Saving for retirement is extremely important because you want to enjoy yourself at an older age. Working hard for so long is fine if you know you’re going to have something good, but you need to know what you’re doing to make the most out of your saving over the years. That involves using suitable retirement account types.
There are six different retirement account types: a 401(k), Traditional IRA, Roth IRA, SEP IRA, Simple IRA, and Solo 401(k).
The 401(k) is the traditional retirement account that you get through an employer, making it simple to sign up for. It often has matching contributions from your employer, and you can contribute quite a bit. It grows tax-free until withdrawal, but you often have few investment options.
A Traditional IRA is available to absolutely anyone who wants to create one. It offers a wide range of different investment options. And it grows tax-free, but you’re not able to contribute very much every year.
A Roth IRA is very similar to a Traditional in the amount you can invest and the investment options. Still, this one allows you to pay your taxes up-front rather than at the end, so you don’t have to pay taxes when you withdraw the money. But there are some times when paying taxes upfront might cost you more in the long run.
SEP IRA is designed for small business owners or those who are self-employed. It lets you invest as much as you want, up to 25% of your net income. The account is always 100% vested, but if you have employees, you have to invest for all your employees (not just yourself).
Retirement Account Types With Simplicity
The Simple IRA is straightforward to get started with. The employer matches contributions up to 3% or salary up to 2%. However, there are some limits on just how much you can invest, which is lower than some plans.
A Solo 401(k) is the last one designed for business owners or ‘solopreneurs.’ With this type of account, you can invest absolutely anything you want, up to 100% of your income (up to $20,500). In addition, you can choose it to be pre or post-tax. On the other hand, these accounts can be challenging to set up.
If you’re a solopreneur looking to start your retirement planning, Rocket Dollar can help you. You can get your entirely customizable, flexible retirement plan to work for you using our self-directed IRA as a service platform to help you understand retirement account types and more.