Planning for your retirement is essential and you should start while you’re young. It takes time to save money for retirement and there are various types of retirement accounts for you to consider. Read on to learn about the different types of retirement accounts that you can choose from.
401ks are one of the most common types of retirement plans that people like to use. This is generally considered to be a workplace retirement account that employees will have access to as a benefit. You can contribute portions of your paycheck to this account and it can even be used to reduce the amount of income that you’ll be taxed on in a given year. You could choose to put a portion of your salary in your 401k as a tax-deferred investment and can then reap the rewards of that choice later on in life.
Individual retirement accounts (IRAs) are another common retirement option that you’ll see people using. This account can be used to invest in things such as stocks, bonds, ETFs, mutual funds, and various other types of investments. Some people make investment decisions themselves and others hire professionals to do it. You can also deduct IRA contributions from your taxes if you don’t already have a 401k account.
The Roth IRA is very similar to what is described above except that your contributions are made with after-tax dollars. The good thing is that the money that you make with this IRA will not be taxed again. It’s also possible to withdraw money from a Roth IRA without having to worry about facing a penalty. This makes it a more flexible retirement account option that you could use in emergency situations.
As you might expect, a Roth 401k is a 401k account that works similarly to the Roth IRA mentioned above. The contributions will come from your paycheck that has already been taxed. You also won’t have to worry about being taxed again after this. This is a fairly new type of retirement account but it’s steadily gaining in popularity.
Simple IRAs aren’t too dissimilar from standard 401k accounts. This is a retirement account that is offered by small businesses that have up to one hundred employees. You make contributions with your pre-tax paycheck and your money will keep growing tax-deferred until the time you decide to retire. The downside is that you can’t borrow from a simple IRA and there are penalties for distributions taken within two years of starting the plan.
Finally, the SEP IRA is an IRA option for self-employed individuals. You can contribute portions of your income to this retirement account when you have no employees. Contributions are deductible from your taxable income.