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Smart Ways to Save for Retirement
Between examinations, consultations, and the rest of practice life, it’s important for veterinarians to take some time to learn the smart ways to invest in their financial futures.
For busy veterinary professionals, understanding the smartest ways to save for retirement might not very be high on the priority list. Between surgeries, animal care, advising clients, and keeping up with CE, smart investing may well be taking a back seat.
Even if you don’t have a lot of time to devote to becoming a financial guru, it’s still important that as a professional—and perhaps even a practice owner—you understand some of the basic concepts behind saving for retirement. Following are the 3 most popular retirement savings avenues.
A 401(k) is a simple and popular savings vehicle. Money is taken out of your paycheck and putinto a 401(k) account, and that money is invested in different asset classes of your choosing. There are numerous benefits to owning a 401(k). The money is contributed each year before taxes and grows tax-free in the account. The money is only taxed as income when you take it out of the account.
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Also, many employers match 401(k) contributions up to a certain amount. That is free money. You must maximize your contributions to get the greatest benefit possible.
Traditional Individual Retirement Account (IRA)
A traditional IRA works the same way a 401(k) does in terms of the tax benefit. Depending on a couple of specific factors, the money can be deposited into the IRA on a pretax basis. That money works just as hard as the money in a 401(k) in that there are no taxes paid on gains as the account matures. This allows the funds to grow much more substantially.
As with a 401(k), you pay taxes when you withdraw the money in retirement. By that time, you will likely be in a lower income tax bracket, which means you get to keep more of your hard-earned money. The major differences between an IRA and a 401(k) are that an IRA cannot have a matching contribution from your employer, and an IRA has much lower contribution limits than a 401(k).
A Roth IRA is one of the best tools for veterinary professionals who want to put money away in their lower earning (younger) years. This type of IRA works similarly to its traditional counterpart but with a few major differences. The money is not put in pre-tax; you pay the tax on the money when you deposit into the account. The money still grows tax-free and can be taken out without paying taxes at all if done correctly during retirement. There are income-based limitations that can preclude you from contributing directly into a Roth IRA.
Bonus: A Roth 401(k) is the after-tax counterpart to the 401(k). Contributions are not deductible from your tax bill, but the money inside the account will grow tax-free and can be withdrawn tax-free if certain guidelines are met. Remember, Roth gives you a tax break later while its counterparts give you a tax break now. Additionally, Roth accounts have more flexibility when it comes to accessing your money penalty-free.
Other Retirement Plans
There are other savings vehicles that are tremendously effective at preparing you for retirement. The options discussed here serve to show the basic retirement account structures and how they can work just as hard as veterinarians do in practice. Putting aside money for retirement and allowing it to grow in any of these tax-advantaged accounts is a smart way to invest for your financial future.
Mr. Saunders is the founder of MNS Wealth Management, an independent wealth management firm with 1 simple goal in mind: help clients reach their financial goals in the most efficient manner possible. To learn more about Mr. Saunders and his company, visit mnswealthmanagement.com.
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