Which account types should you use to save?
1. Save up to the match in your employer plan
If your employer offers a retirement plan (like a 401(k) or 403(b) plan) and will match your contributions up to a certain percentage, make sure you get the full amount of free money that's available to you.
2. Open an IRA
It's great if you can save more than what's needed to get the maximum company match in your employer plan.
Opening an IRA for your additional savings will give you a chance to shop around. You can hold many types of investments in an IRA, including any mutual fund, ETF, stock, or bond—many of which might cost less than those offered through your employer plan.
And you can use a Roth IRA to save money that won't be subject to taxes in retirement—an option that isn't available in many employer plans.
The 2024 annual contribution limit for IRAs is $7,000 for most people, although it depends on your income. (If you're age 50 or over, you can contribute up to $8,000.)
GOOD TO KNOW
If you have an employer-sponsored plan from a previous job, rolling it over to an IRA can give you additional flexibility and make your portfolio easier to manage.
3. Max out your contributions to your employer plan
After you've saved up to the match in your employer plan and maxed out your IRA, go back to your employer plan. The 2024 annual limit for employee contributions is $23,000 ($30,500 if you're age 50 or older and your plan allows catch-up contributions.)
4. Continue saving in a taxable account
For most people who want to save even more, the next step is to save in a general investment account.
These accounts won't have the tax breaks associated with retirement accounts, so you'll have to pay investment taxes on interest, dividends, and capital gains as your account grows, and you won't receive any tax deductions for your contributions.
Where does retirement fit into your priorities?
How much can you contribute?
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