Today’s financial landscape has a wide range of retirement investment options available. While these savings and income tools can help you retire with confidence, the sheer number of options often leave many Americans with a lot of questions.

If you’ve wondered if you need a 401(k) or an IRA (or both), or what an annuity is, keep reading.

Retirement plans:

What is a retirement plan?

• Special investment plans or accounts that are designed to help you save money for retirement over the long term
• They may offer potential tax advantages over a normal savings or investment account

401(k)

A company-sponsored retirement savings plan that you receive through your employer

Who is it for?

• Employees of a company that sponsors a plan

How does it grow?

• To start, you contribute to the plan by paying a percentage of each paycheck directly into the 401(k) account
• Your contributions are then invested to take advantage of growth potential over time

Are there contribution limits?

• $22,500 per year for workers under age 50¹
• Workers age 50 or older may contribute an additional $7,500¹
• Visit gov/retirement-plans for the most up-to-date contribution limits

What are the advantages?

• Traditional 401(k) contributions are deducted from your paycheck pre-tax, meaning both your contributions and earnings grow tax-deferred, allowing your plan to grow faster over time
• Roth 401(k) contributions are deducted from your paycheck post-tax, but you pay no income tax on your investment growth when you take withdrawals after you reach age 59½ and have had your account for five years
• Employers may match a portion of your 401(k) contributions

What are the downsides?

• Traditional 401(k) withdrawals are taxable as regular income in the year you take them
• Roth 401(k) contributions are made with post-tax dollars, lowering your take-home pay more than a traditional 401(k)
• There can be a penalty for withdrawing before age 59 ½
• You have to start taking Required Minimum Distributions (RMDs) at age 73²
• Fewer investment options than an IRA

403(b)

A retirement savings plan for employees of tax-exempt organizations, like public schools, state universities, or religious organizations

Who is it for?

• Exclusively for employees of tax-exempt organizations

How does it grow?

• Like a 401(k), you contribute a percentage of each paycheck directly into the account

Contribution limits?

• $22,500 per year for workers under age 50³
• Workers over age 50 may contribute an additional $7,500 per year³
• Workers with 15 years of service may be eligible to contribute up to an additional $3,000 per year³
• Visit gov/retirement-plans for the most up-to-date contribution limits

What are the advantages?

• Contributions are deducted from your paycheck pre-tax, and grow tax-deferred
• If you work for certain employers, your contribution limits increase after 15 years of employment
• Employers may match part of your contribution

What are the downsides?

• Fewer investment options than a 401(k)
• There can be a penalty for withdrawing before age 59 ½

Individual retirement account (IRA)

A special savings account that you open with a financial institution that’s designed to help you save money for retirement

Who is it for?

• Any individual who has earned taxable income

How does it grow?

• Like a traditional savings account, you contribute money at-will
• Funds are invested by the financial institution according to your preferences

Contribution limits?

• $6,500 per year if you are under age 50⁴
• $7,500 per year if you are over age 50⁴

What are the advantages?

• Contributions may be tax-deductible and grow tax-deferred
• IRAs allow investment in a wide variety of financial products

What are the downsides?

• Withdrawals are taxed as income
• Deductibility of contributions may vary based on income, access to a qualified retirement plan, and tax filing status
• There can be a penalty for withdrawing before age 59 ½
• Starting at age 73, you are required to start withdrawing a certain amount from the account (a Required Minimum Distribution (RMD))

Roth IRA

A long-term retirement savings account where you pay taxes on the money you put in instead of the money you take out

Who is it for?

• Any individual who has earned taxable income under certain limits

How does it grow?

• Like a traditional savings account, you contribute money at-will
• Funds are invested by the financial institution according to your preferences

Contribution limits?

• $6,500 per year for workers under age 50⁴
• $7,500 per year for workers over age 50⁴
• Contribution limits are reduced if your income is above certain amounts (see disadvantages)

What are the advantages?

• Unlike a traditional IRA, withdrawals from a Roth IRA taken after you reach age 59½ and have had your account for five years (qualified distributions) are not taxed
• Similar wide range of available investments as a traditional IRA

What are the downsides?

• Contributions to a Roth IRA are not tax-deductible
• Eligibility is limited by income. For example, a single individual who earns more than $153,000 is not eligible to contribute to a Roth IRA. This limit changes based on your income tax filing status, and is adjusted semi-regularly

Annuities:

What is an annuity?

A contract between you and an insurance company where you pay a sum of money in exchange for income over a period of time, usually in retirement

Single premium immediate annuity (SPIA)

How does it work?

• You pay a lump sum upfront for immediate, guaranteed income over an agreed upon time period

Deferred income annuity (DIA)

How does it work?

• You pay a lump sum upfront for guaranteed income at a time in the future, usually during retirement

Fixed annuity

How does it work?

• You can make a lump sum contribution, or pay a premium over time with a guaranteed rate of return, then receive guaranteed income when you retire

Variable annuity

How does it work?

• A variable annuity is an annuity that works similarly to a retirement account
• You can make a lump sum contribution, or pay a premium over time with a rate of return that varies with market investments like stocks, then receive income based on your accumulated value when you retire
• Variable annuities have a potentially higher upside but also higher risk — you can lose money on a variable annuity

Index annuity

How does it work?

• You can make a lump sum contribution, or pay a premium over time with a rate of return that varies with the index performance (but never less than zero), then receive guaranteed income when you retire.
• Offers opportunity to benefit from market gains and protection from downturns.
• Shares characteristics with both fixed and variable annuities.

How do I know which investments are right for me?

The exact investments or combination of investments you need to retire with confidence depends a lot on your goals and financial circumstances. The best way to get it right is to talk to a financial professional. They can help you align your goals with the retirement strategy that can get you to them! Set up a meeting to discuss your retirement options today.

2023-152349 (Exp. 3/25)