Employer Sponsored versus Non-employer Sponsored Retirement

With any luck, your employer will offer an employer sponsored retirement account. This account may be a traditional or Roth 401k or 403b. If you are given the option, pick Roth.

Benefit:  

• TRADITIONAL = “Tax deferred” contributions. You make before-tax contributions and lower your income tax bill in the contribution year. This is “tax-deferred” because you pay taxes on that money when you withdraw the money from the account in retirement. 
• ROTH = Pay taxes on the income before depositing it in the ROTH 401K. (NOT tax deferred) Never pay income tax on appreciation.  
• Maximum 401(k) $23,500 per year in 2025,
• Maximum of employer and employee contribution of $70,000. (2025)
• DOES THE EMPLOYER "MATCH?" Some employers match what you contribute into your retirement account.  They may match up to a percent or up to a dollar amount. THIS IS FREE MONEY!   Always contribute  the dollar amount needed to receive the most free money possible!  In other words, maximize your match.
• How long is the vesting period? You must stay employed until the end of your vesting period to be eligible to take the employer contribution with you in the event of changing jobs. However, your contribution is your money and you can take it with you when you switch jobs, regardless of the vesting period.  (Use a qualified rollover!)

PICK ROTH

INDIVIDUAL RETIREMENT ACCOUNTS (IRA’S) 

TRADITIONAL IRA 

• Tax deferred contributions 
• Pay taxes on the income before depositing it in the ROTH IRA. 
• 2025 maximum contribution $7,000 
• If over 50, “catch-up” limit of $1,000 ROTH IRA 

ROTH IRA

• Pay taxes on the income before depositing it in the ROTH IRA. (NOT tax deferred)
• Never pay income tax on appreciation
• More flexible withdrawals 
• Single person phase-out between $150,000 and $165,000 for singles and heads of household. In other words, if you make more than $150,000 (and you file as a single taxpayer) there may be limits on the amount you can contribute to your Roth IRA.  

Remember to ...

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