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These Accounts Are Your Retirement Pillars

These Accounts Are Your Retirement Pillars Fitzwilliams Financial

Throughout your life, you’ve probably built up numerous pension plans, and you’ve likely given thought to numerous retirement tactics. The key now, if you have recently retired or you are about to retire, is to start putting those pillars together to form a complete structure of what you have and find out what you may need going forward.

The 401(k)

The 401(k) is the most typical type of retirement account that is established between an employer and an employee. This account is comprised of stocks, bonds, mutual funds, and other investments that are funded with contributions from both parties. The funds in the 401(k) are not subject to taxation until they are taken from the paycheck, which can be advantageous depending on the individual’s financial circumstances.

You can withdraw your money from a 401(k) account at any time, but if you withdraw before you are age 59 ½, the withdrawal is subject to a 10% penalty tax in addition to your normal tax obligation at the time of withdrawal.[1]

The Traditional IRA

An Individual Retirement Account, or IRA, can be opened with any reputable financial institution. There are annual limits on how much you can deposit into your IRA, but you have the freedom to decide how much to contribute and when to make your payments. As with a 401(k), the contributions to a traditional IRA are tax-deferred, meaning that the taxes owed won’t be collected until you make a withdrawal from the account.[2]

The Roth 401(k)

Contributions to a Roth 401(k) are made from the employee’s payroll, just like a traditional 401(k). The major distinction between the two is that the Roth version is taxed at the time of deposit, yet no taxes are due when the funds are withdrawn during qualified retirement age.[3]

The Roth IRA

Much like a Traditional IRA, a Roth IRA is an individual account that can be opened through a financial provider. Both have yearly contribution limits and the same flexible options. However, the main distinction between the two is that contributions to a Roth IRA are taxed upon entering the account but not upon withdrawal.

The Pension

When an employer provides a pension to an employee, they commit to supplying them with a regular monthly income after they retire. The sum that the individual will get is calculated based on numerous factors, primarily their last average salary and the period of time they were employed at the organization.[4]

Conclusion

As you can tell, taxes are a major part of retirement planning, and often making the right choice for your retirement involves being savvy about which tax-advantaged retirement savings vehicles to use. If you’re looking for advice on how to manage your accounts and which accounts might be right for you, contact us for a complimentary review of your finances.

When consumer confidence hits a multi-decade low, it is completely natural for you to feel a sense of hesitation about your hard-earned savings. If you are approaching retirement, seeing prices rise while trying to figure out the right time to adjust your portfolio can feel incredibly stressful. However, this low confidence might actually be introducing a healthy dose of critical thinking into the market right now. Instead of rushing into investments out of a fear of missing out, I am seeing people take their time to analyze their moves before they act.

This deliberate pace could be a vital asset as we prepare for what might be a historic three trillion dollar wave of tech IPOs. The names hitting the market are incredibly popular, and the media hype may make you feel like you need to change your entire strategy to get a piece of the action. But we must look closely at the underlying reality: many of these massive firms are not yet profitable. The typical corporate fundamentals simply are not there yet.

Because of this, I believe you should treat these speculative assets with extreme caution, much like money you would take to Vegas. If you want to participate, you might consider limiting that exposure to no more than five percent of a well-diversified portfolio. You should never dismantle a carefully crafted, long-term retirement plan just to follow a market trend. Furthermore, you must realize that extreme trading volumes during these public launches could cause your orders to execute at vastly different prices than you originally intended. It pays to be patient and let the dust settle.

If you have questions about how these shifting market dynamics might apply to your personal retirement plan, our team is always here to help.

Key Takeaways

  • A drop in consumer confidence may encourage a healthier investment environment by forcing individuals to rely on critical thinking instead of emotion.
  • An upcoming wave of massive technology IPOs might generate significant media hype, but these companies may lack current profitability and traditional business fundamentals.
  • Investors should avoid allocating more than five percent of a diversified portfolio to highly speculative, unproven market assets.
  • Heavy trading volume during a major public offering could cause investment orders to execute differently than an investor expects.

Fitzwilliams Wealth Management, Inc. is an SEC registered investment adviser. FWM and Fitzwilliams Financial are affiliated companies. This content is for informational purposes only and should not be construed as personalized investment advice. We do not provide tax or legal advice. Investing involves risk. Media appearances are for informational purposes only and do not constitute an endorsement.
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