Planning for retirement is necessary if you want to stop working someday (obviously), but what are your options? The retirement planning landscape has many choices, so which are the best? Of course, it depends on your situation, so let’s explore a few retirement planning tools.
401(k) Plan. The 401(k) plan is the ultimate retirement planning tool if you work for a company. It allows you to contribute $22,500 yearly, and your employer can match your contributions. If you’re fifty or older, you can deposit another $7,500. If you work for a non-profit, you can access a 403(b) plan, and the government equivalent is called a 457 plan.
IRA. The government allows you to contribute $6,500 to an IRA. If you’re fifty or older, you can deposit another $1,000. The traditional IRA is tax-deferred, and you may qualify for a tax deduction. A Roth IRA is an after-tax contribution, and the assets grow tax-free.
SEP-IRA. If you’re self-employed, you can contribute money to a SEP-IRA. The maximum contribution is $66,000 or 25% of your compensation, whichever is less.
Brokerage Account. A taxable brokerage account is not a retirement account but a vital tool, especially if you want to retire early – before age 59.5. There aren’t any contribution limits to a brokerage account, and you may have favorable tax treatment through capital gains.
Health Savings Account (HSA). A family can contribute $7,750 to a HSA, and individuals can add $3,850. You can use this account for retirement or healthcare benefits after age 65. Before age 65, you can only use the funds to pay for healthcare.
Annuities. An annuity is a tax-deferred investment vehicle taxed like a traditional IRA. There is no contribution cap on annuities like an IRA or 401(k). Annuities can provide lifetime income.
Tools serve several functions; sometimes, you need a screwdriver other times, a hammer. It all depends on the job. The accounts above are tools you can use to fund a successful retirement. However, you must fund them regularly and invest in growth to make them work correctly.
I’m going to use all my tools, my God-given ability, and make the best life I can with it. ~ Lebron James
June 10, 2023
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on your asset level.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor. Prices and yields are for today only and are subject to change without notice.