5 Accounts That Will Help You Prepare for a Wealthy Retirement

The best way to have a comfortable retirement is to start saving and investing as early as possible. But what type of account should you use for your retirement savings?

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Many different options can help you prepare for retirement. However, not all retirement accounts will be the best fit for every person.

Keep reading to explore five different accounts that can help you prepare for a wealthy retirement. Remember, it’s up to you to choose the ones that best fit your needs, situation and goals .

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Traditional 401(k)

A 401(k) is a retirement savings plan offered by your employer that allows you to contribute money pre-tax, which can save you significantly.

Some employers will match your pre-tax 401(k) contributions up to a certain amount or percentage of your paycheck. If your employer offers a 401(k) match, you should take full advantage, as this is essentially free money offered by employers. If you aren’t sure if your company has a match, contact your employer’s HR department.

The maximum contribution to a 401(k) plan in 2024 is $23,000 for employee contributions and $69,000 for the combined employee and employer contributions.

Traditional IRA

Any worker who earns taxable income can open a traditional Individual Retirement Account (IRA). Contributions that you make to a traditional IRA are usually tax-deductible, and you can invest your IRA contributions in a variety of different assets, like mutual funds or ETFs.

Investment earnings from a traditional IRA are tax-deferred. Then, once you start making withdrawals from your traditional IRA after age 59.5, your IRA distributions are taxed as normal income.

The maximum contribution to a traditional IRA for 2024 is $7,000. People 50 or older are able to contribute up to $8,000.

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Roth IRA

A Roth IRA is another great retirement savings account option for those who qualify. Your contributions will not be tax-deductible, but you will be able to withdraw the money in retirement tax-free. Plus, you won’t be required to take minimum distributions each year.

In 2024, single taxpayers who earn $160,000 or less or “married filing jointly” taxpayers who earn less than $240,000 are eligible to contribute directly to a Roth IRA. If your income exceeds these amounts, you’ll need to invest in a traditional IRA instead. The contribution limits are the same for a Roth IRA as they are for a Traditional IRA.

“Individuals who have saved into Roths during their working years benefit from paying tax at the time of contribution and allowing those assets to grow tax-free for the rest of their lifetime,” said Marissa Beyer, a certified financial planner (CFP) as well as a senior wealth advisor and partner at Fidato Wealth .

“Plus, some people, will be in a higher tax bracket when they retire. For this group of people, saving into a Roth IRA and paying tax while working (at a lower income tax rate) will allow a bucket of money to accumulate for retirement that you can take distributions from without paying any income taxes.”

Spousal IRA

A spousal IRA is not technically a different type of retirement account. Instead, a spousal IRA is when a working spouse contributes to an IRA in the name of a non-working spouse who has no income or very little income of their own. The spousal IRA is an exception to the requirement that an individual must have earned the income to contribute to an IRA.

The working spouse’s income must equal or exceed the total IRA contributions made on behalf of both spouses to be eligible. With a spousal IRA, each IRA is set up in the name of the individual. Spousal IRAs can be Roth IRAs or traditional IRAs.

Spousal IRAs are subject to the same annual contribution limits, income limits and catch-up contribution provisions as traditional and Roth IRAs.

Non-Qualified Account

Most people use retirement-specific accounts when saving for retirement. There are advantages to using a standard non-qualified investment account as well, but it depends on your income and tax situation.

“Having a non-retirement specific account (that is earmarked for retirement) is ideal going into retirement because the money within this type of account is taxed very differently than an IRA,” said Beyer.

“Even though you pay tax annually on interest and dividends from a non-qualified account, any gains that build up in the account (assuming the investment is held for more than one year) are taxed at long-term capital gains rates, which are typically lower than a person or couples’ ordinary tax rate.”

Beyer continued, “Having a non-qualified account (as opposed to only having an IRA) allows for a person/couple to have more control their tax situation and ultimately will allow for greater spending in retirement since not all their assets will be taxed in the same way.”

The Bottom Line

These are just a few of the accounts that can help you prepare for a wealthy retirement. There are even more retirement account options out there, like 403(b)s for public school or non-profit employees, Thrift Savings Plans for federal employees, 457(b)s for state or local government employees and even options for small business owners or freelancer workers (like SIMPLE IRAs, SEP IRAs, Payroll Deduction IRAs or Solo 401(k)s.

Just remember that with all these options, the key is to find one or more that work best for your situation and regularly contribute to them.

This article originally appeared on GOBankingRates.com : 5 Accounts That Will Help You Prepare for a Wealthy Retirement