Saving enough money for retirement depends on your type of employment, income and long-term financial goals. In this blog, La Ferla Group will discuss several types of retirement plans to help you plan for your future.
Which Plan is Best for you?
Whether you’re a company employee, self-employed or a business owner, your work situation plays a huge role in the types of retirement plans that may work best for you.
For example, employees who have maxed out an employer-matched 401(k) are in great shape for the future. Those who are self-employed or own a business, however, have different options.
No single retirement plan is perfect. They each come with pros and cons, so you may consider having a few, if possible.
Types of Retirement Plans you may Consider
Employer-Sponsored
Employer-sponsored retirement plans often include contribution matching, which is basically like getting free money. Employees who work at companies that have this option may consider contributing the maximum amount possible.
Here are the pros and cons of five common employer-sponsored plans:
| Fund | Pros | Cons | Additional Info | |||
| 401(k) – any company may offer this type of fund |
-Often matched by employer -Contributions come directly from your paycheck -Lower your taxable income |
-Contribution limit[i] of $18,500 per year ($24,500 for those 50 and older)
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-Withdrawals are taxed as if they were income -Withdrawals prior to age 59 ½ incur a 10 percent penalty |
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| 403(b) – offered by public schools, certain nonprofits and churches |
-Often matched by employer -Lower your taxable income |
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| Defined benefit plan - deliver you a set payout after retirement, based on your salary and length of employment |
-Promises a set payout after you retire -No effort on your part, other than showing up to work |
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| Thrift savings plan (TSP) – offered to federal employees and members of the uniformed services |
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Small Business Owners and Self-Employed
For the purposes of this blog, we’re going to categorize small business owners and people who are self-employed under the same retirement savings plans, since what’s available to one is typically available to the other.
Here are the benefits and drawbacks of four:
| Fund | Pros | Cons | Additional Information | |
| SEP IRA – allows you to contribute to both employees’ and your own retirement | -Easy to set up -Tax deductions on contributions |
-Doesn’t allow catchup contributions | -You can contribute up to $55,000 or 25 percent of your income in 2018 | |
| Solo 401(k) – covers you (the business owner) and your spouse | -Has a higher contribution limit than most plans |
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- You can contribute up to $55,000 or 25 percent of your income in 2018 | |
| SIMPLE IRA – ideal for small employers that don’t offer other sponsored plans |
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-Two year waiting period to roll over into a traditional IRA | -Employees can also contribute to a SIMPLE IRA, making it great for retaining them | |
| Payroll deduction IRA – you simply transfer part of employees’ paychecks into the IRA they’ve set up |
-Easy to set up -No minimum coverage requirements |
-Employees must have a traditional or Roth IRA to be eligible |
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With so many different types of retirement plans available, choosing the right ones may be difficult. A local financial professional can help you allocate your funds optimally, ensuring your contributions have a lasting impact and make for a sustainable, enjoyable retirement.
