Retirement Accounts & Saving Accounts
What do you do with all of the money you have left over at the end of the month? Saving money takes two forms: long-term savings and short-term savings. Long-term savings is more generally referred to as retirement savings and is usually put into a retirement account. Short-term savings is put into a savings account.
Other People Are Reading
-
Employer Retirement Account
-
Employer retirement accounts are retirement accounts that can only be contributed to when you work for an employer offering a retirement plan. A retirement account with an employer may be a Savings Incentive Match Plan for Employees (SIMPLE IRA), a Simplified Employee Pension (SEP IRA) or a 401(k) plan. These plans all have contribution limits that must be followed and investment options that you choose to invest your savings into. All contributions are made on a pretax basis, and all withdrawals are taxed at ordinary income tax rates. When you retire at age 59 1/2, you take the money and live off of this savings.
Private Retirement Account
-
A private retirement account is one that is normally held with an insurance company. Annuities are an example of this type of retirement account. There are no contribution limits on an annuity, but you cannot make contributions to the account on a pretax basis. Only the investment gain is taxed when it is withdrawn from the account.
-
Personal Savings Account
-
A personal savings account at a bank is also called a demand-deposit account. These accounts have no restrictions on money you deposit into the account. Additionally, you may withdraw money at any time. You pay taxes on any interest earned in the account in the year that you earn the interest payment from the bank. These accounts generally earn interest tied to short-term investments of the bank or with money market rates.
Money Market Account
-
A money market account is like a savings account. The interest paid to the account may be somewhat higher than a savings account, and there may be certain restrictions on withdrawals. These restrictions generally do not place a maximum on how much money you may withdraw, but they may place a minimum withdrawal limit on your account. In other words, you may have to withdraw a certain minimum amount of money from the account if you make any withdrawals at all.
-
