How to Choose the Right Retirement Plan

Going into retirement is a big step, and many people feel that they are not prepared for it. However, with proper planning, you can retire comfortably without feeling like you are giving up all the things that you enjoyed about working life. One decision that people have to make is which retirement plan would be best for them. This choice will affect how much money they earn in retirement, how much they have to pay in taxes, and when they can start collecting benefits. Here are your choices and how to pick the right one for you. 

The 401(k)

A 401(k) is offered by many employers as part of their benefits package. As of 2015, you can contribute up to $18,000 per year into your 401(k), taxed at the same rate that you pay currently. You do not have to pay taxes on any income until it is withdrawn from your account. If someone starts collecting before the age of 59 1/2, they will be subject to a 10% penalty and income tax on all money withdrawn. If you need the money before this age either because of an emergency or to pay for college expenses, you can take out what is referred to as a “substantial equal periodic payment” that will allow you access to your funds without penalties. 

You also have the option of rolling over your money. Whether it’s a gold 401k rollover or a silver 401k rollover, this is a major benefit. When choosing a 401(k) plan, there are a number of factors you should consider. These include investment options, fees associated with the plan, and whether your employer matches funds.

The Roth IRA

A Roth IRA works much like a 401(k), but it is an individual account that only costs the owner money if they decide to withdraw their funds before they turn 59 1/2. The contribution limit for a Roth IRA is $5,500 for those under 50 and $6,500 for those over 50. You can contribute to a Roth IRA even if you already have a 401(k). Income limits do apply, and the account must be open for five years before any withdrawals can be made without penalty. 

One of the biggest benefits of a Roth IRA is that you can continue to contribute to it even after you reach retirement age. This means that you can use it as a supplemental income in addition to Social Security or a pension. When choosing a Roth IRA, you should look at the investment options, fees, and how long you have to make contributions. 

The Traditional IRA

A Traditional IRA is similar to a 401(k) in most ways, but it has some big differences. Contributions are capped at $5,500 for those under 50 and $6,500 for people over 50, although these limits increase when you reach age 50 or older. Money can be taken out of the account at any time, but if it is before the age of 59 1/2, not only will you be subject to income taxes and a 10% penalty on all withdrawals, but you also won’t be allowed to re-contribute that money without penalties. You can contribute to both a Traditional IRA and a Roth IRA at the same time, but your total contribution cannot exceed $5,500 (or $6,500 if you are 50 or older). 

When choosing a Traditional IRA, you should look at the fees, investment options, and whether your employer matches funds. 

The 403(b)

A 403(b) is very similar to a 401(k), but it is offered by nonprofits and public schools. The contribution limit is $18,000 per year, and there are no income restrictions like there are with a Roth IRA. However, you cannot contribute if you already have a 401(k). 

When choosing a 403(b), you should look at the investment options, fees, and employer match. 

The SEP IRA

A SEP IRA is a retirement account that is very similar to a Traditional IRA but is available to business owners and their employees. The contribution limit for a SEP IRA is 25% of your income or $54,000 per year, whichever is less. The account must be open for at least five years before any withdrawals can be made without penalty. 

When choosing a SEP IRA, you should look at the investment options, fees, and how long you have to make contributions. 

The SIMPLE IRA

A SIMPLE IRA is a retirement account that is similar to a 401(k) but is available to small business owners and their employees. The contribution limit for a SIMPLE IRA is $12,500 per year, and there are no income restrictions like there are with a Roth IRA. Employees can contribute up to $8,500 per year. 

When choosing a SIMPLE IRA, you should look at the investment options and fees. 

The most important thing to consider when choosing a retirement plan is your ability to contribute. This depends on your salary and age. One of the best ways to determine if you are able to contribute to a retirement account is by using the IRS’s IRA eligibility calculator. You should also consider your investment options and fees, and whether or not your employer matches funds.