Saving for retirement

Invest in your future now and begin saving for retirement.

Why start now?

The earlier you start saving, the more wealth you'll have available to meet your needs later.
Retirement savings and earnings grow tax-deferred. With tax-deferred accounts, you pay applicable taxes on the money when you withdraw it in retirement.
Many employer plans offer ‘company matching’ of contributions you make. That’s free money.
The more you save, the less you’ll need to rely on Social Security for your personal long-term financial security.

What’s the average amount people think they need to save for a comfortable retirement?¹

That’s right.

According to a recent survey, Americans expect they’ll need $1.1 million for retirement (yet the median retirement savings is just $97,000).

More than that

According to a recent survey, Americans expect they’ll need $1.1 million for retirement (yet the median retirement savings is just $97,000).

The power of compounding

Compounding occurs when interest is earned not only on the amount you save, but also on all the interest your savings accumulate over time. 401(k) accounts and traditional IRAs benefit from tax-deferred compounding. You only pay taxes on the money you withdraw in retirement (when you may be in a lower tax bracket).

Who will save more for retirement – Hailey or Cameron?

That’s right.

Thanks to the power of compounding, Hailey will save $130,000 more than Cameron even though she contributed less. Hailey's total contribution is $40,000 ($4,000 x 10 years), giving her a balance at age 65 of $583,091. Cameron's total contribution is $120,000 ($4,000 x 30 years), but his balance at age 65 will only be $453,133.

Not quite.

Retirement plan basics

The following are a few of the most common retirement savings plan options:

401(k) and 403(b) Plans

Employer-sponsored retirement plans (403(b) plans are offered by government and nonprofit organizations) that allow you to invest pre-tax salary on a tax-deferred basis.
Your employer provides the investment choices available to you, typically a mix of mutual funds and company stock.
Earnings in your account grow tax-deferred until you withdraw them.
Some employers match a set percentage of your salary if you contribute an equal amount to the plan (for example, 3%) each pay period.

Traditional IRAs

Offer tax advantages to encourage people to save for retirement on their own
If you meet certain parameters, you can take a current income tax deduction for your contributions.
When you begin to take distributions in retirement, you’ll pay income tax on part of (or all of) the distributions.²

Roth IRA

Offers tax advantages to encourage people to save for retirement on their own.
Unlike a traditional IRA, Roth contributions are made with after-tax dollars, so you do not receive a tax deduction for your contributions.
When you take distributions in retirement, they are completely tax-free (if you observe distribution rules).
And Roth IRAs have no mandatory required minimum distributions (RMDs) starting at age 72.

SEP IRAs

Designed specifically to meet the retirement needs of self-employed individuals and small business owners.
Unlike other retirement plans, they’re simple to set up and easy to administer.
Allow you to make significantly larger contributions than Traditional or Roth IRAs (the lesser of 25% of compensation or $61,000 for 2022).

Changing jobs? Here are your 401(k) options.

If you have a 401(k) account with your current employer, you have four basic choices of what to do with your retirement savings.³

Leave the account with your former employer ⁴
- This requires little or no effort on your part, but you may lose track of the account as you change jobs over your career (missing out on making smarter investment decisions).
Roll the balance into your new employer’s 401(k)
- If permitted, this is a great way to help keep your retirement funds consolidated.
Roll over to an Individual Retirement Account (IRA) or convert to a Roth IRA
- If you’re looking for broader investment options, or want to convert your funds to an IRA, then moving the 401(k) funds into a traditional IRA or Roth IRA may make sense.
Take a cash distribution for the account value
- Taking a lump sum distribution rather than rolling over into another plan or IRA lets you re-invest or spend the funds as cash, but you may be subject to taxes and penalties.⁵

Have additional questions or want to explore more retirement savings options?

Visit the Bank of America Better Money Habits: Retirement page.

Connect with a Private Client Advisor

¹Schroders U.S. Retirement Survey, March 2022.

²Distributions are taxed on the account's accrued earnings and the contributions you made for which you received income tax deductions in the years you made the contributions.

³You have choices for what to do with your 401(k) or other type of plan-sponsored accounts. Depending on your financial circumstances, needs and goals, you may choose to roll over to an IRA or convert to a Roth IRA, roll over a 401(k) from a prior employer to a 401(k) at your new employer, take a distribution, or leave the account where it is. Each choice may offer different investment options and services, fees and expenses, withdrawal options, required minimum distributions, and tax treatment, and provide different protection from creditors and legal judgments. These are complex choices and should be considered with care.

⁴Your employer has discretion to fully distribute your account if your balance totals less than $5,000.

⁵The early withdrawal penalty will apply if you are under age 59 ½ and the distribution will be taxed as ordinary income at your current marginal tax rate for the year.

⁶The information we are providing is educational in nature and discusses options you may have related to your employer sponsored plan assets. Individuals should consider their own specific facts and circumstances when considering a rollover and may wish to consult a tax advisor.

⁷If you directly roll over your assets to an IRA or another plan, mandatory withholding rules will not apply. If you elect to receive a distribution and subsequently wish to roll over the assets, you must complete the rollover within 60 days of receiving the withdrawal. Mandatory 20% federal withholding will apply, and if you are under age 59 ½, the early withdrawal penalty may also apply.