Which Is the Best Retirement Account for You?
Retirement Plan Basics
There are several types of retirement plans available. Each of them have their good points and they are all a little different. Some of these retirement plans allow a person to deposit money into their retirement account before taxes. Others let you withdraw the money early with no penalties for certain situations, such as buying a home.Be sure to ask your employer about retirement plans that are available through your company. Many companies match the amount you contribute to your retirement up to a specific percentage. Here is a breakdown of some of the retirement plans that are available to individuals.
Types of Retirement Accounts
A 401k is the type of retirement plan usually available from employers. This is the plan mentioned above in which some companies will match your contributions up to a certain amount. If your company offers this, definitely consider contributing. It's like getting a raise with tax benefits.An IRA, or Individual Retirement Account, is a tax-deferred retirement account. This means that you don't have to pay the taxes on your contributions until you withdraw your money. With IRAs, the owner can invest the money however they wish. Some people's IRA accounts are partially or completely tax-deductible. $2,000 is the current limit for the yearly contribution to an IRA account.Keogh plans are special IRA accounts for people who are self-employed. One of the advantages to a Keogh account is that much more money is allowed to be deposited than with a traditional IRA.A Roth IRA isn't tax-deferred like a traditional IRA account. However, a Roth IRA charges no federal taxes at all when you withdraw at retirement. You can also withdraw money from a Roth IRA to buy a home with no federal taxes charged. Money can be withdrawn early from a Roth IRA also to pay for medical bills or college. Unlike traditional IRAs, you can continue contributing to a Roth IRA even after you are 70 1/2 years old.The Simplified Employee Pension Plan, SEP, is a type of Keogh account. SEPs were set up so that small businesses could set up pension plans for their employees. Employees and employers themselves can contribute to SEPs.Spousal IRAs are available for employees who have non-working spouses. You have to be married at the end of the tax year and file a joint return to qualify. Both conventional IRAs and Roth IRAs can qualify.Check with a tax professional for advice before choosing a retirement account. Each individual's tax situation varies and tax codes change often.