Hopefully you have taken a look at your spending, developed your plan, and made adjustments if you needed to and you are now ready to kick-start your retirement savings plan!  Now what do you do?  Which retirement savings vehicle should you use?  Read on to learn about the different types of retirement accounts and their contribution limits.

Individual Plans

Traditional IRA

May Be Appropriate For:  Those with earned income (and spouse) who would like to save independently for retirement.

Contributions to a Traditional IRA may be tax deductible and earnings will accumulate tax deferred.  There are no income limits to those who may contribute, but you (or your spouse) must have taxable income of at least the contribution amount for the year you are making a contribution.  Contributions cannot be made in the year the investor turns 70 ½, and IRS required Minimum distributions must begin at age 70 ½.

Contribution Limit for 2019:  $6000 and additional catch-up contribution of $1000 for those 50 or older. 

Roth IRA

May Be Appropriate For:  Those with earned income (and spouse) who would like to save independently for retirement.

Contributions to a Roth IRA are not tax deductible, however growth and distributions of earnings are tax free (as long as IRS rules are met).  Contributions may be made even after age 70 ½ and there are no IRS required minimum distributions during the owners lifetime.  These accounts can be used in conjunction with any retirement plan.  There are income limits to making contributions to a Roth IRA based on filing status.  Please see the IRS table here to determine if you qualify to make a full or reduced contribution.

Contribution Limit for 2019:  $6000 and additional catch-up contribution of $1000 for those 50 or older.  Roth IRAs do have income limitations.

Employer Sponsored/Self-Employed Plans

 

Simple IRA

May Be Appropriate For:  Employers with 100 or fewer employees and Self-Employed individuals.

Contributions are made pre-tax and may reduce the employee’s taxable income.  Earnings accumulate tax deferred.    There are low administration costs for the employer but they must include all employees who have earned at least $5000 in the past 2 years and expect to earn $5000 in current year.  IRS required minimum distributions must begin at age 70 ½.

Contribution Limit for 2019:  $13,000 and additional catch-up contribution of $3000 for those 50 or older.  Employer must match employee contributions dollar for dollar up to 3% of compensation.

SEP IRA

May Be Appropriate For:  Small employers and Self-Employed individuals.

Contributions to a SEP IRA are made by the Employer only, however employees are immediately 100% vested and earnings accumulate tax deferred.  Employer’s contributing to a SEP IRA can vary their contribution rate annually and are not committed to contributions in future years.  Employees who are at least 21 years old, have worked for 3 of the last 5 years and have earned at least $600 in the preceding two years must be included.

Contribution Limit for 2019:  Employer contribution up to 25% of the employee’s annual compensation but not more than $56,000.

403(b)

May Be Appropriate For:  Employer plan for public schools, universities, colleges and qualified tax exempt organizations such as hospitals and churches.

Contributions to a 403(b) are made pre-tax and may reduce employee’s current taxable income.  Earnings accumulate tax deferred.  Employers may make matching contributions to the plan.  IRS required minimum distributions must begin at age 70 ½ or at employee’s retirement, whichever is later.  Participants who have been with their employer for at least 15 years may be eligible to defer up to $3000 more per year, up to a cap of $15,000.

Contribution Limit for 2019:  $19,000 and addition catch-up contribution of $6000 over age 50.  Total contributions per participant (employee and employer) are currently limited to $56,000 per tax year, $62,000 if over 50 with catch-up.

401(k)

May Be Appropriate For:  Small to large companies.

Contributions to a 401(k) are made pre-tax and may reduce employee’s current taxable income.  Earning accumulate tax deferred.  Employers may make matching contributions and must include all employees in the plan who are at least 21 years of age, have worked at least 1000 hours, and completed one year of service.  IRS required minimum distributions must begin at age 70 ½ or at employee’s retirement, whichever is later.

Contribution Limit for 2019:  $19,000 and addition catch-up contribution of $6000 over age 50.  Total contributions per participant (employee and employer) are currently limited to $56,000 per tax year, $62,000 if over 50 with catch-up or 100% of eligible compensation.

 

Now that I may have thoroughly confused you, let me help you figure out what options you have in retirement savings vehicles.  Any of the above accounts can be set up through our office, with individuals and/or employers.  Together, we can determine the best plan for you and get you on the path to retirement!

Lindsie
Retirement Plans 101