When it comes to growing your retirement savings, you may be wondering: What types of investment accounts should I use? And where should I locate them in order to utilize tax savings as much as possible? The real estate mantra “location, location, location” applies to retirement savings as well. Whether you’re a self-employed real estate appraiser or you work for a large company, here are some basic tips and guidelines on how to maximize your retirement savings.
Use tax-advantaged accounts
Perhaps the best way to save for retirement is through tax-advantaged investment accounts, such as:
- 401(k)
- Roth 401(k)
- IRA
- Roth IRA
- SIMPLE IRA
- SEP IRA
They all have specific factors for consideration, so review each one carefully.
For example, traditional 401(k)s and traditional IRAs are tax-deferred. That means you don’t have to pay income taxes on the earnings now, but you will pay taxes later. So, you get a tax deduction in the current year that you put the money in. The money then grows tax-deferred. And then when you take the money out in retirement, you will pay taxes based on the tax bracket you’re in.
On the other hand, with Roth 401(k)s and Roth IRAs, the qualified withdrawals are tax-free—provided that the account holder is at least 59-and-a-half years old and has held the account for 5 years. So the Roth does not give you the tax deduction in that calendar year, but the money then grows tax-free, and it’s withdrawn tax-free as long as you meet those two criteria.
Tips to get the most out of tax-advantaged accounts
Take advantage of a 401(k) or similar plan if it’s offered to you at work. Or, if you can set up a SIMPLE IRA or a SEP IRA at your work, take advantage of that.
Try to contribute the maximum. Each retirement savings plan has different amounts that can be contributed, based on the particular type of plan.
For IRAs, different rules apply to each type, so check with your financial professional to see which one may be best for you. But…