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  • Take the time to understand what retirement savings and investing tools are available and what might be the best option for you.
  • Review tax benefits for each option.
  • Discuss your options with your financial advisor

Your Retirement Savings Toolkit

The Importance of 401(k)s and IRAs

It's a new world of retirement investing. Gone are the days when Social Security or a company pension were enough to ensure comfort throughout the golden years. Individuals are finding they need to take greater personal responsibility for their financial futures. At the same time, increasing life expectancies means those "financial futures" are longer than ever before.

Bottom line: More assets are needed to provide for more years in retirement, and the traditional income sources are coming up short. All the more reason that nearly every modern-day retirement toolkit should include the following tax-advantaged retirement savings staples:

The 401(k)
A company-sponsored 401(k) plan is perhaps the simplest and most advantageous retirement savings vehicle – simple because contributions are automatically deducted from your paycheck and advantageous because, very often, employers will match some portion of employee contributions (that's free money).

The Individual Retirement Account (IRA)
The IRA has been a retirement-saving mainstay for decades and is available to savers of all ages. Contribution limits change each year, but for the 2013 tax year stand at $5,500 for those under age 50 and $6,500 for savers 50 and older.

Traditional or Roth?
IRAs and, increasingly, 401(k)s are available as either traditional or Roth plans. Eligibility requirements vary and you should discuss the options with your financial professional. While there are tax advantages to all, those benefits differ by plan type:

Key Differences Between Traditional and Roth 401(k)s:

Traditional 401(k)Roth 401(k)

Contributions

Pre-tax contributions reduce current taxable income.

After-tax contributions do not affect current taxable income.

Withdrawals after age 59 1/2

Taxed as current income.

Tax-free for investors who have had the account for at least 5 years.

Required Minimum Distributions

April 1st of the year following the year the owner attains age 70 1/2 or separates from service, whichever is later.

Key Differences Between Traditional and Roth IRAs:

Traditional IRARoth IRA

Contributions

After-tax dollars with a possible deduction take on tax return.

After-tax dollars with no deductions allowed.

Withdrawals after age 59 1/2

Taxed as current income.

Tax-free for investors who have had the account for at least 5 years.

Required Minimum Distributions

April 1st of the year following the year the owner attains age 70 1/2 or separates from service, whichever is later.

None for owners.

Depending on your circumstances, you may be eligible to participate in different types of qualified retirement plans (e.g., 403(b), 457(b), SEP, SIMPLE). Be sure to discuss your options with a qualified financial professional, who can help you get started with the right retirement planning tools in hand.

 

This material is provided for educational purposes only and is not intended to constitute “investment advice” or an investment recommendation within the meaning of federal, state, or local law. You are solely responsible for evaluating and acting upon the education and information contained in this material. BlackRock will not be liable for any direct or incidental loss resulting from applying any of the information obtained from these materials or from any other source mentioned. BlackRock does not render any legal, tax or accounting advice and the education and information contained in this material should not be construed as such. Please consult with a qualified professional for these types of advice.

USR-3402