The benefits of investing in tax-deferred accounts
One option for working toward long-term financial security in retirement is investing in an employer-sponsored retirement plan such as a 401(k), 403(b), or 457 plan, if offered by your employer
These tax-advantaged plans allow you to make pre-tax contributions. For example, let’s assume that you make $2,000 a month and contribute $200 to your employer-sponsored retirement plan. That pre-tax contribution would reduce your taxes from $500 to $450. Additionally, taxes aren't owed on any earnings until they're withdrawn at retirement, when you may be in a lower tax bracket.
If a 401(k) or similar plan isn't available at your workplace, consider a traditional IRA. Generally, contributions to and income earned on traditional IRAs are tax-deferred until retirement. Note that certain eligibility requirements apply and nonqualified taxable withdrawals made before age 59½ are subject to a 10% penalty.
If you fund a traditional IRA and don’t have access to an employer-sponsored retirement plan, you may be able to deduct all or part of your contribution on your taxes and also may be eligible for a tax credit. If you fund an IRA and also have access to an employer-sponsored retirement plan, you also may be able to deduct all or part of your contribution on your taxes, depending on how much you contributed to your employer plan.
Saving and investing basics
Please consider the charges, risks, expenses and investment objectives carefully before purchasing a mutual fund or exchange-traded fund. For a prospectus containing this and other information, please contact a financial professional. Read it carefully before you invest or send money.