Saving at Work — Retirement Accounts

Retirement Accounts

Don’t miss a chance to save for retirement. Learn about the advantages of savings opportunities available through your employer.

Enjoy your golden years

Let’s face it: who doesn’t want to enjoy a comfortable retirement in their golden years?

The average life expectancy is on the rise, and many of us will live on our retirement savings for as many as 20, or even 30, years.

Your lifestyle during retirement will depend largely on how you manage your finances during your prime earning years.

To retire comfortably, you should:

  • Know the retirement savings tools available to you, which may include:
    – 401(k)s
    – IRAs
    – Other work-sponsored plans 
  • Contribute as much as you can to your retirement account.   
  •  Take full advantage of employer-matching programs.

401(k) accounts

The most common type of employer-sponsored savings plan is the 401(k) account. It lets you save a percentage of your income on a pre-tax basis, and invest that money for your retirement.

A 401(k) plan is a good way to save a lot of money for the long-term, because most employers will match your contribution up to a certain limit.

Advantages of employer-sponsored 401(k) plans include:

  • The ability to choose your own investments from a menu of investment options.  
  • A chance to save pre-tax dollars.
  • An easy way to save for retirement. Money is automatically deducted from your paycheck each month and invested.
  • “Free money” from employer contributions. Most employers will match your contribution to your 401(k) up to a certain limit.
  • A high level of professional investment advice. Employer-sponsored plans typically come with advice that you might not be able to afford on your own.
  • Some plans even include a loan feature that lets you borrow your retirement funds, then pay yourself back without incurring tax penalties.

Some employees don’t participate in 401(k) because contributions will reduce the amount of their take-home pay. It is important to remember that by contributing to a 401(k), you are maximizing your retirement savings by taking advantage of your employer’s matching funds.

If your employer offers a 401(k) plan, it is wise to participate as soon as you are eligible, and contribute as much as you can. It’s like getting free money!

Individual Retirement Account (IRA)

An IRA is a long-term savings tool that offers tax breaks, making it a good way to save money for your retirement. You can keep cash, stocks, bonds, mutual funds, CDs and other assets in an IRA.

Unlike a 401(k), which is provided by your employer, IRAs can be opened on your own through your bank, credit union, savings and loan, insurance company, or mutual fund or investment broker.

There are two kinds of IRAs for individuals: Traditional IRAs and Roth IRAs. The main difference between the two is when you pay taxes on the money you put into the plan.

With a Traditional IRA:

  • You pay taxes on the back end, when you withdraw the money in retirement
  • Your money grows taxfree while in the account.
  • Almost any individual can qualify to contribute.
  • You must begin to withdraw by the time you reach age 70.5.

With a Roth IRA:

  • You pay taxes on the front end, before you deposit the money into the account.
  • Your money grows tax-free while in the account.
  • There are certain income limits on who can qualify to contribute.
  • You can leave the money in for as long you’d like, there is no mandatory withdrawal age.   
  • Roth IRAs are more flexible if you need to withdraw some of the money early.

For the most up-to-date information about what you can contribute to a Traditional IRA or Roth IRA, visit the Internal Revenue Service.

Which is greater: The amount of debt on your credit card or the money in your emergency fund or savings account?1

  • 24% credit card debt
  • 58% emergency fund or savings account
  • 13% no credit card or savings account

This site is for education purposes. The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any Capital One product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional.


Source: 2015 Financial Security Index,