Find the retirement account that’s right for you and start contributing

In my last column, I encouraged you to open a retirement account, even if you will be receiving a pension. A retirement account will give you additional financial security and freedom.

However, opening a retirement account can be confusing and intimidating. There are quite a few options. What type of account are you eligible for and what type should you open?

The most common and popular retirement accounts include 401 (k), IRA, 403 (b), and 457 plans. “IRA” stands for “Individual Retirement Account”. The numbers in other types of accounts refer to the section of the IRS tax code that details that particular plan.

If you start one of these accounts, you will be able to choose between the traditional plan and the “Roth” plan.

With traditional plans, you are not taxed until you withdraw money from the account. Your contributions are paid before tax. A Roth account is the opposite. You pay taxes on the amount you contribute, but then you are allowed to withdraw funds tax-free in most situations.

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Both traditional and Roth retirement accounts have their perks, but the older I get, the more I wish I had started a Roth IRA when I was younger. The main reason is that, as long as you meet certain conditions, you don’t have to pay taxes when you withdraw from a Roth IRA.

Since I can’t go back in time and open a Roth IRA when I was 25, I did the best thing a few years ago. I stopped contributing to my Traditional IRA and opened a Roth IRA. It gives me comfort to know that even if tax rates increase in the future, it will not affect my Roth IRA.

As you might expect, there are laws, regulations, loopholes, and exceptions for all of these plans.

For example, most plans have a contribution limit. According to, you can contribute $ 6,000 to an IRA or $ 19,500 to a 401 (k), 403 (b), or 457 plan in 2021.

Some plans allow you to make “catch-up contributions” if you are at least 50 years old. This means that you can contribute more than the annual limit.

Before trying to open a particular type of retirement account, make sure you qualify for the one you choose. Anyone with earned income can open an IRA.

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A 401 (k) is an employer sponsored plan. If your business doesn’t offer 401 (k), you might be out of luck. It is however possible to start a 401 (k) if you are self-employed.

If you want to open a 403 (b) plan, you will need to work for a public school, church, or some charity. To start a 457 plan, you must work for a state or local government, or certain tax-exempt organizations.

Illinois teachers will have a new retirement savings option starting in January. This voluntary plan will be called the “Complementary Savings Plan”. It will be administered by Voya Financial and is a 457 (b) style plan. Any active employee of the Illinois Teachers Retirement System can participate.

If you don’t have a lot of money to invest each month, that’s okay. Almost any amount of money will make a difference in the long run, as long as you are consistent.

What if you could only invest $ 100 per month? It can add up. According to, if your investment earns 8%, you will have $ 35,189 after 15 years. It’s not a ton of money in retirement, but remember it’s money you are saving to supplement your pension.

What if you increased your investment to $ 200 per month? Then you will have $ 70,378 in 15 years. If you went ahead and saved the maximum for an IRA ($ 500 / month), you would have $ 175,946 after 15 years.

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Think how much better you would sleep at night in retirement if you knew that in addition to your pension, you had $ 175,946 in the bank.

Creating a retirement account, even if you will be receiving a pension, is a smart way to take some more control over your finances after you retire.

If you’re not sure which plan is right for you, do some research on the Internet or speak to a financial advisor. Then open an account and start investing. Once you retire, you’ll be glad you did.

Dave Kinzer is a music teacher and financial coach in Springfield. Contact him at His column will appear here every other Wednesday.

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