The Best Retirement Accounts
You already know how important it is to save for retirement, and you have a variety of choices. This article will cover four of the most popular options in an effort to help you decide where to put your money to assist in securing your financial future.
401(k) or 403(b)
Most employers offer a savings plan called a 401(k). This is a good option if your employer also matches part of your contribution because it will help your account value grow more quickly. Similar to 401(k) plans are 403(b) savings plans, but only organizations exempt from federal income tax, such as charities, schools and non-profit organizations, can offer 403(b) savings plans.
Health Savings Account
Another option that you may not realize can save you money for retirement is a Health Savings Account (HSA). These are typically offered if you have a high-deductible health insurance plan. Yearly contribution limits apply; for example, the 2019 contribution limits are $3,500 for an individual or $7,000 for a family. The money in this account can be used for medical expenses. However, if not used, the money rolls over year-to-year and sits in the HSA tax-free.
Roth IRA plans allow you to save based on after-tax dollars, and the money invested grows tax-free. However, you have to wait until age 59 1/2 before you can withdraw funds and not have a tax or penalty imposed. Traditional IRAs force you to take withdrawals after age 70 1/2, but with Roth IRAs, there are no such mandates. There are limits to how much you can earn in order to contribute to a Roth IRA, however. If you make too much money now, you can open and contribute to a traditional IRA and convert it to a Roth IRA at a later time.
Probably the most common type of IRA is a traditional IRA. Yearly contributions are often tax-deductible, and earnings are not taxed until you make a withdrawal. Investing in a traditional IRA allows you to have a wide variety of investment options. A bank or a brokerage firm can assist you in opening a traditional IRA.
If you’re a small business owner or self-employed, then a SEP (simplified employee pension) may be the best choice for you. Yearly contribution limits max out at $56,000 or 25 percent of your income (as long as it’s less than $56,000). Also, you as the employer must contribute to SEP IRAs for your employees if they are at least 21 years old, have earned at least $600, and have worked for your business for three of the last five years.