Consumers and small business owners are fortunate to have a variety of retirement savings opportunities available to them from IRAs and SEPs to 401(k)s and 403(b)s that can be used to save for retirement and save on some taxes.
These options are especially important now that traditional pensions and other employer-funded retirement plans have become increasingly rare. One big challenge, though, is determining which retirement savings vehicles may be right for you.
While the FDIC can’t advise you on where to put your money, they can help you understand the basic characteristics of different types of retirement options available from banks and other institutions so that you, perhaps in consultation with a financial or tax advisor, can make the right choices.
- Tax-deferred retirement plans, which include traditional Individual Retirement Accounts (IRAs) and employer-sponsored 401(k)s, allow you to reduce your taxable income by the amount of the deposits or investments made each year. Tax-deferred retirement accounts may be best suited for people who anticipate their income tax rate will be lower after retirement than before retirement.
- After-tax retirement plans, which include Roth IRAs and employer-sponsored Roth 401(k)s, enable a consumer to make contributions using after-tax dollars. This means the consumer has already paid income taxes on the funds that will be used for the deposits or investments.