Plan for Retirement

The steps you take today preparing for retirement will shape your financial picture in retirement.

There are a variety of retirement savings vehicles to which you can contribute, depending on your employment. They include traditional and Roth IRAs, Simplified Employee Pensions (SEPs), SIMPLE plans, and 401(k), 403(b) and 457 plans.

Contributing to most of these retirement vehicles reduces your taxable income today while your money potentially grows tax-deferred over time. It is time that is key. The longer you contribute, the more likely you will prepare for a retirement of your choosing. At a bare minimum, take advantage of the maximum match your employer may make to your 401(k) account.

When changing jobs, roll over any retirement funds directly into an IRA to avoid tax and potential early withdrawal penalties.

ROTH IRAs

Roth IRAs offer a number of advantages you can’t find in other retirement accounts. While contributions are made after tax, qualified distributions are tax-free and there are no required minimum distributions during your lifetime.

Contributing to a Roth IRA makes sense if you do not need the tax deduction now or want tax-free distributions later. Tax-free income from a Roth IRA may permit you to leave other retirement accounts alone until you must take RMDs from them.

You may also want to consider rolling over a traditional IRA to a Roth IRA to avoid paying higher tax rates in the future. This makes sense for people who may have a relatively down income year, but have the liquidity to pay the tax bill for that year without tapping a retirement account. If you are in a higher tax bracket now and planning to retire soon, a rollover may not make sense for you.