Picking a retirement plan is one of the most important decisions that you can make in your life. It is an assurance that you will be comfortable when you reach retirement and will be able to enjoy the later years of your life rather than having to continue working for a long time afterwards. Many people assume that they have planet of time to get this retirement plan done. They don’t think it is a big deal to wait until their 30s and 40s to get started, but what they don’t realize is that they are missing out on thousands of dollars for their retirement if they refuse to take the right steps earlier on.
Not only is it important to get started early on your retirement plan, it is important to pick the one that is right for your personal use. There are two main types of retirement plans, the Roth IRA and a traditional IRA. Choosing the one that works best is going to be a personal matter, but your tax professional will be able to help you make a decision that is smart for your goals so you can retire when you are ready.
The Traditional IRA
The retirement plan that most people choose is the traditional IRA. This is because they are able to get tax benefits from their contributions right away. When you make a contribution through the year, you will be able to deduct it later on when you do your taxes, saving a lot of money at the end of the year. The catch here is that you will need to pay for those later on, when you take the money out for retirement to plan wisely for that part.
In addition, there are a lot of employers who will offer to match the contributions to your traditional IRA. Even if you are worried about the taxes later on, this is still something to take advantage of. It means that you could double your contributions, and your retirement to make even more without having to spend more on your side of things.
If you are considering this option, which is a really good way to save for your retirement later on, make sure to talk to your tax professional. They will be able to explain the different traditional IRA methods and go over some of the numbers so you can figure out how much to save and how much you will have when you reach retirement.
The Roth IRA
The Roth IRA is going to work a bit differently compared to the traditional IRA. While some choose the traditional IRA because it saves them money on taxes, the Roth IRA is not going to do this. You will not be able to deduct your contributions that you make through the year. This may make it unappealing to some who want to save money during tax time, but it will save you money indirectly down the line.
With the Roth IRA, you are not going to get your deductions right now, you will save some tax money later on. When you make withdrawals on the retirement plan, you will not be taxed since you were already taxed when you made the contribution. This could save you a lot of money in the process.
First, it will save you money because of your tax bracket. Since you will no longer have some of your credits and deductions, such as having children, paying off student loans, and so on, your tax bracket is going to be higher. If you owe taxes on your retirement withdrawals, this could bump up your tax bracket and cost you a lot of money.
In addition, by the time you reach retirement age, you will probably see that the taxes are a lot higher than when you put the money in. This won’t bother you as much though since you don’t need to pay these higher taxes, saving even more money in the process.
Choosing the Right One
Often, the right retirement plan is going to depend on you. If you have an employer who is offering a traditional IRA with some matching funds, this is of course one of the best options that you can choose. On the other hand, if you would like to make sure that your tax bill stays low when you are retired, you would be better with the Roth IRA. But picking out the one that works out the best for you can be a challenge.
For most people, having one of each can be good. Getting the maximum contributions from work as well as saving at least a little bit into a Roth IRA as you can will really help to get the retirement money that you are looking for. This may seem like a lot of money to put back, but even just a little bit in both accounts adds more compound interest and can make your retirement really nice.
When you are ready to get started on your retirement plan and want to make sure that you are picking out the right one for your needs, make sure to contact your tax professional as soon as possible. They can go over the numbers with you and ensure that you are getting the right retirement plan that will save you the most money. Contact them today to get started.
Margaret Tabb