Whether you are single or married, saving up for retirement is very important. Without a doubt, 401(k) retirement plans are the best way to do this. There is a wide range of different 401(k) plans that has their own characteristics.
For example, if you open a Roth 401(k) retirement account, the taxes will be taken out of your contributions so you don’t pay any taxes when you make a withdrawal. It is the opposite of traditional 401(k) retirement plans. You are not taxed when making contributions but taxed at the time of making withdrawals. Which one you should pick depends on your current income and the income you will earn during retirement.
Because your tax bracket is likely to change during retirement, we recommend planning ahead when you are thinking about a 401(k) retirement plan.
Roth 401(k) is going to be better if you earn more in retirement. If not, go with a traditional 401(k). We strongly recommend traditional 401(k) over Roth 401(k) if you’re unsure. Because you are also qualified for a tax deduction and even if you earn more during retirement, it is the safest option.
IRA Threshold for Singles
There is also the Individual Retirement Account (IRA) which is also one of the most popular types of retirement accounts. Same as the traditional 401(k) retirement plans, the traditional IRA contributions are tax-deductible. But unlike the 401(k) deduction, there is a threshold for the IRA contribution deductions.
For single filers, as of 2021, the phaseout begins at $65,000 and the deduction completely phases out at $75,000. For every dollar you earn over $65,000, the deduction you can claim for your IRA contributions will be reduced significantly.
This isn’t the case with 401(k) contribution deductions. How much you earn and your taxable income does not affect whether you can claim a deduction for your 401(k) contributions or not.
Learn more about 401(k) contribution deductions.