Make saving for retirement a priority and beef up your investments.

You’ll want to start by making the largest possible contributions to your employer’s retirement plan. At the very least, you should put enough into your company’s retirement plan to take full advantage of its contribution matching program.

A word of caution—if you put all your retirement savings into tax-deferred accounts, you might get hit hard by taxes when you retire. That’s because withdrawals from 401 (k) plans and traditional IRAs are taxed at the retiree’s ordinary income tax rate. This makes contributing to a Roth IRA a good idea. Your contributions are after-tax, but your withdrawals are tax-free as long as you are over 59½ and have owned the Roth IRA for five years or more.

It is important to note that employees in lower tax brackets are typically better off diverting some of their savings to Roth IRAs and other taxable accounts because the benefit of tax deferral is not as valuable as it is to those in high tax brackets. Conversely, if you are in a high tax bracket, you should contribute as much as possible to tax-deferred accounts. This is because when you take withdrawals in retirement you will likely be in a lower tax bracket.

A deeper look at a Roth IRA versus a Traditional IRA: Which investments choice is right for you?

Deciding whether to choose a Roth IRA or a Traditional IRA is an important decision and can have major financial consequences. Both options, however, are excellent ways to save for retirement. Let’s look at some of the biggest differences between the two.

Roth IRA

Your contributions are not tax deductible.
There is no mandatory distribution age.
Earnings and principal are tax free if you follow all rules and regulations.
Not everyone can open a Roth IRA. Individuals with modified adjusted gross incomes above $153,000 are not eligible. The figure for married couples filing jointly is $228,000. (figures are for the 2023 year)
Principal contributions can be withdrawn any time without penalty (certain conditions do apply)

Traditional IRA

Depending on your level of income, your contributions may be tax deductible
You can make withdrawals without penalty beginning at age 59 1/2. Deductions are mandatory when you reach the age of 70 1/2
When you make withdrawals from the IRA, taxes must be paid on earnings
There are no income restrictions on opening an IRA, anyone can do so
Funds withdrawn before age 59 1/2, including principal contributions, are subject to a 10 percent penalty (although there are exceptions to this rule)

For many individuals and couples, the Roth IRA is the better choice, thanks to its tax-free distributions and greater flexibility. As noted above, however, not everyone is eligible to open a Roth IRA. And of course, every person’s situation is unique. We recommend speaking with a Financial Advisor before making a decision.