Saving for retirement is a crucial part of everyones financial planning.
Iverecommended beforethat dividing your money into multiple accounts helps you see all your saving goals separately.
A big part of that is taking advantage of retirement-specific accounts to make it invest in your future.
So, how can different types of accounts serve your retirement goals?
With a 401(k), the money you set aside isnt just saved, but invested.
You have the option of investing in a variety of assets like stocks, bonds, and mutual funds.
Your funds get stashed away tax-free until you withdraw it, ideally after years and years of growth.
Many employers will match your contributions up to a certain percentage.
The money grows tax-deferred until you start making withdrawals in retirement.
Take full advantage of any employer match offeredits free money toward retirement.
Ill explain more below, but first, lets take a look at IRAs.
There are two main types of IRAs: Traditional and Roth.
In the simplest terms, with Roth IRAs, you pay taxes on your savings now.
With traditional IRAs, you pay taxes later.
Weve written about the differences in more detailhere, andwe generally lean pro-Rothover traditional.
IRAs have lower contribution limits than 401(k)s, but are still great supplemental retirement savings.
you might andshouldmax out those limits, if possible.
Now, back to the 401(k) versus IRA order of operations.
If you or your spouse arent receiving taxable income, one of you might considersetting up a spousal IRA.
Any money not used for medical expenses can be invested, and it compounds tax-free.
HSAs have become a popular retirement savings vehicle.
Annuities
Annuities are insurance contracts that provide guaranteed lifetime income in retirement.
There are various types of annuities with differing pros and cons.
The key is to start saving early (compound interest rules!)
and utilize a mix of these accounts to build your retirement funds.
Here are our guides toopening an IRAandopening a 401(k).
And outside of retirement-specific savings, heresmy guide to the different types of saving vehiclesyou may need.
