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Retirement Account

What is a retirement account?

A retirement account is a financial account that lets individuals invest in a variety of investments to reach a preferred retirement savings goal.

There are multiple retirement accounts available to investors. Each has its own benefits and drawbacks, depending on an investor’s circumstances. Those who have access to a 401(k) can contribute pretax income to this retirement account. Some organizations offer an employee match, where companies contribute money to an employee’s 401(k). As of 2021, employees can put in $19,500 into their 401(k)s each year.

For investors who’ve reached their contribution limits for 401(k)s, they should consider putting money into a traditional IRA. This account lets investors put pretax dollars into a retirement account, where withdrawals are allowed once the investor turns 59 ½. Taxes are incurred on IRA withdrawals. Investors who expect to be in a higher tax bracket by the time they retire should consider a Roth IRA, which allows them to pay taxes on contributions, in their current tax bracket, and make tax-free withdrawals after 59 ½.