Retirement Plan FAQs
We get a lot of questions about investments, especially retirement plans. While everyone has different needs and goals, here are a few common questions we receive, and some basics to consider.
When should I start investing?
Every person is different, but the general guideline is to start when you have the means to do so. Some people start with their employer’s 401(k) or 403(b) plan, especially if they offer a match on contributions. If your employer doesn’t offer this, you may want to consider investing in individual IRAs. If you’re planning on investing in stock, be mindful that all investments involve a level of risk. Consider leaving some savings uninvested in case of an unexpected illness or unemployment.
What’s better: a 401(k) or an IRA?
There are advantages and disadvantages to both. While a 401(k) offers higher maximum contribution levels, you can only invest in one if your employer offers it. In 2023, The maximum deferral of a 401(k) plan is $22,500 annually, while an IRA basic limit is $6,500 annually, or $7,500 if you’re over 50. 401(k) plans also offer catch-up contributions for participants 50 and older. For traditional and safe harbor 401(k) plans, the 2022 catch-up limit is $7,500.
If you’re lucky enough to have a 401(k) offered at work, that doesn’t necessarily preclude you from also investing in an IRA. Depending on your needs, you may also want to consider a Roth IRA, where qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings before age 59½, or before the account is open for five years, whichever is later, may result in a 10% IRS penalty tax.
When can I start withdrawing from a retirement account without penalty?
With a 401(k), you can start to withdraw without penalty at 59½, but if you’re still working, your employer may not allow you to withdraw funds. You’ll also owe federal and state taxes. Any withdrawals before 59½ are subject to a 10% tax unless you qualify for an exception. You’re required to start minimum distributions at 73.
With a traditional IRA, you can also start withdrawing at 59½, though you’ll owe federal and state taxes. If you withdraw before 59½, you may be subject to an additional 10% tax.
Can I take an early withdrawal from my retirement account without penalty?
There are many qualifying reasons for early withdrawal from both traditional IRA and 401(k) plans, but remember that although you won’t pay a penalty, you will have to pay tax on any funds withdrawn, unless an exception applies. Some qualifying reasons include:
- Higher education for you, your child, or your spouse
- A first-time home purchase (up to $10,000)
- Medical expenses or insurance costs if your unreimbursed medical expense is more than 10% of your adjusted gross income
You can view the full list of exceptions on the IRS website.
How do I choose a financial professional?
It’s important that you feel comfortable with the financial professional you’re working with. If you’re not sure where to look, ask friends and colleagues for recommendations.
At Glownia Financial Group, we offer a complimentary initial consultation to help you see the value we can provide. This initial meeting also helps us all determine if we're a good fit for each other.
Please give us a call or schedule a meeting below if you’d like to learn more about what we can do for you!
This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor.