Retirement Savings Accounts
Retirement Savings accounts are tax shelters that the federal government has provided in order to encourage people to invest for their own future. Each has different contribution limits and different criteria from workplace to income levels to qualify for the accounts.
IRA (Individual Retirement Account)
The individual retirement savings account is open to most US citizens who earned any income. One is allowed to invest up to $5000 per year unless you’re over 50 and then you can invest $6000 each year.
ROTH Individual Retirement Saving Account (ROTH IRA)
A ROTH IRA is used to have tax free growth with no taxes when you pull the money from the account in retirement. If you are young and will likely save a lot of money over your life this can be a very valuable option. Though I am skeptical the federal government will keep their hands off this account.
The ROTH is phased out at higher income levels so talk with a professional accountant to understand what you can contribute if any.
401k
The 401k allows you to contribute up to $16,500 per year unless you’re over 50 and then you can contribute $22,000 per year. Unless you make more than $110,000 per year you’ll be able to contribute the maximum amount each year. I would generally advise you put money into an IRA first so you have more control and options. Though many companies offer investment matches which should always be taken advantage of.
SIMPLE IRA
A SIMPLE Individual Retirement Saving Account is for the small company. It’s a low cost option which allows a company match. Each employee can contribute up to $11,500 per year.
SEP IRA
The SEP IRA is designed for the self employed. This is an awesome tax shelter if you don’t need all of your income to get by. The entrepreneur can contribute 25% of their income up to $49,000 per year. That’s a lot of tax savings.
403B
If you are in public education or a charity you have nothing to fear, you can plan for retirement also. The 403b is exactly like the corporate 401k.
Section 457
If you are a government official you get your own 401k also with perks. You don’t get penalized for taking your money early, so there really is no retirement age. Just grow your money tax free and enjoy when you wish. If they wish they can have contractors contribute to a Section 457 also.
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- Roth IRA Basic Advice
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