Retirement is one of the largest—and longest to realize—financial goals that many will undertake, and there are many ways to save and prepare for it. Here are some of the most common retirement saving vehicles to help you start planning for your future.
What is a 401(k)?
You have likely heard of a 401(k) plan, an employer-sponsored retirement savings plan with tax advantages for the saver. Employees can opt to have a percentage of each paycheck automatically deposited into the account, before or after taxes. An employer may choose to match some or all of an employee’s contributions, and the employee can choose how they would like to invest the contributions based on pre-selected options, such as an assortment of mutual funds, exchange-traded funds (ETFs), and target date funds.
Even when leaving a job, an employee can take their 401(k) with them or roll it into another type of retirement account, so it has the potential to continue growing over time.
Contributions to a traditional tax-deferred 401(k) take place before federal income taxes are calculated, thus reducing your adjusted gross income. You can contribute to both a 401(k) and an IRA (as mentioned later in this article) at the same time, and you will have to withdraw funds from your 401(k) when you reach the required minimum distribution (RMD) age.
What is an IRA?
The Individual Retirement Account (IRA) was first introduced in the 1970s to help encourage individuals to save for retirement (and depend less on Social Security), and some 25 years later, Roth retirement accounts were created by an act of Congress to help lower the tax burden on individual investors.
An IRA is an investment account set up to allow an individual to save for retirement with the advantage of either tax-deferred or tax-free growth, depending on whether your IRA is a traditional or Roth account. An IRA can be opened as soon as you have earned income, allowing the potential for the advantage of long-term, compound growth.
There is no age limit to begin contributing, but you must have earned income in the tax year you contribute. Earned income can include a salary, wages, tips, or other taxable compensation. Spouses who do not work outside the home are also eligible to contribute to an IRA based on the income of their working spouse.
Like the 401(k), your IRA investment options are flexible, including mutual funds, ETFs, or target date funds. For more hands-on investors, individual stocks, bonds, money market funds, or treasuries are available vehicles for potential growth.
What about Roth retirement plans?
Named after the senator who drafted the Taxpayer Relief Act of 1997, William Roth’s bill aimed to provide tax benefits to investors in reverse, by putting after-tax dollars into the Roth 401(k) or Roth IRA, so that the money could later be withdrawn tax-free. Roth accounts do not have an RMD requirement, so you do not have to withdraw funds in a specific amount or at a specific time; in fact, they do not require disbursement during your lifetime at all. Roth IRAs can be used to transfer wealth, and the beneficiaries would not have to pay taxes on the distributions either (though they would be required to withdraw funds or roll it into an IRA in their own name).
Simply put, the traditional 401(k) and traditional IRA allow you to receive a tax break now, while both Roth account types allows you to receive a tax break later.
Make sure to consider how much time your money has to grow, and whether you might be in a higher or lower tax bracket upon retirement or when you will take distributions. This can help determine whether paying the taxes now and letting your money grow tax-free, or accepting a tax break for contributions now and paying the taxes upon withdrawal makes the most sense for your situation. You may want to speak to your tax professional for advice about your specific situation.
Contact a financial professional to discuss how you can make moves to retire comfortably.
This material is being provided for educational and informational purposes only. D.A. Davidson & Co. is a registered broker-dealer and registered investment adviser that does not provide tax or legal advice. Information contained herein has been obtained by sources we consider reliable but is not guaranteed and we are not soliciting any action based upon it. Any opinions expressed are based on our interpretation of the data available to us at the time of the original article. These opinions are subject to change at any time without notice. Copyright D.A. Davidson & Co., 2025. All rights reserved. Member FINRA and SIPC.