There are many types of retirement accounts available. The most common one is listed below:
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401(k) or 403(b) Offered by your employer
For most people, a 401(k) plan is the easiest and best place to start investing for retirement. The money is withheld through payroll deduction, and could save up to $19,000 of your pre-tax income in 2019 ($25,000 if you are 50 or older). If you leave your job, you can roll the account over into a new employer’s 401(k) or your own IRA. A 401(k) is usually offered by a for-profit company, while teachers and other employees of nonprofits may be offered a 403(b) instead.
Solo 401(k)
A sole proprietor can set up an individual 401(k) and make contributions as both the employee and employer, up to a total of $56,000 in 2019 (or $62,000 for someone 50 or over).
SEP IRA
SEP stands for simplified employee pension, and this kind of account is used primarily by the self-employed or small business owners. As the employer, you can contribute up to 25 percent of your income or $56,000 in 2019, whichever is less. These accounts are easier to set up than a solo 401(k). If the business has employees, the employer must contribute to all who meet certain requirements.
Simple IRA
This plan allows small employers (fewer than 100 employees) to set up IRAs with less paperwork. Employers must either match employee contributions or make unmatched contributions. An employee could contribute up to $13,000 in 2019, with an extra $3,000 allowed for those over 50.
IRA
You can contribute up to $6,000 a year to an IRA ($7,000 if you’re 50 or older). The money grows tax-deferred until you take withdrawals. You can contribute to both an IRA and a 401(k), but if you’re covered by a retirement plan at work, you can’t deduct your IRA contributions from your taxable income if you earn more than $74,000 (for single filers) or $123,000 (married filing jointly) in 2019. After earning $64,000 and $103,000, respectively, you get only a partial deduction. If you’re not covered by a retirement plan at work, you get the full deduction no matter what your income, unless you file joint with a spouse who has a retirement plan at work.
Roth IRA
With a Roth IRA, you are contributing after-tax dollars, and you get no tax deduction for your contribution. However, the money you earn grows tax-free, and you pay no tax on withdrawals after you reach age 59 1/2. Unlike with regular IRAs, there are no mandatory withdrawals after age 70 1/2. You can also withdraw the amount you contributed (but not your investment earnings) at any time with no penalty and no taxes due, which is not the case with traditional IRAs. To contribute to a Roth IRA, you must make less than $137,000 (if you’re single) or $203,000 (if you’re married filing jointly) in 2019. If your income is more than $122,000 (single) or $193,000 (married filing jointly), your allowed contribution is reduced. You can contribute to both a Roth IRA and a traditional IRA, but the contribution limits apply to your total deposits. Some people who make too much to contribute to a Roth IRA contribute to a conventional IRA and convert it into a Roth later.
Health savings account
Those with certain high-deductible health insurance plans can save money tax-free in a HSA. You can contribute up to $3,500 a year for an individual or $7,000 for a family. If you’re 55 or older, you can contribute $1,000 more. You can withdraw money from your account to pay an allowable medical expenses, including copay and items such as eyeglasses. If you don’t spend the money, it rolls over indefinitely. Once you’re 65, you can withdraw money for any reason without a penalty, but you have to pay income taxes on the money you withdraw. You can also use it for a retiree medical expense tax-free. If you withdraw the money before you’re 65 for any reason besides medical expenses, you have to pay taxes and a 20-percent penalty. As long as you save your receipts, you can withdraw money to reimburse yourself for expenses you paid years ago. If you don’t need the money for medical expenses, you can invest it as you would other retirement savings.