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Types of retirement accounts
SEP - Simplified Employee Pension. This is a common retirement plan for companies that only have about 25 employees or less. This is a simple retirement plan to use and it allows you to have money to live off. Individuals that are self-employed often turn to an SEP plan as it does give you an option to earn money for retirement and the IRS paperwork is minimal compared to that of the larger retirement accounts. The small businesses that offer the SEP will contribute to the plan and the employee doesn't actually need to contribute to the plan. Instead you will receive a statement showing you the shares that you have and when the money will become available. In some companies the money is offered over a pay-out period where others may provide you with the option to put it into a retirement account. Simple IRA - Many employers offer this type of retirement account. Many people like it because you can deduct it from your taxes now. The downside is that you will have to pay a heavy tax bill when you retire and start pulling money from the account. Since we do know that taxes will keep going up, you can expect to have your hard-earned money be heavily taxed in the future. Be smart and opt for the Roth IRA. You will pay taxes now but once you retire, the money is yours and you don't have to pay more just to withdrawal the money you saved. Either way, the IRA is a great way to save as most employers will match your contribution amount up to 3%. 401(k) plan - These are very common retirement accounts offered by employers. The 401(k) plan does have very strict limitations on it so it is important that you take the time to research it and understand the penalties. There are some penalties for dipping into your retirement early in order to acquire money for a hardship withdrawal and other things. Employers do tend to provide you with a matching contribution, which makes the plan a smart investment. If possible, convert to a Roth 401(k) plan so you can pay taxes now and save yourself money in the long-run as we know the taxes will be much higher in 10, 20, 30 or 40 years. The maximum amount you are allowed to contribute to a 401(k) is $16,500 but this amount may be adjusted in the future so it is important to learn more about your 401(k) plan through your employer. |
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