While retirement planning may be the furthest thing from your mind, it should be a top priority for everyone so you are ready for what is ahead. Now more than ever, we are learning how much we need that nest egg or backup plan. Nothing is guaranteed, so for those of us with income coming in it is imperative that we are planning for our future.
Saving for retirement may look different for each individual. Since every situation is unique, it’s important to look for the retirement account that best lines up with your personal job situation and future goals. We found some retirement accounts that USNews.com shared that you might be eligible for. Maybe one of these is right for you.
A 401(k) account is offered through employers, so you’ll need to check if this plan is available at your workplace. In 2020, the IRS allows you to contribute up to $19,500 to a 401(k) if you’re under 50 years old. If you are age 50 or older, you can put up to $26,000 in the account. Your employer may match a certain portion of your contributions. The amount contributed to a 401(k) is deducted from your taxable income. You’ll need to start taking withdrawals from the account, known as required minimum distributions, starting at age 70 1/2. When funds are withdrawn, they are subject to taxes. You may also face penalties if you take money out of the account before age 59 1/2.
Solo 401 (k)
Also known as a one-participant 401(k) plan, a solo 401(k) is designed for an individual business owner without any workers. If you are self-employed and don’t have any employees, you may also be eligible for a solo 401(k). The IRS allows contributions of up to $57,000 in 2020. If you are 50 or older, you can also make catch-up contributions of up to $6,500.
If you work for a nonprofit or tax-exempt organization, you may be eligible for a 403(b). This account is similar to a 401(k) and allows you to contribute up to $19,500 in 2020. If you are 50 or older, you can set aside up to $26,000. Earnings grow tax-free until you withdraw them. Distributions from a 403(b) are considered taxable income.
A 457(b) plan is offered through state and local governments. If you are eligible for the account, you’ll be able to contribute up to $19,500 in 2020, or $26,000 if you are 50 or older. You can also withdraw funds before age 59 1/2 without incurring a penalty.
An individual retirement account is only available to those with earned income. If you earn $2,000, you’ll be able to put up to $2,000 into the account. The contribution limit for an IRA is $6,000 in 2020, or $7,000 if you are 50 or older. Like a 401(k), you’ll receive a tax deduction for the money you put into an IRA. When you withdraw funds, they will be considered taxable income. You’ll need to start taking distributions from the account after you turn 70 1/2.
Like an IRA, you need earned income to be eligible for a Roth IRA, and the amount contributed cannot be more than the amount you earn. You can set aside up to $6,000 in 2020, or $7,000 if you are age 50 or older. Unlike an IRA, you’ll pay taxes on the amount you contribute to a Roth IRA. However, the money grows tax-free in the account, and no income tax will be due on Roth IRA withdrawals in retirement. You can contribute to the account for as long as you continue to earn income, including after age 70 1/2. A Roth IRA does not require that you take distributions in retirement.
A self-directed IRA has the same contribution limits and eligibility requirements as a traditional IRA, but differs in the investments that you are able to make. Unlike traditional accounts, a self-directed IRA allows you to place funds into alternative assets such as cryptocurrencies, precious metals and real estate.
If you work at a small business with 100 or fewer employees, you may be eligible for a Savings Incentive Match Plan for Employees IRA. To participate in a SIMPLE IRA, you’ll need to have earned at least $5,000 from the company during the previous two years and also be expected to receive at least $5,000 in the current year. Through this account, you’ll be able to contribute up to $13,500 in 2020. If you are age 50 or older, you can make an additional catch-up contribution of $3,000. In addition, employers are required to make contributions to the account. Like a 401(k), the amount you contribute will be deducted from your taxable income, but when you withdraw funds in retirement, they will be subject to taxes. If you take money out of a SIMPLE IRA before age 59 1/2, you may have to pay a penalty.
A Simplified Employee Pension IRA is designed for small business owners with several employees and self-employed individuals. If you are eligible for SEP IRA, you’ll be able to set aside up to either 25% of your compensation or $57,000 in 2020, whichever is less. You won’t pay taxes on the amount contributed, but the funds withdrawn will be subject to taxes. You’ll need to start taking withdrawals at age 70 1/2. If you withdraw funds before age 59 1/2, you may have to pay penalties on the amount taken out.
A health savings account can be used to build funds to help cover health costs in retirement. To be eligible for a HSA, you need to have a high-deductible health insurance plan. You can contribute up to $3,550 to an HSA in 2020 as an individual, or as much as $7,100 if you have family coverage. There is an additional $1,000 contribution allowed if you are 55 or older. The amount set aside in a HSA is tax-deductible. The funds grow tax-free and can be withdrawn tax-free if they are used to pay for qualifying medical expenses.
At Flagship Bank, we are here to help with all of your financial needs. We can answer any questions you may have and are ready to assist you in your financial planning. Contact any of our lenders with questions you may have about this or any other questions you may have. We are here for you now while looking ahead to your future.