Let us help you explore your options!
401(k) A 401(k) is like a retirement starter pack, especially if your employer offers a match (which is free money!). Contributions are taken out of your paycheck before taxes, which lowers your taxable income now, however you'll pay taxes when you withdraw in retirement. It's a great choice because it's automatic - set it, forget it, and watch savings grow. Be aware that if you withdraw early, you'll face income taxes as well as a 10% penalty. This is your meant to be long-term, can't-touch-it money.
Roth IRA Unlike the 401(k), you contribute to a Roth IRA with after-tax dollars, so you won't get an immediate tax break. The upside? When you take money out in retirement, it's tax-free. Roth IRAs offer flexibility; you can withdraw your contributions (not your earnings) at any time without penalties. This makes them a good option if you need some of that cash before retirement.
Traditional IRA The Traditional IRA is a solid option, especially if you're looking for a tax break now. Like the 401(k), contributions to a Traditional IRA may be tax-deductible, which can lower your taxable income in the year you contribute. However, withdrawals in retirement are taxed as ordinary income.
SEP IRA If you're self-employed or run a small business, a Simplified Employee Pension (SEP) IRA might be your go-to. SEP IRAs allow you to contribute up to 25% of your net earnings from self-employment, or $66,000 in 2024, whichever is less. This high contribution limit can make SEP IRAs a powerful tool for ramping up your savings if your income changes year to year.
So, how do you choose? If you're eligible for a 401(k) with a match, start there. That's an instant return on your investment you don't want to miss out on. The best retirement account for you is the one you start funding now. It's okay if you don't have all the answers or much to contribute right away. Starting small and being consistent will get you far. Have additional questions? Contact a Member Service Representative at HEFCU today to see how we can help guide you on selecting the best IRA.
