Retirement Accounts

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What is a Traditional IRA?

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A Traditional IRA (Individual Retirement Account) is a retirement savings account that allows individuals to contribute pre-tax income, which can grow tax-deferred until withdrawal during retirement.

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What is a Roth IRA?

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A Roth IRA is a retirement savings account that allows individuals to contribute after-tax income, meaning contributions are taxed upfront, but withdrawals during retirement are tax-free.

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What is the tax implication of withdrawing from a Traditional IRA before retirement?

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Withdrawals from a Traditional IRA before age 59½ may incur a 10% early withdrawal penalty, in addition to regular income tax on the amount withdrawn.

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What is the contribution limit for IRAs in 2023?

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The contribution limit for IRAs in 2023 is $6,500, or $7,500 if you are age 50 or older.

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What is a 401(k) plan?

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A 401(k) plan is a tax-advantaged retirement savings plan offered by employers that allows employees to save a portion of their paycheck before taxes are taken out.

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What does it mean for an employer to 'match' contributions in a 401(k)?

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Employer matching means that an employer contributes additional funds to an employee's 401(k) account, typically matching a percentage of the employee's contributions up to a certain limit.

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What is the difference between pre-tax and post-tax contributions?

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Pre-tax contributions are made before income tax is deducted, reducing taxable income in the year of contribution. Post-tax contributions are made after income tax is deducted, allowing for tax-free withdrawals in retirement.

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What is a penalty for early withdrawal from a 401(k)?

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The penalty for early withdrawal from a 401(k) before age 59½ is typically 10%, in addition to regular income tax on the amount withdrawn.

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What is a 457(b) plan?

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A 457(b) plan is a type of non-qualified, tax-advantaged deferred compensation retirement plan offered by state and local governments and some non-profit organizations.

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What are the tax benefits of a Roth IRA?

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The main tax benefit of a Roth IRA is that qualified withdrawals are tax-free, meaning you do not pay taxes on earnings or contributions when you withdraw them in retirement.