Do you feel confused about which retirement savings accounts you should be contributing to? You're definitely not alone; our retirement planning advisors field questions about retirement savings accounts and options every day.
In fact, a recent survey of more than 1,000 401(k) plan participants found that almost half of those surveyed didn't feel confident about their retirement investment decisions, and about a third felt pretty stressed out over it. Fortunately, there are a number of plans available to help you save for retirement -- and our retirement investment advisors can help you decide which options are best for you.
Employer-Sponsored 401(k) or 403(b): Part of Your Comprehensive Financial Plan
Many for-profit employers offers 401(k) plans, while non-profits and many educational institutions offer 403(b) plans. Both allow you to contribute pre-tax dollars through payroll deduction. Better yet, many employers also offer contribution match plans, in which they'll match up to a certain percentage of your contribution -- a perk the rational investor should take advantage of.
In 2015, workers under age 50 can contribute up to $18,000 to a 401(k) or 403(b) annually. If you are 50 or older, you can contribute an additional $6,000 on top of the initial $18,000. If you are a sole proprietor, you can set up a solo 401(k) and contribute as the employee and as the employer, up to $53,000 for those under age 50 and up to $59,000 for those over age 50.
What happens if you change jobs? Simply talk to your retirement plan advisor about 401(k) rollover options, and take your account with you to your new job, if allowable.
Add an IRA to your Financial Strategies
Individual Retirement Accounts, or IRAs, come in a range of shapes and sizes for different investors. You can contribute up to $5,500 to your IRA in 2015 (add an extra $1,000 to that figure if you're 50 or older) and let the money grow tax free. You can contribute to both an IRA and a 401k, but the rules governing the deductions from taxable income depend on your overall income, so speak to your retirement planning advisor to get the details.
In contrast, the Roth IRA allows you to contribute after-tax dollars, grow your investment tax-free and take distributions tax-free after age 59 1/2. Unlike many other retirement savings accounts, you aren't compelled to start taking disbursements at age 70 1/2. However, your income levels determine how much you can contribute to a Roth.
Self-employed individuals or small business owners may want to consider the Simplified Employee Pension or SEP IRA. This account allows you, as the employer, to contribute the lesser of $53,000 or 25 percent of your income. There's also the Simple IRA; this type of account allows small-business owners with less than 100 employees to easily set up IRAs for employees.
Other Options for Your Investment Planning
Finally, the Health Savings Account (HSA) may allow you to save pre-tax dollars. If you have high-deductible health insurance, you can use HSA funds to cover certain allowable medical expenses. The money rolls over, and once you hit age 65, you can withdraw any leftover funds -- but you will have to pay income tax on any distributions you take if you don't spend the money on qualified medical expenses.
Your retirement planning advisor can help you sort through your options and determine the best retirement savings accounts for your needs.