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retirement planning May 01, 2018


You have options!  As we discussed in the Retirement 101 article, there are many different retirement accounts to choose from when you are planning for the future.  You also probably noticed that I said "available in traditional and roth".  Our next step is to define what those are.  Let's explore the similarities and differences.

First, let's cover what's the same between a Roth and a Traditional retirement account.

  1. Contribution Limits - Both types of accounts have the same contribution limit.  If you are younger than age 50, that amount is $18,500.  If you are older than age 50 before the end of the calendar year, you are eligible for "catch-up" contributions. This means you can put in up to $6,000 more for a grand total of $24,500 per year.  Keep in mind that your contribution limit is across all accounts so if you have more than one account active make sure that you are not putting in over those limits.  Otherwise, Uncle Sam will penalize you!  If your employer matches contributions, those employer-made contributions do not count against your limit!
  2. Employer Matches are Pre-Tax - Speaking of matches... all employer contributions go into a traditional account.  Yes, even if you are contributing to a Roth!  Businesses also get incentives for contributing to your plan but only if they contribute pre-tax funds.
  3. Tax Advantaged - Both options have tax benefits although they differ slightly (more on that later)

There are a few key differences between the two options.

*Roth contributions (but not earnings) can be withdrawn penalty and tax free at any time before age 59 1/2 if your account is older than 5 years.

Now that you know the similarities and differences between Roth/Traditional accounts and the variety of retirement accounts that are available, you should be able to make an informed decision.  We will continue this retirement talk as there are still plenty of topics left to cover!

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