Saving for retirement

What reasons do you have to save?


Quality of life, traveling to new places, peace of mind... Any reason you have to save is a good one.

When it comes to saving for retirement, there are a number of options available. But knowing the ins and outs of all of these plans can be hard. That's why we've created an overview about how saving for retirement works.

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Saving now pays off later

Why should you enroll in a retirement plan at work or contribute to an individual retirement account? Because saving for your future pays off!

Did you know...

  • That retirement can last for 30 years or more?
  • That a common rule to follow is that a retiree will need up to 80% of their annual income today to retire comfortably?
  • That the average benefit amount paid monthly by the Social Security Administration is currently $1,177?

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How Individual Retirement Accounts ("IRAs") Work
Like the name implies, IRAs are retirement savings plans that individuals can set up. You don't need your employer to do it. IRAs are retirement accounts that offer tax advantages over other kinds of savings accounts. Some people who save for retirement in their employer's plan also save money in an IRA. Some people have only an IRA because they don't have access to a plan at work.

An IRA can be set up through a financial institution, insurance company, mutual fund or stockbroker. The most common types of IRAs are the Traditional and Roth IRA. Both accounts can invest in stocks, bonds, mutual funds and other investments and allow penalty-free withdrawals after age 59 ½. The difference between the two is how they are taxed.
 
Traditional IRA

  • Contributions may be tax deductible, depending on your income and whether your employer offers a retirement plan
  • You will pay taxes on your contributions and earnings when you withdraw your money
  • Possible penalty for withdrawals before age 59 ½
  • No income restrictions 
Roth IRA
  • Contributions are not tax deductible
  • No taxes on withdrawals and earnings, when conditions are satisfied
  • Possible penalty for withdrawals before age 59 ½
  • Certain income restrictions apply
These are just the highlights. Visit www.irs.gov/retirement-plans/traditional-and-roth-iras for more informatioin on eligibility, annual contribution limits and taxation. 

How to Contribute to Your IRA
You can put money in your IRA directly from payroll or your personal bank account. Saving for retirement through automatic deposit is the best way to ensure that you pay yourself first. Automatic deposit is when you set up a schedule so that a specific amount of money is automatically transferred from your bank account to your IRA on a regular basis.

Receive the Saver's Credit for Making Contributions
You may be eligible to receive a tax credit for making contributions to a retirement plan, for up to $2,000 for individuals, and up to $4,000 if married, filing jointly. The tax credit is based on a percentage of how much you contribute and your adjusted gross income. Consult your tax advisor to see if you qualify. 

Get started today! Resources for Individuals

Plans described below offer a high level overview of types of plans that may be sponsored by employers. These plans are subject to specific legal requirements and annual contribution limits. 

Employer Pension Plans
A pension is a retirement plan offered by some employers. A traditional pension pays a specific monthly amount at retirement, usually based on your final wages, years of service and age. Employer pension plans are a type of Defined Benefit Plan, often referred to as “DB Plans".
 
Defined Contribution Plans - 401(k) or 403(b), or 457(b) governmental plan
In place of, or in addition to a pension plan, many employers today offer a defined contribution plan ("DC Plan")  such as a 401(k), a 403(b) or a 457(b) governmental plan. These plans are administered by employers.
 
Here’s how they work:

  • Contributions are deducted from your paycheck, in many cases on a pre-tax basis
  • The money can be invested in stocks, bonds, mutual funds or other investments
  • Your account is adjusted for earnings and losses
  • If you made pre-tax contributions, you pay tax on distributions when you withdraw your funds
  • If you made Roth contributions, you are not taxed on distribution if you meet the Roth requirements
  • Plan terms determine when withdrawals may be made. Possible withdrawal penalty for withdrawals before age 59 ½ . Governmental 457(b) plans do not impose an early withdrawal penalty, but other withdrawal restrictions may apply. 
Roth 401(k)/403(b)
This is a relatively new option that plan sponsors may adopt in their defined contribution plans. Under this plan, contributions are made from after-tax dollars and grow tax free. Contribution limits are higher than the Roth Individual Retirement Account (IRA) but cannot exceed the normal 401(k)/403(b) plan contribution limit.

Payroll Deduction IRA
Under a Payroll Deduction IRA, employees establish an IRA (either a Traditional or Roth IRA) with a financial institution and authorize a payroll deduction amount for it. A business of any size, even if you're self-employed, can establish a Payroll Deduction IRA program. Payroll deduction IRAs are good starter plans that encourage savings by employees before earnings go toward day-to-day expenses.

