SPRINGFIELD, Mass. (WWLP)– Angela Phillips from Feeding Hills advised her children to save the same way her mom did her. “It’s important to save every chance you get. My mother always told me if you get 10 dollars put 5 away. You know retirement is coming and there might not be social security,” Phillips told 22News.
But your savings options can often get confusing.
One option you have is to use an IRA plan— either a traditional one or a Roth. The difference? Traditional IRA’s must be taken out by age 70 at which point you’ll have to pay taxes on that money.
A Roth IRA is tax-free as long as you keep it for five years and leave it alone until you’re 59 1/2 years old.
401K plans are employment based savings plans that employers often pay a certain percentage into if you enroll.
If you’re choosing to change jobs, or are being forced to because of a layoff, financial experts advise what you do with that plan should be decided on an individual basis.
Financial advisor Mark Teed told 22News one option is to leave your money in the 401K plan you already had, but typically your former employer will urge you to move it.
“Second option would be to roll it over into you’re own individual retirement plan. Third option would be to roll it over to your new company’s retirement plan and just continue on doing what you’re doing. The fourth option which is the worst is to just take the money and spend it,” Teed said.
Teed also says that if you don’t re-enroll that money into another savings option, between taxes and penalties, you could end up loosing as much as 45% of the money your worked so hard to save.