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How to Prepare for Retirement

How to Prepare for RetirementWhen it comes to planning for retirement, it is important for individuals to diversify their money. This way, the money is protected and, should something happen that causes one area to lose value, the entire portfolio does not shrink in size as well. With that being said, there are a few different major advantages of investing in a traditional retirement account. These retirement accounts, such as an IRA, Roth IRA and 401(k) are all able to help individuals save money for their retirement. However, it is important to use the Spectrum Financial Services in order to understand what these different accounts can offer and what is going to be better for retirement.

For many individuals, there are 401(k) retirement plans with their company that matches the amount of money they invest. When the office provides this sort of service, it is important to take advantage of it to the maximum amount possible. Essentially, every dollar placed into the 401(k) is doubled by the employer, which can help grow a retirement fund quickly and effectively. The 401(k) is better for individuals who have a high income tax bracket than the other options. This is mostly because when the person retires, their tax bracket will end up being lower than the tax bracket they were in while working. It is possible to defer taxes on more money placed in the 401(k) than with an IRA. This way, it is up to the investor to determine when they want to pay taxes. They can either pay taxes on the money when it is earned, and then it is tax free when withdrawing (outside of the interest, which is also taxed), or they can wait to pay taxes on the money until they start withdrawing the funds. There is a $17,000 annual limit on contributions, but this is far better than the $5,000 that is found with Roth accounts. For people who are over 50, it is possible to contribute an additional $5,500 annually over the lint, where an IRA only allows $1,000 more.

A Roth IRA is a nice account as after the money is deposited after taxes, the account holder never has to pay taxes on the money every again. There are fewer withdrawal restrictions with an IRA account than with a 401(k). Money that is removed from the account before the age of 59.5, they only have to pay a penalty on the funds that come from regular earnings. The traditional IRA requires taxes to be paid on the back end, which means when someone withdraws the money, and while a Roth IRA allows an individual to leave the money in the account for as long as necessary, a person must start withdrawing money from the traditional IRA by the age of 70.5.


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