Long-Term Savings Options Explained

Saving for the future is important for the longevity of your financial future. Saving for the long-term can be exciting, but it takes discipline. Maybe it does not seem to fit into your budget right now, or you’re just not interested because you may not see the benefits for many years. However, long-term saving can offer you financial stability when you need it the most and may even have some tax advantages now.

If you’re looking at saving for retirement, college, or even a big purchase down the road, here’s a look at some long-term saving options:

Certificates of Deposit

Certificates of Deposit (CDs) are time accounts. You deposit money, and it is held in an account until a predetermined maturity date. In exchange you accrue interest at a rate based on the amount you deposit.

This type of investment has minimal risk but withdrawing early comes with a penalty.

Individual Retirement Accounts

Individual Retirement Accounts (IRAs) are a retirement saving option with tax advantages. Traditional IRAs allow you to direct pre-tax income toward investmentsa that can grow tax deferred. Individual taxpayers can contribute 100 percent of earned compensation up to a specific maximum dollar amount. Withdraws before the age of 59.5 will come with a penalty. This type of investment can be helpful for those in a higher income tax bracket because it may reduce your taxable income.

A Roth IRA is a special retirement account where you pay taxes on money going into your account, but all future withdraws are tax-free. It’s important to note that although you can withdraw monies you’ve put in without a penalty, you cannot withdraw earnings until you have reached a certain age.

Employer-Sponsored Retirement Accounts

Employers sponsor retirement accounts like a 401(k) or a 403(b). Contributions are tax deductible and offer a higher annual contribution limit as compared to IRAs. Traditional 401(k) contributions are taxed at your regular income tax when withdrawn.

The advantage of an employer sponsored retirement plan is employers can contribute funds. Plus, in some cases, you can borrow money (usually) at a much lower interest rate than traditional lending.

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