Dedicated retirement accounts are a great savings tool for many Americans. But should they be your only tool? As much as these are designed to boost your income after leaving work, they aren't the right solution for every situation. To help you decide if you should save for retirement outside of traditional accounts, here are a few indicators it could be the right move.
1. You're Maxing Contributions
Most retirement accounts come with maximum annual contribution limits. For example, someone under 50 may only contribute $6,500 to all IRA accounts in 2023. Have you hit the maximum limit on any of your accounts? If so, don't let this prevent you from continuing to save if possible. Instead, shift extra funds to an investment account without such limitations.
2. You Want to Retire Early
Do you want to retire early? Whether it's just a few years or a stretch goal like retiring in your 40s, you'll need to access retirement funds. But most retirement accounts also penalize early withdrawals. The best way to avoid additional taxes and fees is to fund those earlier years with taxable investments. Let your traditional accounts grow longer and gain their full tax benefits.
3. You've Raided Retirement Accounts
Taking out money from tax-advantaged retirement accounts is usually a bad idea. Not only will you pay high taxes and penalties, but that money doesn't have time to grow before you need it. So if you've withdrawn — or even taken a loan from your account — you probably need a less costly resource to draw from. Invest outside that account to provide the same safety net without the downsides.
4. You Want More Flexibility
Not everyone's plans are set in stone. Perhaps you're considering trying to retire early but aren't sure if it's the right path. Maybe you want to push back retirement and travel first. Or your child's college plans may not require as much as expected. Shoveling money into a locked retirement account robs you of the flexibility to change your mind. Non-earmarked accounts mean you can save now and decide later.
Where Should You Start?
Do you fall into any of these categories? If so, it's time to learn more about financial investments beyond the traditional retirement account. Consult with a financial investment consultation service in your state today to find out how they can help you choose the right investment vehicles, funds, and schedules to create the retirement you deserve.
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