirement, it is imperative that you do research on each of the many types of retirement plans. Determining which plan is best for you is not a one-time thing, as it takes time and analysis to figure out which type of plan is most logical for you, your family, and your financial future. In this article, we are going to break down the three most common types of retirement plans and the main points of each. Keep reading to learn about them!
1. 401(k)
This retirement plan is probably the most popular plan pre-retirees can have. If your employer offers a 401(k) plan, this is a great option for you, as your employer will deduct a bit of your paycheck each time you are paid and put that money in a 401(k) account that will gradually increase over time as you approach retirement. With most 401(k) plans comes an employer match. This means that for every dollar or percentage you contribute from your paychecks to your 401(k), your employer will match that amount. Another reason to choose a 401(k) is because with your contributions come tax breaks—two to be exact. Your contributions to a 401(k) are tax-deductible, and your account will grow tax-deferred.
2. Individual Retirement Account (IRA)
There are several different types of IRAs (Individual Retirement Accounts). This type of retirement account is useful in that it’s tax-deferred or even tax-free in retirement. The four types of IRAs include: Traditional, Roth, SEP, and Simple. Before determining which type of IRA is best for you, you need to know how an IRA works. IRAs are not offered by employers, as you have to individually open up the account by going to a bank or a broker. Depending on where you choose to open up the account, you can either invest in stocks and bonds, or you can contribute to a savings account.
3. Thrift Savings Plan (TSP)
A Thrift Savings Plan (TSP) is a retirement and investment for federal employees and works similarly to a 401(k)-retirement plan. However, with a TSP plan, you can choose if you want to contribute to your account pre-tax, which falls under a traditional TSP plan or post-tax, which falls under a Roth TSP. If you qualify for a Thrift Savings Plan, you are automatically enrolled in one by the government. Your contributions accrue and do not get deducted from your paychecks with a TSP.
While retirement planning is a serious and complex task, we want you to know that whichever retirement plan you choose, you need to be properly informed on each and every detail about it. At Heritage Oak Wealth Management, we want to help you plan out your financial future. If you’d like to learn how we can help you choose the retirement plan that works best for you, give us a call at (985) 237-4033 or email me at matthew.greene@lpl.com
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.