Ideally, you should begin saving for retirement as soon as you accept your first job. Most employers offer a retirement savings plan such as a 401(k), but if you’re just starting your career and haven't found a job that offers this type of benefits package yet, or you simply wish to ensure that you have enough savings for when you retire, you may need additional funds to enjoy a comfortable retirement. For this reason, many people use IRAs as part of their retirement savings plan. Learn more about and the differences between IRAs and 401(k)s in the article below.
An IRA is designed specifically for retirement savings. Unlike stock market investments or other savings accounts, when you open an IRA you may enjoy tax-free growth on your earnings. There are two basic types of IRAs, each with their own unique benefits. Learn more about them below:
A Traditional IRA lets you save money on a tax-deferred basis. This means the money in your account can grow tax free until you reach retirement age. As long as you are earning money and are younger than 70 ½ years old, you can open a Traditional IRA.
If you open a Roth IRA account, contributions are made after taxes, so you can't deduct them or receive immediate tax savings. One benefit of Roth IRAs is that unlike Traditional IRAs, Roth IRAs don't have an age cap of 70 ½ for contributions, nor do they have disbursement requirements.
A 401(k) is a retirement savings plan sponsored by your employer in which the company matches your contributions up to a certain percentage of your salary. For example, your company may match any contributions you make up to five percent of your salary; to make the most of this savings program, you should at least contribute the maximum amount matched annually. Speak to your HR department to find out more about the 401(k) program offered by your company.
Participating in your employer's 401(k) plan is an excellent way to start saving for retirement. However, remember saving for retirement isn’t a matter of IRA vs. 401(k) – opening an IRA can help you save even more and may confer a number of additional benefits. The chart below can help you compare the advantages of 401(k) plans, Traditional IRAs and Roth IRAs so you can learn how each benefits you.
|Traditional IRA||Roth IRA||401(k)|
|Sponsored by employer||X|
|Contributions matched by employer||X|
|Contributions eligible for tax deductions||X||X|
|Money taxed upon withdrawal||X||X|
|Annual max contribution*||$5,500||$5,500||$18,000|
|Annual max contributions after age 50*||$6,500||$6,500||$24,000|
|Available outside of employer sponsorship||X||X|
If you would like advice on developing a retirement savings plan or need more information about IRAs, speak with a customer service representative at Citizens Bank. We offer a range of retirement savings options, including Traditional and Roth IRAs, to help you build a nest egg for the years ahead. When you’re ready to open an IRA account, stop by your local branch or call us to get started.
*Subject to change based on IRS rules. Amounts accurate as of October 1, 2015.