Saving for retirement is made easier by tax-advantaged accounts like 401(k)s and IRAs. Here is what you should know about these accounts.
A 401(k) is a retirement savings account provided by one’s employer, who may also match the employee’s contributions up to a certain amount. Contributions are deducted from an employee’s paycheck before taxes, so taxes are not paid until the funds are withdrawn during retirement. For 2013, the maximum pre-tax contribution is $17,500.
An individual retirement account (IRA) is another type of retirement savings plan. One type, the Savings Incentive Match Plan for Employees (SIMPLE) IRA, functions much like a 401(k), in that an employer matches employee contributions. The other types of IRAs are not connected to one’s employer. The most common types are traditional IRAs and Roth IRAs.
With a traditional IRA, funds are deposited before taxes, and withdrawals upon retirement are taxed as income. By contrast, with a Roth IRA, contributions are made after taxes, and withdrawals are not taxed. In 2013, the maximum contribution to a Roth IRA is $5,500, or $6,500 for people age 50 and older.
If you do not yet have a tax-advantaged retirement savings account set up, now is the time to start one. If you are already contributing to such an account, then as we draw closer to the end of the year, it is a good time to take stock of how much you have contributed, and add to your contributions for the year if you can.
Contact an estate planning lawyer with the McDevitt Law Office of call 1-571-223-7642.