Retirement Accounts

Retirement accounts are essential to planning a comfortable financial future, a fact that becomes increasingly pertinent as more and more Americans find it difficult to retire on Social Security benefits alone. It's not always easy, however, to determine what retirement accounts are right for you. Even simple 401k and IRA accounts come in a variety of options that can affect how you are taxed and what kind of return you will see on your savings. Fortunately, you don't need to be an expert in finance to develop a smart savings plan. Many personal finance consultants specialize in retirement accounts and can offer relevant advice as to which investments will work best for you based on your age, income, risk preferences and lifestyle. A good personal finance advisor will help you target your long-term goals and choose accounts that are most likely to help you reach those goals.

Basic Retirement Funds

The two most basic retirement accounts available are 401k plans and Individual Retirement Accounts, or IRAs. All wage earners may enroll in an IRA account, although your ability to enroll in a 401k plan depends on whether or not your employer offers this option. If your employer offers 401k, you are legally allowed to contribute up to $16,500 a year. Most employers will deduct contributions directly from your paycheck. You can decide how much to contribute and what kind of portfolio to invest in, whether it's a high-risk, high-yield Aggressive Growth fund or a low-risk Stable Value Fund. Most people choose something in the middle, like a Mutual Fund.

Once you reach age 50, you can increase your contribution to your 401k plan by $5,500 in "catch up" funds, for a total of $22,000 a year. Some employers elect to match employee contributions, although this isn't a requirement. Another advantage of 401k accounts is that they are tax deferred, which means interest can accumulate tax-free on your contribution until you start withdrawing funds. IRA accounts work similarly to 401k plans in that you can set up contributions to be deducted automatically from your paycheck. You are allowed to contribute up to $5,000 a year until you reach age 50, when you can start contributing an extra $1,000 in "catch up" funds. One of the biggest benefits of an IRA is that you can open an account even if you already have a 401k plan. In most cases, IRAs are tax deferred. If you would rather pay taxes as you contribute and withdraw tax-free, you can enroll in a Roth IRA.

Accounts for Self-Employed Workers

If you work as an independent contractor or own a small business, you are probably not eligible for 401k or IRA accounts, but you do have several alternatives. If you are a small business owner with fewer than 100 employees, one of these options is a SIMPLE IRA plan. SIMPLE is an acronym that stands for Savings Incentive Match Plan for Employees. These retirement plans allow employees of small businesses to contribute up to $11,500 through salary reduction. An employer must either match that contribution by up to 3 percent of the employee's salary or contribute a flat 2 percent of the employee's overall salary. All employees that make at least $5,000 a year at a company with a SIMPLE IRA plan are eligible to receive benefits. If you are a small business owner, a financial consultant can discuss alternatives to a SIMPLE IRA with you.

Retirement Options for Nonprofit Employees

If you work for a nonprofit or government organization, you have a unique option. Rather than a 401k, you are eligible to enroll in a 403b plan. School teachers, social workers, police officers and employees of charity organizations are just a few examples of people who are eligible to receive 403b retirement benefits. Like 401k, 403b retirement accounts allow you to make tax-deferred contributions of up to $16,500 a year with the option to add "catch up" funds once you turn 50. With a 403b plan you arrange salary deductions through your employer and choose from a list of vendors as where to invest your money. Like 401k, your options will include both low and high risk funds. A financial advisor can help you determine the best retirement accounts for you given your age and long-term objectives.

Although you know retirement accounts are important, sorting through all your options can seem daunting. Finding a trusted financial advisor who can help you decide which retirement plan is right for you, whether it's a 401k plan with an aggressive investment fund or an IRA invested only in bonds. The good news is that it doesn't matter if you know nothing about how to plan your retirement. Researching firms in your area can help you find a local financial consultant who specializes in retirement accounts.

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