A Primer on Retirement Accounts

Thinking about saving for retirement can quickly send even the most well-prepared of investors into a tail-spin of stress. By getting a firm grasp on the types of accounts available to support your retirement savings goals, you can be better equipped to prioritize your contributions.
Individual Retirement Accounts
Often referred to as IRAs, there are four main types of accounts you should be aware of, the Roth, Traditional, SEP-IRA, and SIMPLE IRA. The primary different between a Traditional and a Roth IRA is that the Roth is funded with after-tax dollars while the Traditional is funded with pre-tax money, meaning that contributions made to a Roth IRA are able to grow tax-free. A SEP-IRA can only be established for you by your employer, they are most typically created by small business owners or those who are self-employed. A SIMPLE IRA is similar in that it is also typically used by smaller businesses, usually those that may have less than 100 employees. In 2019, the annual contribution cap for IRAs was bumped up to $6,000.
401(k)
Offered by many employers, the 401(k) is an account that includes contributed made with pre-tax dollars. Some employers offer a match to your contribution up to a specific limit, this match should be given consideration when prioritizing your contributions. The tax on your contributions is deferred, meaning that you will need to pay taxes on in when it’s withdrawn down the road. For those that are self-employed and don’t have any employees, you can explore establishing a Solo 401(k). The annual 401(k) maximum contribution was also increase din 2019, to $19,000. Notably, though they don’t happen often, retirement contributions limits are subject to change at the discretion of the IRS.
Learning about the retirement accounts available to your is a valuable first step you have taken in establishing financial retirement security.
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