But no one I know has ever "retired": How to begin contemplating your future
- Katherine Minaya
- Mar 4
- 9 min read
Imagine discovering five figures in a retirement account you didn't even know you had. That's what happened to me, and it changed everything.
When I started this journey, navigating retirement accounts felt like learning a foreign language, a maze of confusing acronyms and numbers. I had only ever heard of a 401(k) on television, and the word retirement was only ever once used by the librarian at my elementary school when she left.
Addressing the Retirement Gap: Latinx Workers and the Push for Inclusive Benefits
My mother never had a retirement account growing up. She worked as a cashier and "climbed the ladder" to store manager by the time high school rolled around. Employers are not required by law to offer retirement benefits, and as a small grocery store in the Bronx, her employer never did.
My mom was not an anomaly but exemplary of the Latinx community in the US. "Latinx individuals work in jobs whose overall quality is not ideal for building wealth. They are more likely to work in sectors with low-paying jobs that lack benefits essential to building wealth...Between 2010 and 2016, less than one-third—29.3 percent—of Latinx families had any retirement account."
The issue is a systemic one: "In general, structural and interpersonal discrimination, unequal access to education and training opportunities, cultural norms and expectations, social networks, and hostile working environments all can make some jobs more or less accessible to different groups of workers, resulting in an uneven occupational distribution... cluster[ing] Latino workers into jobs that, [for one,] offer little in terms of employer-sponsored benefits."
This being said, governments are moving in the right direction. Many states are moving toward mandating retirement programs because growing old is a financial burden and drain on the existing system- think the cost of health care and social security that was much lower when the life expectancy was lower, and the length of retirement was less than a couple of decades.
In New York, this law is called the New York State Secure Choice Savings Program. Essentially, the law will require employers with 10 employees or more to offer enrollment in a Roth IRA. As of early 2024, the program is still in the process of being implemented. So, while the law is in place, the actual enrollment process has not fully begun.
You may, in fact, already have a retirement account but not know it. I didn't know I had one at my second ever job until 1.5 years in when a colleague told me I should try to log in to the account; I was mind-blown to find five figures already saved and invested on my behalf.
The Importance of a Clear Mind
While government initiatives are essential, individual awareness is equally crucial, as my experience demonstrates.
It can be easy to feel overwhelmed, even for someone who grew up hearing the terms. I found that even expert advice added to my mental clutter and that nothing would stick. What I discovered is that a clear mind is essential. If you're struggling, don't hesitate to pause. Take a deep breath, step away, and return when you're ready to engage. This is easier to understand when you're in a more relaxed and focused frame of mind.
With a clearer mind, let's explore the four primary retirement accounts that can pave your way to financial security.
Disclaimer: I am NOT a financial advisor; I simply learn by teaching and love to share the wealth (pun intended). Therefore, it is essential that you seek professional advice before making any financial decisions.
Understanding the Four Key Retirement Accounts: Your Guide to Financial Security
With so many options available, getting lost in the details is easy. Fortunately, four primary retirement accounts can serve as your pathway to financial security: the Traditional IRA, the Roth IRA, the 401(k), and the 403(b). There is much to learn about each, but I outline the basics below. The most important thing to understand is that each account comes with unique features that determine how much money can be contributed, how and when you can access your money, and how your money is taxed.
There is a nifty chart toward the end of this post that can be your cheat sheet in the future.
Traditional IRA: The Classic Choice
The Traditional IRA remains a strong choice for many savers. This account enables you to make tax-deductible contributions, providing you with an immediate benefit on your taxable income. Here’s a closer look at its features:
Tax Benefits
With a Traditional IRA, individuals with a modified Adjusted Gross Income (MAGI) below certain thresholds may be able to fully deduct contributions. Your investments grow tax-deferred until withdrawal, allowing your savings to compound without having taxes chip away at them annually.
