Saving for your Future Self with Sarah Holden | Ep. 62

• Sarah explains that a traditional IRA lets anyone with earned income contribute; deductibility depends on income, but growth is always tax-deferred. A Roth IRA uses after-tax dollars for tax-free withdrawals later—especially attractive to younger workers in lower tax brackets.

Once the money is in the account, it grows and compounds tax-free... all that money gets to be reinvested, which means it gets to grow even faster.

• A 401(k) is employer-sponsored; the employer selects the investment menu and often provides matching contributions. Sarah stresses contributing at least enough to receive the full match—commonly 50 cents on the dollar up to 6% of pay.

If you contribute over the whole year 6% of your pay, they will be putting in a whole nother 3% of your pay into your account. And that's just a great sort of rate of return right off the bat.

• Safe-harbor designs help employers pass non-discrimination testing by ensuring employer contributions benefit all employees proportionally. Vesting schedules determine when employer contributions become fully yours; employee contributions are always 100% vested.

• Many 401(k) plans include target-date funds that automatically adjust asset allocation from aggressive (stocks) when young to conservative (bonds) as retirement nears. This provides hands-off diversification and risk management.

• Both vehicles pool investor money for instant diversification and professional management. Mutual funds trade once daily; ETFs trade throughout the day like stocks. Sarah recommends reviewing fund fact sheets for holdings, fees, risk, and benchmark performance.

With a fund, you've hired someone who is going to make all those tough decisions and manage it for you. And you can focus on your life.

• Self-employed individuals can set up solo 401(k)s, SEP IRAs, SIMPLE IRAs, or defined-benefit plans in addition to traditional or Roth IRAs. Sarah points listeners to the Department of Labor's comparison booklet for contribution limits and features.