Choosing the right retirement plan

Consider how your age will impact your retirement plan. If you're a business with employees, decide whether you want to change your employer contribution (if you intend to contribute) to narrow down the options to choose from. 

Find the scenario that most closely resembles your situation:  

• Scenario A: It's just me or me and my spouse and I’m under 40. 
• Scenario B: It's just me or me and my spouse and I’m 40 or older. 
• Scenario C: You want to be able to change the employer contribution (if any) every year. 
• Scenario D: You want a set contribution level every year.  

Scenario A

When you're younger and only considering retirement options for you and your spouse, there are several options to maximize benefits. This includes saving for a longer period of time than those starting to save for their retirement at an older age.  

1. Roth IRA  

A Roth IRA is a great way to save if you're early in your career. The money put in a Roth today is taxed that year. The compounded interest isn't taxed. All your gains over the years will be tax-free in retirement. To learn more about Roth IRAs, visit the Roth IRAs webpage on the IRS website.

2. SEP Plan 

If you want to contribute additional savings, you may want to add a SEP Plan. These plans are very easy and fast to set up and rarely have fees. There are no annual filing requirements, making it easy to manage. SEP IRA contributions are treated like they are made by the business (not you individually), so these contributions are all allowable business expenses. The contribution limit differs based on the type of company you have. To learn more about SEP Plans, visit the SEP Plan webpage on the IRS website.  

3. 401(k)  

If you want to contribute more, an Individual or Solo 401(k) is a choice. They may take a little more time to set up but rarely have fees. To learn more about 401(k) plans, visit the 401(k) plans webpage on the IRS website.  

Scenario B

As you get older, it makes more sense to maximize the deduction in the current year. This is because you are making more money and there is less time until you retire for the accumulation of compound interest. For those over 40 without employees, we suggest flipping your strategy.  

1. SEP IRA  

Start with contributions to a SEP IRA. They are easy to set up, rarely have fees, and have no annual filing requirements. The SEP IRA only has employer-side contributions. To learn more about SEP Plans, visit the SEP Plan webpage on the IRS website.   

2. 401(k)  

If you want to contribute higher amounts of pre-tax income, look at an Individual or Solo 401(k). Solo 401(k)s are now much easier to have and the fees are low or none at all. They also have the potential for some of the largest contributions of any retirement plan. To learn more about 401(k) plans, visit the 401(k) plans webpage on the IRS website. 

3. Roth IRA  

If you want to diversify your retirement savings or you have maxed out your Solo 401(k) contributions, you should consider a Roth IRA. Contributions are taxed this year, but all of the gains you have will be tax-free at retirement. To learn more about Roth IRAs, visit the Roth IRAs webpage on the IRS website. 

Scenario C 

If you want an option to vary the employer contribution you are making toward your employees’ retirement accounts, a good choice is a SEP IRA.   

1. SEP IRA  

The SEP IRA is a retirement plan that is easy-to-implement and inexpensive. Employees are vested in a SEP IRA from day one, so if they leave, they get all the contributions you made. There is no way for employees to do their own contributions because everything is provided by the employer only.  To learn more about SEP Plans, visit the SEP Plan webpage on the IRS website.   

Scenario D 

You may wish to provide the same contribution every year. In this case, there are two retirement plans that we recommend you consider.  

1. Simple IRA  

The first option is a Simple IRA. They are low-cost and require no annual filings or other paperwork. Employees can make contributions directly from their pay. The employee contributions are pre-tax, so they don’t pay tax now, but will when they withdraw the funds. To learn more, visit the SIMPLE IRA plan webpage on the IRS website.

2. 401(k)  

If you want to contribute more as an employer or have vesting options (require employees to stay a certain amount of time in order to keep the employer retirement contributions), you should look at a 401(k) Plan. This may be the best-known business retirement plan. It can take time and money to set up and maintain a 401(k) Plan since annual filings and other documentation may be required. To learn more about 401(k) plans, visit the 401(k) plans webpage on the IRS website.  

There are retirement programs that are not included in the above scenarios. Visit the Types of retirement plans webpage on the IRS website.

I’ve selected a plan type. How do I get started?  

Now that you’ve determined what option or options to consider, what do you do next? The answer depends on your comfort level and size of your company. It may be as simple as signing up for a plan online. Most of the major plan providers made it simple to set up a plan yourself in just a few minutes. They'll help you choose or suggest investments so you can start building your savings.   

You may wish to receive support from a financial advisor to review your options. Financial advisors may be helpful in making choices on retirement but make sure you ask the right questions as you are selecting who to use. There can be hidden fees that you may not be aware of up front, so be sure to ask about how the advisor gets paid.  

Whether you start your own account online or use an advisor, take the following steps:  

• Ask friends, family, and other business owners for recommendations. This can be the best way to find a reliable financial advisor or a reputable vendor. 
• Search online for options. The internet can be very useful in finding options that you would not have known about otherwise. Use a search engine and/or social media site to expand your choices. 
• Read online reviews from other customers. Online reviews are helpful in choosing a financial advisor or retirement plan vendor. Consider the pros and cons that were shared to help you decide which option is right for you. 
• Review the details. Once you’ve found a few options that interest you, explore the options included with the service. 
• Determine the cost. At the end of the day, make sure that you can afford the option you’ve selected. Compare the options you like best to see if one offers more value for the price.  

Disclaimer 

The information contained here is for educational purposes only and is not intended to constitute legal, tax, or financial advice.