Retirement plans may be going the way of the dinosaur but the younger generation of today should be aware of the fact that saving more for retirement is the wisest thing to do. Listed below are the simplest, no-nonsense and easy-to-understand retirement savings plans and accounts that one can choose:
403(b)/401(k) offered by employer: This is the best and easiest way for you to begin investing for retirement. Employee contributions go through payroll deduction, and employers match employee contributions. If you decide to quit your job, make sure that you roll over the account into the 401(k) plan of your new company or into your own IRA. A 403(b) is an option for employees of non-profits, teachers, etc.
Solo 401(k): For sole proprietors, the best thing to do is to set up an individual 401(k) account and make contributions as both the employer and employee up to $54,000($60,000 for individuals above the age of 60 years).
SEP (Simplified Employee Pension) IRA: This SEP IRA is usually used and employed by proprietors and owners of small-sized businesses or those who are self-employed such as freelancers. Employers can contribute either $54,000 or an amount which is up to 25% percent of their income, in 2017, whichever amount is lesser. SEP IRAs are easier to set up as compared to a solo 401(k) account. One should remember that if one has employees, then the employer must make employee contributions for those who meet specific requirements.
Simple IRA: A Simple IRA retirement plan allows companies with less number of employees (lesser than 100) to arrange for IRAs which involve lesser headache and paperwork. In a Simple IRA, an employer should either make unmatched contributions or match employee contributions, with the limits being up to $12,500 in 2017, with an additional $3,000 allowed for people above the age of 50.
IRA: IRAs are the big kahuna of retirement investment plans. You could contribute up to $5,500 a year to an IRA, which grows tax-free ($6,500 if you’re over the age of 50). You could set up an IRA at a brokerage firm or a bank to hold a motley of investments such as cash, bonds, MFs and stocks which are earmarked as retirement savings. If you’re not covered by a retirement plan at work such as a 401(k), you get the advantage of a full deduction from your income, no matter how much it is (exceptions are if you file jointly with a spouse who has a work retirement plan or if you are covered by a 401(k) and your earnings exceed $71,000).