IRAs are investment vehicles with particular tax advantages that can help you save for retirement.
Provided you meet the eligibility requirements, a traditional IRA offers the immediate benefit of tax-deferred contributions. It also provides the long-term benefit of a tax deferral on earnings. This means you pay no taxes on your investment earnings until you begin making withdrawals, which is usually after you retire and are in a lower tax bracket.
Contributions to a Roth IRA are not tax deductible, but if you meet certain requirements all earnings are tax-free when you, or a beneficiary, withdraw them.
SEP (Simplified Employee Pension) and SIMPLE (Savings Incentive Match Plan for Employees) plans offer tax advantages that help small business owners, their employees, and self-employed individuals save and invest for retirement.
Annuities offer two distinct retirement-planning benefits: They can provide a guaranteed stream of income 1 and don’t require you to pay taxes on earnings until you begin withdrawals in retirement (withdrawals made prior to age 59 1/2 may be subject to a tax penalty).
That depends… on a lot of factors. Like how long you plan to work, what you want to do when you retire and how long you’re going to live! Obviously, it’s not possible to provide specific answers to all of these questions, so use this simple rule as a point of reference. Most Financial Advisors suggest withdrawing no more than 4% of your principal every year in retirement in order to avoid outliving your money. That means that every $100,000 you save can be expected to provide about $4,000 per year in income. So if you anticipate needing $40,000 per year above and beyond sources like military retirement income or Social Security, you’re going to need a nest egg of approximately $1 million.
Only if retirement is your only goal, since you cannot access the money in your TSP without a tax penalty until you are 59 ½ years old. The TSP is an outstanding, low-cost resource for retirement investing and you should, at minimum, invest the 5% of your paycheck necessary to earn the maximum matching contribution. But if you have goals like buying a house or sending your children to college, other investments may be more appropriate.
It depends on a variety of circumstances. Part of the difficulty in choosing which contribution method is best for you—and whether it’s better to part with tax dollars today or defer them until a later time—arises from the unknown future of income tax rates, both from a policy level and the individual rate that will apply to your situation.
Here are some broad considerations that may help you decide which type of TSP or 401(k) contributions are best for you:
Since military retirement pay stops after the death of the retiree, electing the Survivor Benefit Plan (SBP) at retirement is the only way a service member can continue to contribute a portion of their retirement income to surviving family members. While there are both pros and cons to SBP, First Command believes enrollment is the right choice for the majority of retiring service members. It’s important to realize, however, that the SBP replaces just 55% of the base amount. In most cases, it will need to be supplemented with other sources of income, such as life insurance, investments and Social Security. A First Command Financial Advisor is well-equipped to you help sort through these factors.
1. Guarantee depends on the claims-paying ability of the issuing insurance company.