Withdrawal Rules
You can start to withdraw funds penalty-free once you reach age 59½. However, be mindful that all distributions are taxed as ordinary income, which could lead to significant tax payments depending on your tax bracket during retirement.
Contribution Limits
For 2024, you can contribute up to $7,000 if you are under 50. This allows for a strategic approach to growing savings over time.
*Contribution limits increase yearly based on inflation, your age and your filing status (single vs joint), so keep this in mind when calculating and budgeting for how much to contribute each month.
Best Suited For
This account is best for individuals who expect to be in a lower tax bracket upon retirement. If you think you'll be in a lower bracket, this strategy can result in substantial tax savings.
Roth IRA: The Tax-Free Growth Option
The Roth IRA is an attractive choice for those seeking long-term, tax-free growth. It is particularly beneficial for younger savers or those anticipating higher income down the line. High-earning individuals in particular love a Roth IRA because they expect to be in a higher income tax bracket at retirement than today, which means that if they can have their money taxed now, they will pay fewer taxes altogether. Let’s examine its advantages:
Tax Benefits
Unlike the Traditional IRA, contributions to the Roth IRA are made with after-tax dollars, meaning no immediate tax deduction. However, the upside is that your investments grow completely tax-free. If you follow the rules, you won't owe taxes on your withdrawals during retirement.
Withdrawal Rules
You can take out your contributions at any time without penalties. Once you reach age 59½ and have maintained the account for at least five years, you can withdraw your earnings tax-free. This liquidity can be a game-changer for young adults seeking financial flexibility.
Contribution Limits
The contribution limits mirror those of the Traditional IRA: $7,000 for individuals under 50. The most significant difference between a Traditional IRA and a Roth IRA is that income limits exist for eligibility to contribute to a Roth IRA. The IRS caps contributions for high earners. In 2025, your MAGI has to be under $150,000 for single filers to make the full Roth IRA contribution of $7,000.
*Contribution limits increase yearly based on inflation, age, and filing status (single vs joint). Additionally, that MAGI limit inches up each year. Consider these when calculating and budgeting for how much to contribute each month, keeping in mind that Roth contributions may be $0 if you made over that MAGI that year.
Best Suited For
The Roth IRA is ideal for young professionals or individuals who expect their income—and consequently, their tax rates—to rise. Paying taxes now could lead to significant savings in the long term.
If you earn too much for Roth IRA contributions, do not dismay. There's a cheat code! It is called a Backdoor Roth IRA.
401(k): The Employment-Based Powerhouse
The 401(k) plan is a powerful tool for saving for retirement, especially for employees of companies that offer this option. Here’s what makes a 401(k) stand out:
Tax Benefits
With a 401(k), contributions are made with pre-tax dollars. This means the contributions are deducted from your paycheck before income taxes are calculated, which lowers your current taxable income, similar to a Traditional IRA. Many employers also offer matching contributions. For example, if your employer matches 50% of your contributions up to 6% of your salary, that’s an extra 3% going directly towards your retirement. In essence, you can think of this as free money.
Withdrawal Rules
You can start making penalty-free withdrawals at age 59½. However, you’ll need to begin taking required minimum distributions (RMDs) at age 75 (if you were born in 1960 or later), which can affect your tax situation later on.
Contribution Limits
The contribution limits for 401(k) plans are considerably higher, allowing you to save more aggressively: $23,500 for individuals under 50 in 2025 for employee salary deferrals and $70,000 for the combined employee and employer contributions. This difference can significantly boost your retirement savings potential.
*Contribution limits increase yearly based on inflation and age. Additionally, that MAGI limit inches up each year. Consider these when calculating and budgeting for how much to contribute each month, keeping in mind that Roth contributions may be $0 if you made over that MAGI that year.
Best Suited For
The 401(k) plan is excellent for high-income earners or anyone who can maximize their employer match. Make it a priority to contribute enough to receive the full match; it’s a crucial component of a strong retirement strategy.
