Saving for retirement is essential. Without personal savings, you might struggle to cover your expenses later in life.
This especially holds true in light of potential Social Security cuts. If benefits are slashed, which is a distinct possibility in a little more than a decade from now, you might become even more reliant on your personal savings.
Thankfully, there are a number of retirement plans you can turn to for the purpose of building wealth for your senior years. Here are three that offer a world of benefits.
1. Roth IRAs
As of now, Roth IRAs are the only tax-advantaged retirement plan to not impose required minimum distributions (RMDs). Those force you to spend down your plan balance in your lifetime rather than have more freedom with the money you’ve worked hard to save.
But just as importantly, Roth IRAs give you the benefit of tax-free withdrawals during retirement. And that means you don’t have to stress out about owing the IRS a portion of your senior income.
2. Traditional 401(k) plans
Generally speaking, 401(k) plans offer far fewer investment options than IRAs. That said, one advantage 401(k)s have over IRAs is that they come with much higher contribution limits.
This year, you can put up to $22,500 into a 401(k) if you’re under age 50, or up to $30,000 if you’re 50 or older. IRAs max out at $6,500 and $7,500, respectively.
Meanwhile, let’s say you’re in a pretty high tax bracket and are looking to reduce your IRS burden. Funding a traditional 401(k) could allow you to shield a huge chunk of your income from taxes in the near term.
Plus, many companies that sponsor 401(k) plans also match worker contributions to some degree. And those matches don’t count toward the aforementioned limits. That gives you a lot of opportunity to sock away funds for the future.
You may not regard health savings accounts, or HSAs, as a retirement plan. But they can easily function as one.
The purpose of an HSA is to allocate funds for healthcare spending. But chances are, healthcare will be one of your greatest expenses during retirement. So having money set aside for that purpose is important.
Plus, once you turn 65, you can withdraw money from an HSA for any purpose without facing financial penalties. So if your healthcare needs end up being minimal, you won’t risk wasting that money — you can effectively turn your HSA into a traditional IRA or 401(k) by taking withdrawals and paying taxes on them.
Of course, if you take an HSA withdrawal for medical purposes, it won’t be taxed. And contributions and investment gains in an HSA are tax-free as well. No other plan can claim to offer three distinct forms of tax savings.
Building wealth for retirement is an extremely important thing. Without it, you might struggle financially later in life. And so it pays to do what you can to set yourself up for the future by taking advantage of these terrific savings opportunities.