Find detailed information at www.irs.gov/retirement-plans/plan-sponsor/payroll-deduction-ira

Simple IRA
Simple IRA’s are designed for businesses with 100 or fewer employees that want to offer a retirement plan. The business owner can choose to match up to a certain percentage of the employees’ contributions. Simple IRAs are great starter plans that encourage contributions from employees.

Learn more here www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-simple-ira-plans

Learn more about retirement planning resources for small businesses
www.irs.gov/retirement-plans/plan-sponsor/small-business-retirement-plan-resources

How Do I Reduce My Administrative Costs?
Get a tax credit for 50% of your eligible startup costs. Learn more about the Retirement Plans Startup Costs Tax Credit by reviewing Employer Resources.

Self-employed individuals have the ability to save for retirement on a tax-deferred basis as well.

Plans described below offer a high level overview of types of plans that may be available to self-employed individuals. These plans are subject to specific legal requirements and annual contribution limits. 

What is a SEP-IRA?

  • If you're self-employed, a SEP-IRA allows you to set aside pre-tax income in a tax deferred savings account, meaning you do not pay taxes on your contribution today, and your earnings grow tax free. You can open a SEP-IRA at many financial institutions.

What is a Solo 401(k)?
  • Solo or individual 401(k) plans work much like a company 401(k) plan, and are meant for individuals who have no employees. Contributions can be either after-tax or pre-tax, meaning you can pay taxes on your contribution today, or choose to pay taxes when you withdraw the money at retirement. You can open a solo 401(k) at many financial institutions. 

What is a Simple IRA?
  • Simple IRA's are designed for the self-employed and businesses with 100 or fewer employees. The business owner can choose to match up to a certain percentage of the employees' contributions. Simple IRAs are great starter plans that encourage contributions from employees. 

Retirement Plans for Individuals
  • Of course, in addition to the types of plans listed above, self-employed people can also consider Individual Retirement Accounts (IRAs). More information about IRAs is in the section called Retirement Plans for Individuals.
Learn more about self-employed retirement calculations www.irs.gov/retirement-plans/self-employed-individuals-calculating-your-own-retirement-plan-contribution-and-deduction

Get started today with these Resources for Individuals!
 

In the United States, Social Security plays an important part in making a comfortable retirement. But Social Security, alone, won't provide 100% of your post-retirement needs. According to the Social Security Administration, there needs to be three major elements of your retirement portfolio: benefits from workplace retirement plans, personal savings and investments, and Social Security benefits.

Learn more by using Social Security's Retirement Planner and related tools by visiting www.ssa.gov/planners/retire

Also, learn more about how to maximize your Social Security benefit by visiting 
www.consumerfinance.gov/retirement/before-you-claim
 

As with any purchase, it's important to know what you are being charged for your retirement plan. Even small fees may have a big impact over time.

There are generally two types of fees when it comes to investing - transactional and ongoing.

Transactional fees may apply at the time of a transaction. For example, a plan may charge an enrollment fee or, if you move your account balance from one retirement plan into a new plan, a rollover fee. In addition, a fund may have a sales charge that applies when you first invest in that fund.

Ongoing fees are typically charged to your retirement savings plan on a regular basis. For example, some plans have annual administration or management fees. 

Transactional and ongoing fees can affect how your savings grow over time. That's why it’s important to ask your retirement plan provider questions so you understand the fees that apply to your plan.

If you don’t know where to start, you can ask your provider: “What are all the fees related to my account?

Employers who sponsor a retirement plan should also talk to their selected provider and/or a financial advisor to learn how a plan's fees may impact investment performance and costs to employees, and how fees may vary among different investment options.

Learn more about retirement plan fees and expenses by reading this publication from the US Department of Labor: Understanding Retirement Plan Fees and Expenses.

Visit Employer Resources or Individual Resources for tools to help you compare historical performance and current fees for different fund investment choices, and background information for different investment adviser firms and individual investment advisers. 
 

Think about it...

Saving for retirement is one piece of your financial wellness. And there are many benefits to saving now for your future. 

Watch the video to learn about how taxes impact your earnings.

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Retirement Marketplace

The Small Business Retirement Marketplace is administered by the Washington Department of Commerce as established in RCW Chapter 43.330.730-750. Plans carried on the Retirement Marketplace are verified by the Department of Financial Institutions and/or the Office of the Insurance Commissioner to meet the requirements set forth in RCW 43.330.732(7) and 735(6)(a). Enrollment in plans on the Retirement Marketplace is voluntary. Plan enrollment is managed by private financial services firms. Saving through certain plans will not be appropriate for all individuals. Employer facilitation of most retirement savings plans carries certain legal obligations for which employers are entirely responsible. Contributing to a retirement savings plan may offer tax benefits and/or consequences. Consult your tax or financial advisor with questions related to investments.