403(b): A lot Like a 401(k)
If you work for a tax-exempt organization, aka a not-for-profit, your employer may set up a 403(b) for you (the same way your employer will set up a 401(k) if you work in the for-profit sector).
Tax Benefits
With a 403(b), contributions are made with pre-tax dollars. This means the contributions are deducted from your paycheck before income taxes are calculated, which lowers your current taxable income. The money in your 403(b) account grows tax deferred. You won't pay taxes on the investment gains until you withdraw the money during retirement.
Like a 401(k), many employers may also offer matching contributions- yay, free money!
Withdrawal Rules
Generally, you can withdraw money from your 403(b) without penalty after age 59½. You must begin taking RMDs from your 403(b) account starting at age 75 if you were born in 1960 or later.
Contribution Limits
For 2025, the general elective deferral limit is $23,500 for individuals under 50 in 2025 for employee salary deferrals and $70,000 for the combined employee and employer contributions.
Again, contribution limits increase yearly based on inflation and age.
Best Suited For
The 403(b) plan is excellent for anyone who can maximize their employer match. Make it a priority to contribute enough to receive the full match.
Your company's vesting schedule matters. I forfeited substantial employer contributions when I left a toxic workplace. For me, it was a necessary trade-off for my mental health. However, you might prioritize those funds differently. Always know your vesting terms.
Self-employed individuals and small business owners may contribute to an IRA, but there are also several special retirement plans available just for them that enable them to contribute more money per year, since they don't receive the benefit of an employer-sponsored retirement plan. Here are some examples:
Comparing the Accounts: Which One to Choose?
Choosing the best retirement account for your needs hinges on your current employment, financial situation, risk tolerance, and retirement goals. Here’s a brief comparison of the key factors:
There is no "one size fits all" retirement plan. Don't let people tell you what is best for you, and definitely don't let people tell you that "this worked best for me, so it's the best way and the best way for you." The "best" tax advantage depends on individual circumstances.
What happens if you have multiple accounts?
First, consolidate. Here's what my friend, the equity analyst, had to say:
"You should roll over all those smaller work-related retirement accounts that you have opened along the way into an IRA. It will be known as a Rollover IRA, but is treated the same way, from a tax perspective, as a Traditional IRA. You can think of the Rollover as the grocery bag where you will put employer-sponsored retirement money every time you leave a job. Your traditional IRA and Roth are for your personal contributions.
NOTE: Annual contribution limits to personal IRAs (Roth or traditional) DON'T APPLY when it comes to Rollover IRAs. So, you can dump all the assets from your previous employer accounts into the Rollover IRA, even if it exceeds $7000 this year.
By the time you hit your 50s, you will thank me. Everyone in my peer group is trying to consolidate and simplify their accounts. It can get incredibly complex when two people get married and each brings his/her own set of accounts from various employment situations.
There will be no tax implications IF you work through the receiving entity to transfer the account directly from the current holder. In this case, the money never touches your hands. There is only a risk of taxes IF you withdraw all the funds in an account and put them into your personal checking or savings account, AND you fail to transfer the funds into a Rollover IRA within 60 days. I would avoid this scenario because you never know if you'll get busy at work and forget about moving the money. Then, you get hit with income taxes and a 10% extra penalty for withdrawing funds before you turn 59.5 years old.
Just let the professionals handle the transfer behind the scenes.
You don't have to worry about the underlying investments in those retirement accounts as long as you're moving a retirement account into another retirement account. The brokerage would most likely move all your shares of those very same funds over if they offer the same ones (most of the big brokerages do). If you've got a really exotic or obscure investment vehicle in that old fund, then the brokerage would match you up with something similar."
Second, once you have your core accounts (for example, a 401k or 403b, a Roth and a Traditional), save in all of them, but strategically. Many financial advisors will tell you to prioritize maxing out contributions to plans with the best tax advantages first, leaving any remaining funds to be contributed to less lucrative accounts. Note: There is more to this infographic below, but I haven't discussed these yet, so I cropped that out.
Congratulations 👏