No longer do people rely on employee pension plans to fund their retirement years. Social security is not a very stable retirement option as the current population is aging into the years where benefits take over and fewer workers are paying into the system. The only forms of retirement you can be sure will be there when you reach your time to retire is your own plan.
These come in the form of 401ks, IRAs, 403Bs, and 457 plans. The type of plan you chose is highly depended on where you work and what your goals are.
- Individual retirement plans are in the form of traditional, rollover, spousal, roth, and myIRAs.
- Employer-sponsored retirement plans, also called contribution plans, come in the form of 401ks, roth 401ks, 403bs, 457bs, and thrift savings plans.
- Self-employed persons typical retirement programs come in the forms of SEP IRAs, solo 401ks, solo roth IRAs, profit sharing, and payroll deduction IRAs.
Let’s take a closer look at each type of retirement plan so you know what are the pros and cons of each plan.
IRAs are accounts that anyone can set up at a financial institution, QuestIRA, or brokerage firm. These places hold investments, including stocks, mutual funds, bonds, and cash that are intended to be used for retirement. Depending on the type of IRA program that you have, the Government has limits on how taxes are paid and how much you may contribute each year to the program.
There are five types of IRA accounts you can choose from. These include:
- Traditional IRA
- Roth IRA
- Spousal IRA
- Rollover IRA
401ks are the typical employer contribution plans that you will likely be eligible for at your place of work. These plans are set up in an individual account under the company plan. All the setup is done via your employer, which makes this very easy for anyone to get.
With 401ks, employers will typically deduct your contribution via your payroll check. Employers will match your personal contribution to varying degrees. Some employers will match you dollar-for-dollar, while others may match 50-cents-to-the-dollar or less.
The major advantages of these programs are that you get free money from your employer towards your retirement savings and your contribution limit is much higher than IRAs. A couple disadvantages you need to be aware of are that 401ks can require administrative fees to be paid and newer employees may have to make it through a vesting period before they can claim access to their contributions.
There are many self-employed programs that you can participate in. These include various types of IRAs, 401ks, and profit sharing. There are too many to discuss here, but let’s discuss the general advantages to these programs.
These programs are available to those who do not have access to an employer contribution plan. These plans have more investment choices than employer-sponsored 401k plans. Self-employed programs allow for high yearly contributions and they are fairly simple to set up.