Retirement & IRAs | Account Options, Benefits & Guidance | Fidelity (2024)

FAQs

What kind of IRA does Suze Orman recommend? ›

Orman explained that you should make it a priority to fund your Roth IRA to the maximum allowable amount. “I hope you will make it a goal to save up to your 2024 limit,” she wrote. “And you know that I think it's smart to save in a Roth IRA because when you retire, all your withdrawals will be 100% tax-free.”

Traditional IRA benefits include a tax break right now

Traditional IRAs offer the key advantage of tax-deferred growth, meaning you won't pay taxes on your untaxed earning or contributions until you're required to start taking minimum distributions at age 73.

The 401(k) is simply objectively better. The employer-sponsored plan allows you to add much more to your retirement savings than an IRA – $23,000 compared to $7,000 in 2024. Plus, if you're over age 50 you get a larger catch-up contribution maximum with the 401(k) – $7,500 compared to $1,000 in the IRA.

Retirement experts often recommend the Roth IRA, but it's not always the better option, depending on your financial situation. The traditional IRA is a better choice when you're older or earning more, because you can avoid income taxes at higher rates on today's income.

Treasury bills, notes, and bonds

The federal government raises money by issuing Treasury marketable securities. These securities are backed by the U.S. government, so they're as safe as it gets. They earn a fixed income rate, and rates are high right now. Some of them are earning over 5%.

By age 35, aim to save one to one-and-a-half times your current salary for retirement. By age 50, that goal is three-and-a-half to six times your salary. By age 60, your retirement savings goal may be six to 11-times your salary.

Bank IRAs are ultra-safe investments. If you open one at a Federal Deposit Insurance Corporation (FDIC)-accredited institution, the funds you save in an IRA savings account or IRA CD receive deposit insurance up to the legal limit. Even if the bank were to fail, you wouldn't lose the funds saved in your IRA.

401(k) withdrawals after age 59½

Once you reach 59½, you can take distributions from your 401(k) plan without being subject to the 10% penalty. However, that doesn't mean there are no consequences. All withdrawals from your 401(k), even those taken after age 59½, are subject to ordinary income taxes.

Can I contribute full $6,000 to IRA if I have a 401k? ›

If you participate in an employer's retirement plan, such as a 401(k), and your adjusted gross income (AGI) is equal to or less than the number in the first column for your tax filing status, you are able to make and deduct a traditional IRA contribution up to the maximum of $7,000, or $8,000 if you're 50 or older, in ...

Market fluctuations and early withdrawal penalties can cause a Roth IRA to lose money. Investing late or contributing too much can also result in potential losses. Diversification and considering time horizon can help mitigate risks in a Roth IRA.

Consider a Roth IRA

In general, if you think you'll be in a higher tax bracket when you retire, a Roth IRA may be the better choice. You'll pay taxes now, at a lower rate, and withdraw funds tax-free in retirement when you're in a higher tax bracket.

There are tax benefits, and your money has a chance to grow. Every little bit helps. If your employer doesn't offer a retirement plan—or you're self-employed—an IRA may make sense. And if you have a 401(k), an IRA can help you build your nest egg faster.

In addition to the risk of fraud, self-directed IRAs can also come with high fees. These fees can be associated with the alternative assets themselves or with the custodians who hold the assets. Investors should carefully review all fees associated with a self-directed IRA before deciding to invest.

Fidelity is the best all-around full-service broker thanks to its combination of IRA account types, investment offerings, research, and customer support. For investors who need help with their IRAs, Charles Schwab is the best IRA for beginners, and Merrill Edge provides the most access to human advisors.

The bottom line

If you expect tax rates in the future will rise, either because your wealth and income will be higher when you retire or a change in tax law, consider Roth accounts. Also, be sure to talk with your CPA or tax professional about whether a traditional or a Roth IRA—or both—makes sense for you.

If you think your tax rate will be lower when you begin taking withdrawals in retirement, traditional contributions may make sense. If your tax rate will be about the same (or higher), Roth contributions might be preferable.