If retirement is decades away, should I be saving?
The answer is YES!
As you start your career and begin to ponder retirement planning, you may find the options confusing. How should you decide where to save for retirement? Weighing the relative benefits of an employer's 401(k) or similar plan and traditional or Roth individual retirement accounts (IRAs) leaves some people baffled.
There's no one answer that's right for everyone, but there are some basic guidelines that can help. Take the match
If your employer offers a retirement plan
, and will match some of your contributions, that's probably where you'll want to start. If you don't contribute enough to earn the full match, you're essentially turning down free money.Weigh the importance of pretax vs. after-tax dollars
An important benefit of traditional employer plans and IRAs
is current tax savings. Contributions may be either pretax (in employer plans) or tax-deductible (in traditional IRAs, if you qualify). That can allow you to make larger contributions without feeling as big a pinch on your household budget. If current tax savings are a key factor in your ability to save for retirement, then one of those accounts may be a good choice for further savings. Are you pleased with your employer plan?
Choosing between a traditional employer plan and a traditional IRA
likely will come down to whether you're satisfied with the investment choices and fees in your employer plan. But keep contribution limits in mind, too. Annual IRA contributions are limited to $5,500 for those under age 50, but the limit is significantly higher — $17,500 — for a 401(k), 403(b) or 457 plan. There are also differences in rules for taking distributions, which you may want an investment professional to explain.Consider the merits of Roth accountsRoth accounts
(designated Roth accounts within employer plans and Roth IRAs) offer a different set of benefits than traditional accounts — and they may prove especially advantageous for savers early in their careers. Roth contributions are made with after-tax dollars. But withdrawals are tax-free if you're age 59½ or older and have held the account at least five years when you begin withdrawals. While you're relatively new to the workforce, your income is probably lower than it will be later on — perhaps even in retirement. That means your tax rate may be lower now, too. So paying taxes on the money before you invest it and then taking distributions tax-free could result in a smaller tax bite than would paying tax on withdrawals from a tax-deferred account such as a traditional employer plan or IRA.
Seek expert advice. An investment professional at Rockland Trust can help you sort through your retirement saving options and come up with a plan that suits you. Visit a branch to set up an appointment today with a Financial Consultant