Which accounts should you use for retirement?

With so many choices, it can be hard to know where to put your hard-earned money. 

Here’s a closer look at the five accounts we recommend for your retirement savings.

Employer-sponsored retirement plan—401(k), 403(b), 457(b) or Thrift Savings Plan

  • How does it work?

    Invest pre-tax Tooltip or after-tax Tooltip Roth dollars directly from your paycheck for retirement. Your employer might match contributions, up to a certain amount. If you make after-tax Roth contributions, any matching will go into a separate pre-tax account.

  • How should I use it?

    Contribute at least enough to get the full match, if your employer offers one. Increase your contributions 1%-2% each year until you reach the max.

Eligibility, contribution limit and tax information


Am I eligible?

If your company offers a plan, you’re probably eligible. But specific rules may apply. Check with your employer for more information.

How much can I contribute in 2020?

Up to $19,500.Starting the year you turn 50, you can also make a catch-up contribution of $6,500. 

How will it be taxed?

Your money grows [tooltip:tax-deferred.||Tax-deferred contributions and earnings are not usually subject to federal, state or local taxes until you withdraw them from your retirement account.]With pre-tax contributions, you’ll owe income tax on all money you withdraw. With after-tax contributions, you can withdraw money tax-free after age 59 ½, if you’ve held the account for at least five years. A 10% penalty may apply if you take money out early


Health Savings Account (HSA)

  • How does it work?

    Set aside tax-free (pre-tax) dollars for qualified medical expenses. Tooltip

    Most HSAs also let you invest your savings.

  • How should I use it?

    Use it to save for health care costs, before and during retirement.

Show eligibility, contribution limit and tax information

Am I eligible? 

If you’re enrolled in a high deductible health plan, you might be eligible. After age 65, you can’t contribute. But you can still use the money in your account.


Am I eligible? 

If you’re enrolled in a high deductible health plan, you might be eligible. After age 65, you can’t contribute. But you can still use the money in your account. 

How much can I contribute in 2020?

Up to $7,100 for families, and up to $3,550 for individuals. Starting the year you turn 55, you can also make a catch-up contribution of $1,000.

How will it be taxed? 

Your money grows tax-free. If you use it for qualified medical expenses, you won’t owe federal taxes on it when you take it out. After age 65, you can use the funds for non-medical costs without the 20% penalty—you’ll just owe ordinary income tax. 


Traditional IRA

  • How does it work?

    Invest pre-tax or after-tax dollars for retirement.

  • How should I use it?

    Consider it if you’ve maxed out your employer plan or don’t have one.

Show eligibility, contribution limit and tax information


Am I eligible? 

You must have [tooltip:earned income.||Taxable pay from employment or self-employment, including wages, salaries, tips, union strike benefits and certain disability payments. Does not include investment, retirement, Social Security, unemployment, alimony or child support income.] Starting January 1, 2020, there is no age limit on contributions. 

How much can I contribute in 2020? 

Up to $6,000 if you’re under 50, and up to $7,000 if you’re 50 or older.

How will it be taxed? 

Your money grows tax-deferred. With pre-tax contributions, you’ll owe ordinary income tax on all money you withdraw. With after-tax contributions, you’ll just owe income tax on earnings. A 10% penalty may apply, if you take money out before age 59 ½.

Contributions may be tax-deductible if your income is below a certain amount or you don’t have an employer retirement account.


Roth IRA

  • How does it work?

    Invest after-tax dollars for retirement.

  • How should I use it?

    Consider it if you’ve maxed out your employer plan or don’t have one—and expect to be in a higher tax bracket in retirement.

Show eligibility, contribution limit and tax information


Am I eligible? 

It depends on your [tooltip:modified adjusted gross income (MAGI)||Your MAGI is your adjusted gross income (AGI) with certain tax deductions and income added back in.] and tax filing status.

How much can I contribute in 2020? 

Contribution limits depend on your modified adjusted gross income (MAGI), tax filing status and age.

How will it be taxed? 

Your money grows tax-deferred. You can withdraw contributions anytime without tax or penalty. Earnings are tax-free after age 59 ½, if you’ve held the account for at least five years. A 10% penalty may apply, if you take earnings out before age 59 ½.


Brokerage

  • How does it work?

    Invest in stocks, Tooltip   ETFs, Tooltip   mutual funds, Tooltip bonds Tooltip  and other assets.

  • How should I use it?

    Consider it if you want to save more after maxing out your employer and IRA accounts, or to save for non-retirement goals.

Show eligibility, contribution limits and tax information


Am I eligible? 

You must meet the minimum required investment, if there is one.

How much can I contribute in 2020? 

You can contribute as much as you like.

How will it be taxed? 

You’ll owe short- or long-term capital gains tax on money you make from selling assets. The exact tax rate will depend on several factors, including how long you hold the investment.

Interest and dividends are also taxable.



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