I’ve never worked for a company that offered employer based retirement plans – that was my excuse for not getting started. But, the truth is you don’t have to work for an employer who offers retirement plans in order to save.
You can open up an account yourself with a few clicks of a button. Just watch our free training video to learn how.
Whether you work for a company who offers retirement plans, are self-employed, or want to do a little saving on the side, you have options! Here are a few retirement accounts you can get started with.
Employer Based Retirement Plans
If your employer offers a retirement plan you should take advantage of it for a couple different reasons. First of all many employers offer a match, this means free money for you. Secondly, it’s simple. Your retirement savings are automatically taken out of your paycheck, so the whole process is ‘set it and forget it.’
Here are some of the more common employer based retirement accounts.
A 401(k) is a tax deferred retirement plan, meaning you don’t pay taxes on your contributions until you withdraw from this account, typically during retirement.
With a 401(k) you choose a percentage of your salary to contribute and your employer may match your contributions up to a certain percentage, if offered. (Check with your employer to see if they offer a match.) Then, just make sure that you avoid the most common 401k mistakes.
A 403(b) plan is a tax deferred retirement plan that is for people who work at non-profits and educational organizations (like schools and universities). A 403(b) is treated just like a 401(k), except that it is offered to different workers (and it's number is based on a different part of the tax code). Silly, I know, but you should be aware of this so that you can use it if your non-profit offers one.
If you work for a government agency a 457(b) is most likely offered to you. A 457(b), also sometimes called Deferred Comp, is a retirement account that is also tax deferred.
My boyfriend is an employee for the State of Ohio. He contributes to PERS (Public Employee Retirement System) and also to a 457(b) plan. Taking advantage of both accounts is a great way to really ramp up retirement savings.
In this instance SIMPLE stands for Savings Incentive Match Plan for Employees. This plan is usually offered to employees of small businesses with 100 or less employees.
With these plans you can contribute into an employer provided IRA and your employer will contribute to the account as well.
These aren’t the only retirement accounts offered by employers. If you aren’t sure what type of retirement plans your employer offers check with the HR department. It’s really that simple.
Individual Retirement Accounts
So, if your employer doesn’t offer a retirement plan what should you do? Open one up yourself!
You have a couple of options when it comes to opening up your own retirement account and you’ll need to do a little bit of research to pick the one that best suits your needs.
Here are your options for non-employer based retirement accounts.
The Roth IRA is one of the most talked about retirement accounts there is. A Roth IRA is not tax deferred, meaning that you contribute with money that has already been taxed. In turn when you withdraw from your Roth IRA during retirement, you won’t pay taxes on the withdrawals.
There are annual contribution limits with Roth IRAs. Also, those who are married can contribute about twice as much verses someone who is single, even if their spouse doesn’t work outside the home.
A traditional IRA is a tax deferred retirement account. If you are not offered an employer based retirement plan or don’t participate in the one offered to you, your contributions to a traditional IRA may be tax deductible.
Just like the Roth IRA there are annual contribution limits that you cannot exceed.
Self-Employment Retirement Accounts
If you’re self-employed, no need to worry, you have just as many retirement options as everyone else. In addition to opening up an individual retirement plan you have a few other choices.
Self-Employment Pension (SEP)
With a SEP you can contribute up to 25 percent of your self-employment net earnings to the plan, up to the limit ($52,000 in 2014!)
There are many places in which you can open up an SEP so you’ll be able to choose from different investments.
Other investment options that we already covered, that also apply to the self-employed person are:
- Solo 401(k)
- SIMPLE IRA
Retirement Accounts: You Have Tons of Options
Now when you hear someone (like the old me) say that they can’t save for retirement because their employee doesn’t offer a 401(k), you can point them in the right direction.
When choosing a retirement account my advice would be to keep it simple. If your employer offers a retirement plan with a match, take advantage! Do be sure to do your research so that you understand what you’re investing in but if you have no interest beyond that just keep it simple.
Figure out how much you should be saving for retirement and then automate it. It’s easy to save for retirement when you set it and forget it.
Are you maxing out your retirement accounts? If not, how can I help you save more?