Choose a Retirement Savings Option
Employer-sponsored qualified retirement plans can be effective tools for saving for retirement. If your employer offers a retirement plan, participate in it and learn how you can take full advantage of the opportunity to save.
The most common employer-sponsored plans are:
Learning about your employer-sponsored retirement savings plan increases its value as an effective retirement planning tool. Begin by finding out these plan basics:
- When can you join the plan?
- Can you transfer money from a previous employer's plan or an IRA?
- How much can you contribute to the plan per pay period?
- Does the company match the amount you contribute? If so, what is the percentage the company matches?
- What investment options does the plan offer? Where can you get information about the options?
- How often can you reallocate money in your account among investment options?
- Are resources available to help you make investment decisions?
- Can you take a loan from your account? A hardship withdrawal?
- Can you make catch-up contributions at age 50 or older?
- What happens to your savings if you leave the company?
- How can you access your account?
- Whom can you contact with questions about the plan?
Follow these guidelines to take full advantage of your employer-sponsored retirement plan:
- Make sure you understand how your employer-sponsored plan works.
- If your employer matches a portion of contribution, contribute the maximum your employer matches.
- Contribute as much as you can to your plan.
Log on to dol.gov/ebsa for additional information about employer-sponsored retirement plans.
This is not intended to be legal or tax advice or to provide a comprehensive discussion of 401(k) plans or other types of tax-qualified retirement plans. It is intended only as a general, nontechnical summary of certain basic concepts applicable to 401(k) and other types of tax-qualified retirement plans. Investors should consult a tax advisor for information concerning their individual situation.
Traditional and Roth IRAs are powerful tax-deferred savings tools for individuals and self-employed people.
This chart compares the features of traditional and Roth IRAs.
|Compare Traditional and Roth IRAs|
|Roth IRA||Deductible 1||Non-deductible 1|
|Earnings grow tax deferred||Yes||Yes||Yes|
|Contributions are taxed on withdrawal||No||Yes||No|
|Earnings are taxed on withdrawal||No 2||Yes||Yes|
|Contributions are tax deductible||No||Yes||No|
|Contributions allowed after age 70½||Yes||No||No|
|Minimum withdrawals required after age 70½||No 3||Yes||Yes|
1 Contributions to a traditional IRA may be deductible depending on your (and your spouse's) participation in the employer-sponsored retirement plan and your (and your spouse's) AGI. Your financial advisor can tell you if you qualify for a tax-deductible IRA.
2 After the account has been open for five tax years, a withdrawal of earnings from a Roth IRA is not subject to income tax or the 10% early withdrawal penalty if the individual is at least 59½, or dies, is disabled or uses up to $10,000 of the account's earnings for a first-time home purchase. Withdrawals of contributions are not subject to income tax and may not be subject to the 10% early withdrawal penalty.
3 During the account owner's lifetime only; RMD must be taken from inherited Roth IRAs.
Work with your financial advisor to determine which type of IRA works best for your financial situation and goals.
These calculators can help you with your IRA decisions.
- Roth IRA Versus Traditional IRA?
- Roth IRA
Learn more about IRAs by reading Traditional or Roth: Which IRA Is Right for You?
This information is not intended as tax advice. Investors should consult a tax advisor.
An annuity is another tax-deferred way to save for retirement and receive lifetime income.
When you buy an annuity, you enter into a contract with a life insurance company. The company agrees to make payments to you and/or your beneficiary over your lifetime(s) or a set period, usually beginning at retirement. If you die before payouts begin, a death benefit is payable to your beneficiary. Contributions to annuities aren't tax deductible.
Like other retirement savings vehicles, annuities offer tax deferral on earnings from investments. But an annuity offers two features that most other types of savings plans don't:
- You can structure an annuity to provide you with an income you can't outlive.
- Annuities don't limit the annual amount you can contribute toward your retirement.
As with most other tax-deferred savings plans, you'll have to pay federal (and possibly) state income taxes on any earnings you withdraw from the annuity at or before retirement, and withdrawals before age 59½ may be subject to the 10% early withdrawal penalty. Also, surrender charges may apply if funds are withdrawn before the contract's surrender period is over.
Immediate or deferred income
- Immediate annuities make payments to you soon after purchase.
- Deferred annuities enable you to accumulate savings before receiving regular income payments. Taxes on earnings are deferred until your income payments begin.
Fixed or variable
- Fixed annuities invest primarily in bonds and mortgages that offer fixed rates of return. They earn a guaranteed rate of interest for a specified period of time, and the interest rate is adjusted for each new period.
- Variable annuities allow you to select underlying investment vehicles or subaccounts managed by professional money managers. Your investment value is not guaranteed and will fluctuate based on the performance of the underlying investments.
- Any guarantee associated with an annuity is subject to the claims-paying ability of the issuing insurance company.
Annuities are complex and not suitable for all investors, so it's important to talk with your financial advisor about them. Before purchasing an annuity, make sure you understand:
- All the features.
- Fees and expenses, including mortality and expense charges, administrative charges and investment advisory fees.
- Tax consequences.
- Surrender charges and 10% tax penalties if you withdraw money early.
- Market risk.
Learn more about variable annuities by reading:
Invesco Distributors, Inc. does not offer annuities. This information is not intended as tax advice. Investors should consult a tax advisor.