The Power of Planning: Saving for Retirement
Introduction
In my most recent blog, The Power of Planning: Tax Planning, I wrote about numerous ways to save money on taxes, both during your career and in retirement. There are many additional tax-saving strategies out there, though, so that topic may be revisited one day.
To continue my ongoing series on the importance of financial planning, I am shifting gears toward saving for retirement. Everyone and their brother has heard they need to set aside money for retirement, and the “why” is easy to understand. You will need money stored up for when your income goes away—it’s as simple as that. What some people don’t understand, however, is how to save for retirement, or in other words, where their money should be invested. Let’s start by breaking down the different types of investment accounts and how they may be useful to you.
Brokerage Accounts
A brokerage account is a flexible investment account that can be used for many different purposes. There is no limit to how much money you can contribute, no income threshold that bars you from saving additional funds, and no age restriction on when the funds become available to you. If you wanted to, you could put money into the account, buy your favorite stock, and then sell that stock and withdraw the cash a few weeks later.
Brokerage accounts can help you save for retirement, or they can be used to fund short-term goals, such as vacations. As mentioned, these accounts are flexible and are often viewed as a supplement to retirement accounts. They can be held individually or jointly by two or more people—we often see spouses own brokerage accounts together.
Tax Characteristics
Brokerage accounts do not have inherent tax advantages (they are often referred to as taxable or non-qualified accounts). When you take money out, only the portion attributed to growth is taxed. For example, if you initially invest $1,000 and later withdraw $1,500, you would owe taxes on the $500 of capital gains.
Gains are not taxed at your marginal tax rate. Instead, they are taxed at a lower rate—typically 15% for long-term gains (assets held more than a year) and up to 20% for short-term gains.
Individual Retirement Accounts (IRAs)
Traditional IRAs
Traditional IRAs, often simply called IRAs, allow you to receive a tax deduction for contributions. The money grows tax-deferred and is taxed when you take distributions later in life.
When you withdraw funds, you must account for federal and (if applicable) state taxes. These distributions count as income, so proper withholding is important. Your Aurora advisor can help with these calculations.
Since IRA funds are earmarked for retirement, you generally cannot access them until age 59½. Withdrawals before that age typically incur a 10% early withdrawal penalty, though there are some exceptions.
For 2026, contribution limits are:
$7,500 if under age 50
$8,600 if age 50 or older (catch-up contribution)
You must have earned income to contribute.
Traditional IRAs also have deduction phaseouts based on Modified Adjusted Gross Income (MAGI). If your income exceeds certain thresholds, your deduction may be reduced or eliminated:
Single: $81,000–$91,000
Married filing jointly: $129,000–$149,000 (if both spouses have workplace plans)
Married filing separately: $0–$10,000
Non-active participant married to active participant: $242,000–$252,000
These rules can be complex, so consult your Aurora advisor if your income falls within these ranges.
Roth IRAs
Roth IRAs have the opposite tax treatment of Traditional IRAs. Contributions are made with after-tax dollars (no deduction), but the account grows tax-deferred, and qualified withdrawals are tax-free after age 59½.
Contribution limits match Traditional IRAs:
$7,500 (under age 50)
$8,600 (age 50+)
You must have earned income to contribute.
Roth IRAs also have income limits:
Single: $153,000–$168,000
Married filing jointly: $242,000–$252,000
If your income exceeds these limits, you cannot contribute directly. However, you may still use a strategy called a Backdoor Roth IRA, where you contribute to a Traditional IRA and then convert the funds to a Roth IRA.
Employer-Sponsored Retirement Plans (401(k)s, 403(b)s, etc.)
These plans are offered by employers to help employees save for retirement and typically allow higher contribution limits than IRAs.
For 2026:
Under age 50: up to $24,500
Age 50+: up to $32,500 (with catch-up)
Ages 60–63: up to $35,750 (enhanced catch-up under SECURE Act 2.0)
Starting in 2026, if your prior-year income exceeds $145,000, catch-up contributions must be made as Roth contributions.
A major benefit of these plans is employer matching. For example, if you contribute 4% of your salary, your employer may match that amount—essentially doubling your savings. This is often the best place to start saving for retirement.
Vesting Schedules
Vesting schedules determine how much of your employer’s contributions you keep if you leave the company. Most plans fully vest after 4–6 years, often on a gradual scale.
Self-Employed Retirement Plans
SIMPLE IRAs
SIMPLE IRAs are popular for small business owners.
For 2026:
$17,000 contribution limit
$21,000 if age 50+
$22,250 for ages 60–63
Employers must either:
Contribute 2% of each employee’s salary, or
Match up to 3% of employee contributions
SEP IRAs
SEP IRAs are ideal for self-employed individuals without employees.
Contribution limit: up to 25% of compensation (max $72,000 in 2026)
Contributions are tax-deductible
If you have employees, you must contribute the same percentage to their accounts as your own, which can become costly.
Solo 401(k)s
Designed for self-employed individuals with no employees.
Employee contribution: up to $24,500
Employer contribution: up to 25% of income
Total max: $72,000 (under 50), $80,000 (50+), $83,250 (ages 60–63)
These plans allow for high savings but can be more complex to set up.
Annuities
An annuity is an investment with an insurance company that provides a guaranteed income stream in retirement. Contributions grow tax-deferred, and withdrawals are taxed as income.
Fixed annuities offer stability and protection from market downturns but may limit upside potential. They are often used by individuals seeking predictable income.
The Bottom Line
Saving for retirement is essential, but understanding how to save is often overlooked. Knowing the different types of accounts can help you understand why your advisor recommends certain strategies.
If you are using any of these accounts with Aurora and would like to learn more, please reach out to our team. Understanding where your money is—and why—can be incredibly valuable. We’re here to help ensure your investments are in the best possible place.