Update of "RetirementAccounts"

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Artifact ID: f618db23a0a000978102ab32c3604785409ed034d807f227946d9558234477d4
Page Name:RetirementAccounts
Date: 2021-05-19 20:05:49
Original User: zie
Parent: d68fd4f6639ccf766eabb32dc76406387415f5addae9517f862f25e6cc360067 (diff)
Next a0bf9047e165de041e32e40049a594dbb76632a0127254c5994b741645516e1c

Retirement accounts are the special tax-advantaged accounts meant for retirement that are generally always better than a taxable brokerage account, but not always.

Normally your employer just makes 1 type available to you, and you have little to no choice. Usually the choices you get are:

  1. pre-tax (traditional) or post-tax (ROTH) contributions

  2. 1 or maybe a few different vendors to choose from.

If you are self-employed or are otherwise responsible for your own retirement(for example 1099 workers), then you have more options available.

Generally speaking you can usually safely ignore most all the details and focus on pre-tax/post-tax and putting in as much as you can. The other details usually don't matter, and worst-case the details just mean you have to pay a bit more taxes, not the end of the world. The details usually only matter if you are approaching the max contribution limits(which are usually $19,500/yr in 2021).

You want pre-tax contributions if you think you will pay less taxes in retirement, and this is generally true for the vast majority of people, so pre-tax contributions are a great default.

You want post-tax contributions if you will pay the same or more taxes in retirement. This is usually only true for people with large pensions or people with LOTS of tax-advantaged account savings(over $2million USD) and will end up with huge Required Minimum Distributions(RMD's) in retirement.

Another option is to split the difference and contribute half to each if you aren't sure. Seems like a very sane choice.

That said, a ROTH-IRA is generally always available on top of whatever other retirement account you can get, and you should try to max that out if you can(2021 limit of $6k per year -- some additional ways exist to make this # effectively unlimited but are complicated and not always available, research "mega back-door roth" if you have loads of $$$'s).

This article does a pretty good job of explaining the many varieties, if your employer gives you more than 1 option or are self-employed somehow.