Types of Accounts

Congrats!
Either you just started a new job, or want to learn more about retirement account options at your current job. Below you will find the differences between account types and when it makes the most sense to use which one.
Disclaimer: We are not financial advisors. This is only used to inform and educate.

401(k) or 403(b)

Only available if sponsored by your employer. 403b is for non-profit corporations, while for-profit will utilize a 401k. For any discussions, we will assume a 401k since they are more common, but both will have similar structures. They are commonly available as a Roth or Traditional depending on the tax advantage that you are seeking. Often times employers will match up to a certain percentage of what you contribute. Make sure to research your specific plan in case of any nuances as specifics can differ slightly from plan to plan. 

Drawbacks:

• Can only contribute $20,500/year (check here for limit placed by IRS)

• Cannot withdraw until after age 59 ½ (otherwise penalty)

• Limited by Employer investment options

Benefits:

• Tax Deferment (Traditional) or Tax-Free Growth (Roth)

• Employer Match (Free Money)

Roth IRA

Can be set up by an individual if they have taxable income for that year. You contribute after-tax dollars (Pay income tax for it that year). The benefit of the Roth option is you do not pay any taxes when you withdraw the money as long as you pull it out after you are 59.5 years old and it had been started at least 5 years prior. If taken out prior to the age limit, and not used for a qualified distribution (ie. House down payment), it is suspectable to a 10% penalty. Please check the current regulations to minimize or avoid penalties if withdrawing.

Drawbacks:

• Can’t withdraw until after age 59 ½ unless a qualifying event

• Can only contribute $6,000/year (Current Limits)

• Income Limits to Contribute (Single < $129,000)

Benefits:

• Tax-Free Growth

• Self-Managed/Not Employer Dependent 

Traditional IRA

Can be set up by an individual if they have taxable income for that year. Any contributions are Pre-tax (lowers taxable income for that year). By deferring these taxes, it is beneficial if you are in a higher tax bracket than when you would be retiring. Gains are still taxed with a traditional IRA, which is one of the main reasons that a Roth is preferred by many.

Drawbacks:

• Can’t withdraw until after age 59 ½ unless a qualifying event

• Can only contribute $6,000/year 

Benefits:

• Deferred Taxes

• Self-Managed/Not Employer Dependent

HYSA

A High Yield Savings Account (HYSA) is an alternative savings account that provides a higher interest rate than a traditional savings account. While normal savings accounts provide 0.05% interest (or a fifth of a percent), HYSA will normally range from 1-3% depending on market rates. The only disadvantage with an HYSA, is that it may require 2-3 days to transfer money back into a checking account. Marcus is one of the more notable accounts currently offering 1.7% APY 

Drawbacks:

• It may take a few days to transfer money

Benefits:

• Earns higher interest rates than a traditional savings account