Jul 15, 2024
Many Americans simply haven’t been saving enough for a comfortable retirement. Social Security alone likely won’t cut it and you can count yourself lucky if your employer provides a pension plan.
These days, achieving a secure retirement requires some planning, plenty of patience and contributing to the right investment accounts over time.
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With that in mind, here are five critical investment accounts to consider when you’re ready to get serious about saving for your retirement.
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401(k) plans
A 401(k) plan is one of the most popular and effective retirement savings vehicles available because they’re offered as an employee benefit at many companies. You contribute pre-tax income, which can grow tax-deferred until you withdraw it in retirement. Some employers will even match a portion of your contributions, effectively providing free money to boost your retirement savings.
For 2024, the 401(k) contribution limit is $23,000, with an additional $7,500 catch-up contribution allowed for those aged 50 and older. To take full advantage of this benefit, employees can maximize their contributions to at least the amount their employer matches. You can benefit further by choosing a diversified mix of investments within your 401(k) plan to balance risk and growth potential.
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Individual Retirement Accounts (IRAs)
IRAs are another essential tool for retirement savings. They offer tax advantages to encourage long-term investing. There are two main types of IRAs: traditional IRAs and Roth IRAs.
In a traditional IRA, contributions may be tax-deductible and the investments grow tax-deferred until retirement, at which point withdrawals are taxed as ordinary income. Contributions to Roth IRAs are made with after-tax dollars, but withdrawals in retirement are tax-free, provided certain conditions are met.
For 2024, the contribution limit is $7,000, with an additional $1,000 catch-up contribution for those aged 50 and older. Roth IRAs have income limits for contributions, so check if you qualify based on your income level. You might consider saving in a Roth IRA if you expect to be in a higher retirement tax bracket or prefer tax-free withdrawals.
Health Savings Accounts (HSAs)
HSAs offer a triple tax advantage: contributions are tax-deductible, the money grows tax-free and withdrawals for qualified medical expenses are tax-free. While primarily designed to assist with health-care costs, HSAs can be a powerful retirement savings tool if used strategically.
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You must be enrolled in a high-deductible health plan to contribute to an HSA. For 2024, the contribution limit is $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up contribution for those aged 55 and older.
After age 65, HSA withdrawals for non-medical expenses are taxed as ordinary income, similar to a traditional IRA.
Taxable brokerage accounts
Unlike retirement-specific accounts, taxable brokerage accounts offer no tax advantages on contributions or withdrawals. However, they allow you to access a wide range of investment options, making them a valuable component of a well-rounded retirement strategy.
Taxable accounts don’t have any contribution limits, withdrawal restrictions, or required minimum distributions, giving you full control over your investments. However, there are still tax-efficient strategies you can use to get the most out of these accounts, such as holding investments for longer than a year to avoid short-term capital gains tax rates.
529 plans
While primarily designed for education savings, 529 plans can also play a role in retirement planning. These plans offer tax-free growth and withdrawals for qualified education expenses, which can reduce the need to tap into other savings accounts to pay for a child’s education. If your child doesn’t use the funds for education, you can change the beneficiary to another family member or use the funds for your own educational pursuits. And starting in 2024, if the fund is at least 15 years old, up to $35,000 can be rolled over into a Roth IRA in the beneficiary’s name without penalty.
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Chris Clark is a Kansas City–based freelance journalist covering personal finance, housing and retirement. A former Associated Press editor and reporter, he writes plainspoken stories that help readers make smarter financial decisions.
