When people first sit down to talk about financial planning, one question comes up time and time again:
“What kind of account should I be using to save?”
Whether you’re building a nest egg, thinking about retirement, or just trying to keep your money organized, knowing the difference between non-retirement and retirement accounts can be a helpful starting point.
Let’s walk through the basics.
Non-Retirement Accounts (Also Called Taxable Accounts)
These accounts aren’t tied to retirement, which means you can generally use the money anytime. That flexibility makes them great for things like:
- Buying a home or land
- Saving for education
- Building a buffer for emergencies
- Investing without age restrictions
There are no income limits for contributing to these accounts, but keep in mind: interest, dividends, and capital gains may be taxed in the year they’re earned.
Retirement Accounts (Tax-Advantaged, But With Rules)
Retirement accounts are designed to encourage long-term saving. They come with tax-related benefits and rules about when and how you can access the money.
Here are three of the most common:
Traditional IRA
You may be able to deduct contributions to a Traditional Individual Retirement Account, depending on your income and other factors. Your investments grow tax-deferred, and withdrawals are taxed as ordinary income. Required minimum distributions (RMDs) typically begin at a certain age.
Roth IRA
Roth IRAs are funded with after-tax money, meaning contributions aren’t deductible. But if certain conditions are met, qualified withdrawals in retirement can be taken tax-free. There are no RMDs during the original account owner’s lifetime.
Employer-Sponsored Plans
These include 401(k)s, SIMPLE IRAs, and other plans offered through your workplace or business. Contributions are often made pre-tax and may reduce your taxable income. Some employers offer matching contributions, depending on plan rules. These plans generally allow higher contribution limits than IRAs and can offer automatic payroll deductions.
So… Which Account Is Right for You?
That depends on your goals, timeline, and tax situation. A combination of account types can give you more flexibility down the road.
The most important thing? Take time to understand your options and keep your plan updated as life changes.
Want to Learn More?
We recently covered this topic on our Building Rural Wealth radio show. You can listen to the episode on-demand here or catch the show each week on your local station.
This show is for educational purposes only and does not guarantee financial success or investment results. All investing involves risk, including potential loss of principal. Individual results may vary based on unique circumstances.
Dan Miller, Kaleb Robuck, Marcus Taylor, and Ashleigh Franco are investment adviser representatives of, and securities and advisory services are offered through, USA Financial Securities. Member FINRA/SIPC. A registered investment advisor located at 6020 E Fulton St., Ada, MI 49301. Milestone Financial Group is not affiliated with USA Financial Securities.
This content was generated utilizing the help of AI research and is intended for informational purposes only. Please consult a qualified professional for personalized advice.