Traditional Individual Retirement Account (IRA)
A Traditional IRA is a retirement savings account offering tax-deferred investment growth. Contributions you make to a Traditional IRA may be tax-deductible, which can lower your taxable income for the year. The money in the account grows tax-deferred until you withdraw it during retirement, at which point it’s taxed as ordinary income.
In 2024, you can contribute up to $7,000 per year if you’re under 50, and $8,000 if you’re 50 or older. Anyone with earned income can contribute, but tax deductibility may be limited if you or your spouse have access to a retirement plan at work and your income exceeds certain limits. Early withdrawals before age 59 1/2 may be subject to a 10% penalty and income tax.
Ideal candidate: Individuals seeking to reduce their taxable income now and who anticipate being in a lower tax bracket during retirement.
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Start saving smarter today!Roth IRA
Roth IRAs offer tax-free growth and tax-free withdrawals in retirement. Contributions are made with after-tax dollars, so they don’t reduce your current taxable income — but qualified withdrawals during retirement are tax-free.
The contribution limits are the same as Traditional IRAs — up to $7,000 per year, or $8,000 if you’re 50 or older. Eligibility to contribute phases out at higher income levels. For single filers in 2024, the phase-out starts at a modified adjusted gross income (MAGI) of $146,000.
Contributions (but not earnings) can be withdrawn at any time without taxes or penalties. Earnings can be withdrawn tax-free after age 59 1/2, provided the account has been open for at least five years.
Ideal candidate: Younger investors or those who expect to be in a higher tax bracket during retirement.
401(k) plans
Arguably the most popular retirement vehicle given its status as an employee benefits staple, the 401(k) allows employees to contribute a portion of their salary pre-tax, reducing their taxable income. The investments grow tax-deferred until withdrawal during retirement.
In 2024, employees can contribute up to $23,000 per year, with an additional $7,500 catch-up contribution allowed for those aged 50 and over. Many employers offer matching contributions up to a certain percentage, which is essentially free money. Early withdrawals before age 59 1/2 are subject to a 10% penalty and income tax.
Ideal candidate: Employees, especially those whose companies offer a match, should prioritize contributing to this plan to maximize retirement savings.
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An HSA is a tax-advantaged account designed to help individuals with high-deductible health plans (HDHPs) save for medical expenses. Contributions are tax-deductible, the money grows tax-free, and withdrawals for qualified medical expenses are also tax-free.
Eligibility requires being enrolled in a qualifying HDHP. For 2024, individuals can contribute up to $4,150, and families can contribute up to $8,300. Those 55 and older can contribute an additional $1,000. Funds can be withdrawn tax-free for qualified medical expenses at any time. After age 65, withdrawals for non-medical expenses are taxed as ordinary income without penalty.
Ideal candidate: Individuals with high-deductible health plans looking to save for current and future medical expenses, or even as an additional retirement savings vehicle.
529 college savings plans
A 529 plan is a tax-advantaged savings plan designed to encourage accumulating capital for future education costs. Earnings grow tax-free, and withdrawals are tax-free when used for qualified education expenses, including tuition, books, and room and board.
Contribution limits vary by state, but many plans have lifetime limits exceeding $300,000. While contributions are not deductible on federal taxes, some states offer tax deductions or credits. Withdrawals must be used for qualified education expenses to avoid taxes and a 10% penalty on earnings.
Ideal candidate: Parents, grandparents, or guardians who want to plan ahead for a child’s education expenses, or individuals planning to further their own education.
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