For most people, saving for retirement means making steady contributions to a 401(k) until they hit a specific goal. However, a broader approach to saving and investing offers more options for building that nest egg.

Keep in mind that where you put your money is as important as how much you save. That’s because each savings strategy has tax considerations that can impact how much you’ll have when it’s time to take the money out. By keeping a mix of tax-free and tax-deferred sources of income, you’ll have the flexibility to withdraw funds strategically during retirement, based on tax and market implications.

While tax-qualified retirement plans like 401(k)s and 403(b)s are the most common retirement savings plans, they shouldn’t be your only option. These plans give you the ability to make pretax contributions that reduce your taxable income today. However, you’ll have to pay taxes on those dollars when you make withdrawals. This can greatly reduce the amount of money you’ll have to spend when you’re retired.

To build well-diversified income sources for retirement, consider a broader approach toward saving and investing by having a mix of assets that complement your 401(k) and help fill in financial gaps based on your needs, goals and tax situation.

Here are a few other options to consider:

·       Deferred annuities: These allow you to accumulate retirement funds on a tax-deferred basis and can be designed to provide a stream of lifetime income during retirement.

·       Investments: Outside of a traditional retirement account, investments are bought with after-tax dollars. When you sell those investments, the growth of the investment (the amount earned beyond the initial investment) is generally taxed at the capital gains rate—which is lower than your ordinary tax rate.

·       Traditional IRAs: Earnings for Individual Retirement Accounts (IRAs) grow tax deferred and contributions may be tax deductible, depending on your income and whether you also participate in an employer-sponsored retirement plan. There are annual contribution limits that vary with age.

·       Roth IRAs: Contributions are made after you pay taxes, so they will not reduce your taxable income today. Your money grows tax free and distributions from your Roth are usually tax free during retirement. In addition to annual contribution limits that vary with age, the ability to contribute is limited based on your income.

Roth 401(k)s: These offer all of the characteristics of a Roth IRA (tax-free growth and tax-free distributions) but have no income limits for contributions. Your employer must offer this benefit in order for you to participate, and annual contribution limits still apply, which again vary with age.

Choosing the right combination of retirement income sources is an individual decision and should be part of a comprehensive financial plan. A financial professional can help you create this plan and provide a detailed analysis of optimum retirement savings strategies, considering your risk tolerance, investment time frame and distribution needs. With the right strategy, you can plan to save enough and in the right places so you’re better able to meet your retirement goals and dreams.

Article prepared by Northwestern Mutual with the cooperation of Kanan Sachdeva. This publication is for educational purposes only. It is not intended as an endorsement of any specific financial product or strategy and does not constitute legal or tax advice. Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company (NM) (life and disability insurance, annuities, and life insurance with long-term care benefits), Milwaukee, Wisconsin, and its subsidiaries. Securities are offered through Northwestern Mutual Investment Services, LLC (NMIS), a subsidiary of NM, broker-dealer, registered investment adviser, member of FINRA and SIPC. Kanan Sachdeva is an agent of NM and registered representative of NMIS based in Westborough, MA. To contact Kanan Sachdeva, please call (781) 248-8640, email her at kanan.sachdeva@nm.com or visit her Web site at kanansachdeva@nm.com.

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