Retirment Accounts: Which One Is Right for You?
Learning which retirement account is right for you seems daunting with all of the options available. Learning more about each of the retirement accounts puts you in control and allows you to make better decisions with your money. Here are the most common retirement account, let’s see which ones work for you.
- 401k retirement account. 401k retirement accounts serve as a retirement savings options for employees of for profit businesses. The employer often matches usually between 3-6% percent of the employee’s contribution. The pretax dollars allows for a reduction in your yearly income by the amount of the contribution. Investors are entitled to the maximum annual contribution of $16,500. Investors over 50 have a cap of $22,000. Free money and lower taxes makes the 401k a retirement gem.
- 403B retirement account. The 403B works like a 401K but is strictly for employees of non profit organizations. Here employees elect a salary reduction which is equal to the amount of the annual contribution. Like the 401K, this account is tax deferred as well. The maximum annual contributions are $16,500. If you are over 50,add an additional $5,550.
- Roth IRA retirement account. A Roth IRA account offers the investor tax free funds upon withdrawal at retirement. The only requirements remains that initial contributions are subject to your ordinary income tax, and your qualifying income for joint flyers is $176,000 and $100,000 and below for single fliers. Roth IRA accounts limit your annual contributions to $5,000 a year for investors under 50, while allowing an additional $1,000 in contributions for those over 50.
- Traditional IRA retirement account. Traditional IRA offers a tax sheltered retirement account with a maximum contribution of $5,000.for investors under 50, and $6,000 for those over 50. The traditional IRA works differently than the Roth because the tax liability does not begin until you begin withdrawing money at retirement. There are no income limits with a traditional IRA, so anyone can enroll.
- SEP IRA retirement account. The SEP IRA which stands for implied employee pension, is just that. The employer enrolls and makes contributions for all of its employees. Self employed individuals can also participate and the maximum contribution is 25% of earnings or up to $49,000 a year. The employee must also be at least 21 and worked three of the last five years at the company in order to be eligible.
Retirement accounts may have different names, but they all serve one purpose. Their goal is to help you save money for a comfortable retirement.