The Best Retirement Plans Everyone Should Consider
If you’re deciding on what type of retirement plan you should choose, make sure you know about all of your options. Here are the best retirement plans you should consider.
If it’s your dream to move into the retirement village of your choice and live out your golden years, you’ll need to do some financial planning now.
The truth is that the longer you wait to get started with a retirement plan, the less you’ll get out of it. For that reason, you need to start planning for your future now, unless you expect to win the lottery at some point.
With so many options out there, it can be hard to decide which one is best for you. That’s why we put together this list of the best retirement plans.
Keep reading to figure out which of these retirement savings plans will help you accomplish your dreams.
IRA
Setting up an IRA is a great way to save for retirement. If you’re under the age of 50, you can contribute up to $5,500 per year. If you’re over 50, you can add an extra $1,000 every year to get the most out of it.
There are no taxes on the increases you get from your IRA, and you can contribute to this in addition to a 401(k) plan. Another benefit to this type of retirement plan is that the contributions you make could be tax deductible.
Single tax filers can deduct these contributions as long as they make less than $71,000 per year, and joint filers can do so up to $118,000. Additionally, if your employer doesn’t offer a retirement plan, then you can deduct these no matter how much you make.
Roth IRA
When you add money to a Roth IRA account, you do so with income that you already paid taxes on, so you don’t get a tax deduction for these contributions. However, there are some advantages to choosing a Roth IRA over a regular one.
After you reach the age of 59 and a half, you can withdraw your money without needing to pay taxes on it. Additionally, where a regular IRA requires you to withdraw everything at the age of 70, there’s no such mandatory withdrawal with a Roth IRA.
There are also higher income limits with a Roth IRA, making it ideal for someone who earns too much for a regular IRA. You can make up to $131,000 per year as a single filer or up to $193,000 as a joint filer.
One thing to keep in mind with IRA’s is that you can contribute to both a traditional and a Roth IRA. However, you have to divide the total amount that you contribute between the two.
What some people choose to do is contribute only to a traditional IRA until they retire or else get close to retirement age. Then, they convert it into a Roth IRA to gain the advantages that come with that.
Simple IRA
If your employer has less than 100 employees, they can set up a simple IRA which requires less paperwork. The biggest benefit to this type of IRA is the amount that you can contribute every year.
Unlike the other IRA’s mentioned so far, you can contribute up to $12,500 if you’re under the age of 50, and up to $15,500 if you’re over the age of 50. This allows you to put aside a much larger amount of money for retirement.
This type of IRA also requires your employer to contribute so you can get even more bang for your buck. Your employer can choose to either match the amount that you’re putting in, or make unmatched contributions for you.
SEP IRA
If you’re self-employed or work for a small business, this may be the best retirement plan for you. Since these accounts are easier for someone to set up than a solo 401(k), many self-employed people choose a SEP IRA.
The total amount you can contribute every year is even higher than the other types of IRA’s, which also makes it ideal for the self-employed. You can contribute up to $53,000 or 25% of your income, whichever is less.
Keep in mind as a small business owner, however, that if you do set up this type of IRA, you have to contribute to the accounts of any of your employees that qualify.
401(k) or 403(b)
These are both retirement plans offered through employers. Any for-profit business can offer a 401(k), whereas a 403(b) is for non-profit organizations and offered to most teachers. Otherwise, they essentially are the same thing.
Most people will find this to be the easiest way to save for retirement since your employer already set one up for you. It’s also easy because you can usually set up an automatic deduction plan so you don’t even have to think about it.
One of the biggest benefits of using the 401(k) or 403(b) is that many employers offer a match plan. So, the more you add to your account, the more your employer adds, which is essentially free money.
These plans are also nice because roll over to new employers. It’s something you can continue to add to even if you find yourself in different jobs over the years.
As far as contribution amounts go, those under the age of 50 can add up to $18,000 every year. If you’re over 50, you can add up to $24,000 each year. These large amounts will help ensure you have more than enough money to retire with.
Solo 401(k)
This retirement plan is another one that’s been designed for the self-employed. You can also set up one of these accounts on your own if your employer doesn’t have any plans in place for you.
With this type of 401(k) plan, you have the opportunity to contribute both as an individual and as an employer. You can add a much larger amount to your account every month.
People under the age of 50 can add up to $53,000 every year and those over 50 can add up to $59,000 to their retirement account every year. If you’re able to maximize this account, you should be set when you retire.
For more information about how a solo 401(k) can help you, you can discover more here. You’ll find out more about the advantages and disadvantages of this type of plan and see if it will work for you.
What many people do is focus on contributing as much as possible to their 401(k), especially if their employer matches their contributions. Then, if they still want to save more, they will open an IRA and contribute to that as well.
Open a Retirement Savings Account
This is something you can do on your own to ensure that you’ll have money when it’s time to retire. All you have to do is set up a separate savings account with your bank and start adding to it. Don’t touch it until you retire, and you’ll have a nice nest egg when you get to that point.
Here are a few ways you can help this account grow:
Choose a Higher Interest Rate
Although it may be easier to open another account with your current bank, you may also consider shopping around for a bank that has a higher interest rate for savings accounts.
This is a simple and easy way to get free money. Plus, the more you save, the more interest you earn. Even though it won’t be a lot, every little bit helps.
Take a Little Off the Top
The first thing you should do with each paycheck is to take 10% of what you’re taking home and put it into your retirement savings account. It will surprise you how much this practice will help your funds grow and how little you miss it.
If possible, you should try to increase this percentage by 1% every year until you’re saving 20% of your income. Small increases in how much you take out of your income will allow you to make adjustments in spending.
Contribute the Extras
Got a raise or a bonus? Instead of using it to buy a bigger flat screen or more Starbucks, why not add it to your retirement savings? After all, it’s extra money that you weren’t relying on before, so you won’t miss it in your budget.
This especially goes for your tax return. You can even choose to use Form 8888 to have the IRS direct it right into your IRA for you if you’re not already maxing out that retirement account.
Sell and Save
Another way to save some extra money for retirement is to look around your house and sell things you don’t need or want. It’s surprising how much you can make by having a garage sale.
Then, take everything you made and put it right into your retirement saving account for a big bonus that you can benefit from later. You’ll also love having a clutter-free home.
How to Choose the Best Retirement Plans for You
Every situation and every individual is different, so there’s no one plan that’s best for everyone. Instead, consider which of these best retirement plans will help you save the most and go with it.
All in all, diversification is best, so if you can contribute to more than one plan, you should do so! Don’t forget to check out our blog for more lifestyle tips!
