I’m Never Retiring — Do I Still Need a Retirement Account?

If you're like most people, you've probably been counting the days until retirement since you first entered the workforce. But that's not the case for everyone. Some people genuinely love their jobs and couldn't imagine quitting. Others would love to retire but don't think they'll ever be able to afford to leave the 9-to-5 life behind.

You might think retirement accounts are unnecessary if you fall into either of those camps. But there are actually some totally valid reasons to build a nest egg, even if you plan to work until the day you die.

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You know what they say about the best-laid plans

To start, your plans may not go as expected.

It's easy to assume you'll be able to work indefinitely when you're young and healthy, but we're not guaranteed to stay that way. As people age, they typically experience more health problems which can unexpectedly prevent them from working.

Even if you remain healthy, a close family member might become sick or injured and need care. Hiring a caretaker may be an option, but for those who cannot afford to do this or choose not to, quitting their job to help the sick relative might be their only choice.

Your employer could also go out of business or decide to downsize, costing you your job. You can try to look for a new position, but if you're unable to find anything suitable, you might be forced to retire.

In all of these situations, it'd be really nice to have a nest egg to fall back on so you don't have to scrape by if your professional plans went awry. Saving for retirement, in this case, is a kind of emergency fund. If you don't need it, you can pass it along to your heirs. But if you do need it, you'll be glad you have it.

Tax savings, anyone?

Putting money in a retirement account could also help reduce your tax liability now. If you use a 401(k), traditional IRA, or another tax-deferred retirement account, your contributions reduce your taxable income for the year. For example, if you earn $50,000 this year but put $5,000 of that in a 401(k), the government will only tax you on $45,000 instead of the full $50,000.

One tax-deferred retirement account isn't necessarily better than another. It all depends on your goals. If your employer offers a match, a 401(k) is a great place to start. But a traditional IRA could be a great choice if you don't have a 401(k) or want more control over your investment options.

There are also Roth retirement accounts, but these aren't the best option if you want an upfront tax break. Roth accounts require you to pay taxes on your contributions in the year you make them. But then they give you tax-free withdrawals in retirement.

That's not the case with tax-deferred retirement accounts. If you withdraw any money in retirement, you will owe taxes on it. How much depends on which tax bracket you fall into and what deductions and credits you qualify for.

Most retirement accounts also have mandatory annual withdrawals that kick in the year you turn 72. These are known as required minimum distributions (RMDs), and they vary depending on your age and account balance. 401(k) RMDs have an exception for adults still working. That means you don't have to take an RMD from a 401(k) as long as you're still working and don't own more than 5% of the company you work for. In this case, RMDs don't begin until the year you retire.

IRAs don't have this still-working exception, though. If you choose to save in one of these, you will have to take money out of your retirement account each year, though you don't have to spend the funds. You could donate the money to charity and write it off if you don't want to deal with the larger tax bill.

Ultimately, if you plan to use retirement accounts as a tax-savings strategy, make sure you understand the rules and limitations of the account you choose. Think also about which account might serve you best if you do need to retire unexpectedly. Try to choose the one that will be the best fit for you long term.

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