Even if your retirement is far in the future, it’s important to prioritize today. It’s impossible to save 30- or 40-years’ worth of money at the last minute, after all. Fortunately, you have multiple options when it comes to planning for retirement.
Depending on your job status, you might have access to one or more types of retirement accounts. Getting to know these accounts can help you choose the right one for your situation and secure your financial well-being. So, what’s available?
The type of employer-sponsored retirement account you can open will vary based on the classification and size of the business. Companies with fewer than a certain number of employees can offer plans that larger businesses cannot. Nonprofit organizations can also offer their team members retirement plans that aren’t available to for-profit businesses.
Some examples of the types of retirement plans that your employer might offer include:
If you’re a freelancer, own your own business, or are otherwise self-employed, you still have options for retirement, even if you don’t have a plan through an employer. Both SIMPLE IRA and SEP IRAs are available.
Another option is a “one participant 401(k)” plan, or a solo 401(k). A solo 401(k) account is only for self-employed people who don’t have any employees. The one exception to this is spouses who are also employed by their spouse’s company. When you have a solo 401(k), you get to play the role of employee and employer. You can contribute to it (up to $19,500, or $26,000 if over age 50) as an employee and up to 25% of your compensation as the employer.
You might work for an employer that doesn’t offer retirement accounts to its employees, or your status as a part-time worker might mean that you aren’t eligible for a retirement plan through your job. Alternatively, you might want to supplement your employer-sponsored retirement plan with additional savings.
Individual retirement accounts (IRAs) provide you with a way to save for retirement without an employer. Two types of IRA are available: traditional and Roth.
If you open and contribute to a traditional IRA, you can deduct the amount you contribute from your income for the year when you file your taxes. A traditional IRA’s money and earnings grow tax-deferred until you start making withdrawals in retirement.
If you decide to open a Roth IRA, the contributions you make are after-tax, meaning you cannot deduct them from your income for the year. The trade-off is that when you reach retirement and start withdrawing from a Roth IRA, you do not have to pay income tax on the amount you contributed originally or on any earnings in the account.
The contribution limit for a traditional or Roth IRA is $6,000 per year, or $7,000 if you are over age 50. The limit is a combined limit, meaning if you have both a traditional and a Roth IRA, you can put up to $6,000 in the two accounts in total, not up to $6,000 in each.
PSECU has both Roth and traditional IRAs available to help you get your retirement savings on track. Open an account today and check out our Online Learning Center for more helpful tips on saving for retirement.