Summertime in Chicago is full of all types of fun, such as Lollapalooza and visiting the famous Bean, so young people are likely not focused on saving and investing for their futures. It’s tough to make saving a priority. This is true even for adults in the working world. My dad, Jose Raul Mendieta, says, “I have not really looked into different retirement accounts.” But the simple truth is that the sooner you start saving and investing, the more money you will likely have in your golden years. Sean, who goes by "The Money Wizard” online, states that "... if you save and invest $30 a day, earning a 7% rate of return, you can be a millionaire in 30 years” (The Money Wizard, 2018).
The many different types of retirement plans might seem overwhelming so let’s break down a few options that can help you in the long run. A retirement saving option with tax benefits that most jobs have is a 401(k). These accounts are very popular because you can have your employer automatically deposit money into your retirement account tax-free. One of the benefits is that instead of getting taxed on your earnings, you can deposit your money directly into a 401(k) account pre-tax (you will pay taxes when you pull out the money).
In addition, some employers offer a match for retirement program contributions. According to an IRS example, “a 401(k) plan might provide that the employer will contribute 50 cents for each dollar that participating employees choose to defer under the plan”(IRS, 2021). All plans may be different so check with your employer.
Another popular retirement account is called a Roth IRA. In this type of account, the money you allocate has already been taxed. The tax benefit of a Roth IRA is that when you're older and want to withdraw your profit after you turn 59.5 years old, your money can be withdrawn tax-free. According to Cristian Flores, Wintrust Credit Analyst, “Both accounts are pretty beneficial because they can be used in different ways.” Depending on specific situations, you could benefit more from the Roth IRA and/or the 401(k). Overall, don’t forget to consider programs with tax benefits.
Many different types of retirement accounts have different types of benefits and it is important for you to do your research! If your employer does not offer a retirement savings program, there are other options in IL such as Secure Choice. Learn more via their website at https://www.ilsecurechoice.com/.