There’s no question that saving for retirement is important. But when it comes to how to save, there are a lot of different options out there. And while a 401(k) may be one of the most popular choices, it’s not necessarily the best option for everyone.
There are many ways you can save enough for retirement, and people have different perspectives on how much money they need in retirement. Nevertheless, the end goal is the same, which is to have enough money in the bank to live a comfortable life.
William Schantz Explains What is a 401(k)?
401(k) plans are one of the most popular ways for American workers to save for retirement. According to the Investment Company Institute, about 22% of U.S. households own 401(k) or similar defined contribution plans.
There are a few different types of 401(k) plans, including traditional 401(k)s, Roth 401(k)s, and SIMPLE 401(k)s.
● Traditional 401(k)s:
With a traditional 401(k), you contribute pre-tax dollars to your account. This means your contributions are not subject to income tax withholding at the time of deposit. Your money grows deferred from taxes until you withdraw once you retire, and at this point, it is taxed as ordinary income.
● Roth 401(k)s:
With a Roth 401(k), you contribute dollars to your account after taxes. This means your contributions are subject to income tax withholding at the time of deposit. However, your money grows free from tax and you can withdraw the entire amount in retirement tax-free (provided you meet the eligibility requirements).
● SIMPLE 401(k)s:
SIMPLE 401(k)s are designed for small businesses with 100 or fewer employees. They have some features that make them simpler to administer than other types of 401(k)s, but they also have some limitations. For example, employees may not be able to make catch-up contributions.
William Schantz of Mid Atlantic Financial LLC claims that there are three better ways to save for retirement than a 401(k):
1. A Roth IRA
With a Roth IRA, you will be contributing money that you’ve already paid taxes on. That means that when you decide to withdraw the money in retirement, you won’t owe any taxes on it. And since you’re not paying taxes on the money now, it has a chance to grow even more.
2. A traditional IRA
With a traditional IRA, you contribute money that you haven’t yet paid taxes on. That means that when you withdraw the money in retirement, you’ll owe taxes on it. But, the upside is that your contributions may be tax-deductible.
3. A Taxable Investment Account
If you’re looking for a way to save for retirement that doesn’t involve tax breaks, a taxable investment account is a good option. With a taxable investment account, you can invest in anything from stocks and bonds to mutual funds and ETFs. And the money you earn in your account (in the form of capital gains and dividends) is taxed at your marginal tax rate.
Final Word from William Schantz
No matter which way you choose to save for retirement, the important thing is that you start saving now. The sooner you start, the more time your money has to grow. And the more money you have saved, the more comfortable your retirement will be.
There are a number of different ways to save for retirement. If you’re not sure which option is right for you, talk to a financial advisor, like William Schantz. They can help you figure out how much to contribute and where to invest your money.