One of the most common financial objectives is saving for retirement. To achieve that goal financial planners have a number of tools available. Examples of retirement accounts include: IRA, Roth IRA, 401k, 403b, SIMPLE, SEP, or Qualified Plans have different features and benefits.
The two options for individuals saving for retirement are an Individual Retirement Account (IRA) or a Roth IRA. The difference between the two is how each is taxed.
- Traditional IRAis tax deductible for the year you make the contribution. The account grows tax deferred and is then taxed when you take the money out (penalty free after age 59 ½).
- Roth IRAdoes not allow for a deduction however it grows tax deferred and is not taxed when you take money out at retirement (penalty free after age 59 ½).
For those running a small business or even a single employee professional there are more options:
- 401(k) planis what most people think of when they think of a company sponsored plan. There are both pretax and Roth (post tax) options and there are a wide variety of investment choices available including stocks, bonds, mutual funds and life insurance. These plans require annual reporting to the IRS but often allow the greatest flexibility to the employer even in the case where there are no employees.
- 403(b)are often seen in school districts, hospitals or government employers. These plans often offer the employee the flexibility to choose their own advisor and investment company from an approved list.
- SIMPLE IRA plan(Savings Incentive Match Plan for Employees) a SIMPLE is just that a simpler version of a 401k plan without some of the challenges of starting and maintaining a plan for a small business. SIMPLE plans allow participant contributions and matches and avoid some of the difficulties in filing and administering that are inherent in a 401K plans.
- SEP IRA plan(Simplified Employee Pension Plan) a SEP is an often-overlooked tool that is particularly beneficial to solo professionals, freelancers and people with side income projects. The contribution rules are quite different from the other plans which may be advantageous to certain professionals.
Tyrpak Wealth Strategies has decades of experience working with our clients to create custom solutions for their small business retirement plans. If you already have a plan in place, we are happy to review and advise regarding current options and strategies.