Retire in comfort.
Whether retirement is fast approaching or several years away, you’ve put in more than enough work to earn some time off. Unfortunately, many Americans end their careers without enough money set aside to live comfortably after they stop working.
Saving for retirement shouldn’t be difficult, which is why we’re proud to offer several products that can help members like you prepare for post-career life.
An individual retirement account (IRA) is a tax-advantaged savings option that allows individuals the ability to set additional money aside for future use. Much like your 401(k) retirement plan at work, or your current savings account, an IRA gives you the ability to earn more dividends on the money you put into it.
There are two types of IRAs: Traditional and Roth. Both come with their own tax advantages, and ABNB’s financial advisors can help you decide which plan is best for your present and future needs. Here are the general benefits you can look forward to with either option:
- $100 minimum deposit to open
- Competitive rates on balances of $200 or more
- No setup or maintenance fees
- $6,500 annual contribution limit (as of 2023)
- Plus, another $1,000 “catch up” for those over the age of 50
- Use IRA funds to open an IRA certificate for additional earnings
- Use your IRA funds to invest in mutual funds, stocks, and bonds as well
On the surface, retirement plans like 401(k)s and IRAs might seem similar. Money goes in, investments are made, and hopefully your account has grown considerably over time so you can retire and live comfortably. The truth of the matter is that growth isn’t guaranteed. Unlike savings accounts, certificates, and our Performance Money Market Account, investing comes with inherent risk.
Here are important differences between 401(k)s and IRAs.
|Contribution limits of $22,500 or $30,000 depending on age, as of 2023||Contribution limit of $6,500 - $7,500, depending on age, as of 2023||Contribution limit of $6,500 - $7,500, depending on age, as of 2023|
|The ability to capitalize on earnings with employer contributions and matching||Wider variety of investment opportunities (stocks, bonds, mutual funds, etc..) that aren’t limited by your employer’s third-party plan||Wider variety of investment opportunities (stocks, bonds, mutual funds, etc..) that aren’t limited by your employer’s third-party plan|
|Contributions lower your taxable income||Contributions don’t lower your taxable income, but your withdrawals are tax-free||Contributions lower your taxable income, but you pay taxes on withdrawals|
|Little to no control over plan and investment costs and fees||No setup or maintenance fees when you bank with ABNB||No setup or maintenance fees when you bank with ABNB|
Put simply: An IRA should accompany your 401(k), if your employer offers one. Combining the tax benefits of both options can benefit you now and closer to your planned retirement.
With Traditional IRA accounts, members receive state and federal tax breaks up front — meaning you pay no taxes on the money you deposit until you or your beneficiary withdraw it upon maturity (or reaching the age of 59½). Here’s what you need to know:
- No income limits
- No minimum contribution requirement
- Tax deductible contributions
- Tax-deferred earnings
- Required minimum distributions withdrawals start at the age of 73
- Early withdrawals, depending on the situation, are subject to penalties
Roth IRAs essentially make you pay now for tax-free withdrawals later in life.
Here’s the breakdown:
- Income limits may apply
- Contributions aren’t tax deductible
- Earnings are 100% tax-free at withdrawal
- Principal contributions may be withdrawn without penalty, but withdrawals on dividends are subject to penalty
- No required minimum distribution age
- Make contributions for as long as you’re earning a paycheck
The Coverdell Education Savings Account (ESA) is another savings vehicle. Normally, these accounts are used to save for future education costs, with the idea that the money would pay for qualified education expenses. This is not a retirement account, but functions similarly to a Traditional IRA because contributions are tax-deferred. Unlike a Traditional IRA, however, Coverdell contributions are not tax deductible at any level.
Here are the details:
- Contributions are not tax deductible, only tax-deferred
- Qualified education expenses can be withdrawn tax-free
- Contribute up to $2,000 per child, per year
- For qualified higher education expenses before the beneficiary hits the age of 30, withdrawals are tax-free
Note: If, for any reason, the original beneficiary chooses not to pursue higher education, the funds can be distributed to the original beneficiary but will be taxed accordingly.
*APY = Annual Percentage Yield. Dividend rate and APY accurate as of 07/17/2023. Early withdrawals may result in penalties. The amount of early withdrawal penalty on your account is 15 days dividends on the amount withdrawn for each month of the original term of the certificate. Rates subject to change without notice. Fees could reduce earnings.