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    How to choose the best retirement savings plan

    Use as many tax-advantaged accounts as possible, then consider other options if necessary

    I just started my career and want to save the most I can for my retirement. What are my options and how much can I save?

    We are happy to hear that saving for your retirement is a priority! Typically, the best strategy is to use as many tax-advantaged accounts as possible and then, if you need additional savings, consider other options. Tax-advantaged accounts include 401(k)s, 403(b)s, profit-sharing plans, SIMPLE IRAs, and traditional & Roth IRAs. However, unlike non-qualified investments where you are free to invest as much as you would like, retirement plan contributions are subject to specific Internal Revenue Service limitations. 

    Before we dive into specific contribution limits for tax-advantaged retirement accounts, it is important to have a good understanding of how these retirement accounts work. In any account, there are three stages to an investment: the contribution stage, the growth stage, and the distribution stage. At best, you can expect to receive favorable tax treatment in two out of these three stages. For example, with a 401(k), an investor makes tax-free contributions and the investments within the account grow tax deferred. However, when a distribution from the accounts is taken, the investor must pay income taxes on that distributed amount.

    The IRS is patient, but eventually it will want what it is owed. The opposite holds true for Roth IRAs or Roth 401(k)s. With these accounts, you pay the taxes upfront and then benefit from tax-free growth and tax-free distributions.

    Next: Guide to 2017 contribution limits

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