Once you choose to start investing for retirement, the number of account type options can feel overwhelming. Reading through the names of the different categories can feel like it’s alphabet soup!
One quick disclaimer — this article is an overview for general information and entertainment purposes only. I’m going to discuss a lot of variables, options, and factors. Talk to a tax professional for personalized advice before selecting a retirement account type. Rules and regulations for each account type are subject to change on a yearly basis.
Savings accounts are reliable. There’s virtually no risk that you’ll lose the money you deposit since qualifying US savings accounts are insured by the FDIC up to $250,000.
Defined contribution plans are basically the reverse of a traditional pension plan. Instead of receiving a fixed income from the investments like a pension offers (a “defined benefit”), you receive a variable return on your investment based on what you put into the plan (a “defined contribution”).
Most of these tax-deferred employer-sponsored plans have Roth options available — named for a former US senator who proposed the Roth IRA.