When you’re rolling over to shut off the alarm clock for work every morning, retirement can feel far away no matter how close it actually is. But whether you’re decades or years away, now is always the right time to start planning your retirement.
So, where do you start? Don’t worry, we’ve got you covered. Benzinga’s list of the best retirement plans is the perfect jumping-off point to kick your retirement planning into high gear.
Retirement plans are defined by several things, including whether they’re employer-sponsored, who can make contributions and the required minimum distributions — how much you are required to withdraw from the account after a certain age.
Which retirement plan is best for you depends on the industry you work in and your employer along with your individual financial situation and retirement needs. You may have several options, some of which may fall under the following types of retirement plans. The Internal Revenue Service (IRS) has numerous educational resources if you’d like to dive deeper into the different types of retirement plans.
An Individual Retirement Account (IRA) is a retirement plan that allows you to make tax-deferred contributions. They are useful for maximizing your retirement savings while you are still working.
You could set up an IRA with a financial institution, like a bank. You could also look to a life insurance fund, mutual fund or stock broker to create an IRA. There are different types of IRA accounts, the most common being Traditional and Roth IRAs. These are similar in that you (or your spouse, if you file your taxes together) can make contributions.
Also, your yearly contribution cap for each is governed by maximum contribution laws, which depend on your age and yearly taxable income. Further, you can withdraw money from each at any time and you can make contributions to either type of IRA up until your tax filing deadline for the previous year.
Roth and Traditional IRAs do have a few major differences. With a Traditional IRA, your contributions may be tax-deductible, while contributions to a Roth IRA are not.
Traditional IRAs have strict minimum distribution schedules, so you have to start taking withdrawing money by a certain date after you turn 72. Roth IRAs have no distribution requirements if you are the owner of the account. And lastly, Traditional IRA distributions are taxable, while distributions from Roth IRAs may or may not be taxable, depending on if a withdrawal or distribution ranks as “qualified.”
With a 401(k), you may defer portions of your salary as an employee to your retirement account. Employers may elect to make contributions as well.
The portion of your paycheck that goes toward your 401(k) isn’t considered taxable income. However, the distributions made from your 401(k) upon retirement do rank as taxable income, unless the distribution is of a qualified Roth IRA within your 401(k).
You can contribute more to a 401(k) than you can an IRA. Also, contributions caps are a flat rate, rather than varying by age or taxable income. The caps are determined by cost-of-living standards. People over the age of 50 may also be eligible to make “catch-up contributions,” meaning they can make contributions that exceed the regular contribution cap.
Cash-Value Life Insurance
If you’re looking for a tax-advantaged source of retirement income, cash-value life insurance is becoming a popular option. Essentially, you buy a certain type of life insurance that acts as an interest-bearing cash value account. The money in the account grows yearly with high returns, often higher than what you’d see with a savings account.
You can also borrow against these loans, often at lower repayment interest rates than other types of loans. But be careful — if you fail to repay the loan within its terms, you may lose the tax-free status of those funds.
Cash-value life insurance can be a worthwhile part of retirement planning but may be best used as a complementary source of retirement income to an IRA or 401(k).
With a profit-sharing plan, employers can elect to contribute to individual employee retirement accounts at will. These types of accounts are not governed by any type of minimum contributions laws.
A profit-sharing plan only becomes a 401(k) if employee salary deferrals are added into the profit-sharing formula.
A Simplified Employee Pension Plan, or SEP Plan, is a retirement account that is set up for employers to make contributions to a Traditional IRA for an employee and/or themselves. This is also known as a SEP-IRA.
Businesses of all types, including self-employed people, can set up this type of account. Employers can contribute up to 25% of an employee’s compensation to a SEP-IRA. Employees cannot make contributions to these accounts. While the contribution rate must remain the same for all employees, the rate can differ yearly depending on the cash flow of the business.
403(b) Tax-Sheltered Annuity Plan
A 403(b) Tax-Sheltered Annuity (TSA) plan is a retirement plan for employees of tax-exempt organizations. This may include charities or public schools.
Much like a 401(k), this allows employers to designate a portion of their income to be deferred into their individual retirement account. The funds in these accounts aren’t considered taxable income until they’re distributed — unless a tax-exempt employer sets up a designated Roth account, in which case the same is true of the inverse.
Best Retirement Advisors
Now that you’ve moved from the “I really need to start planning my retirement” phase to the “I’m planning my retirement” phase, you may be considering a financial advisor. And for good cause — the well-honed instincts of a good financial advisor can make the world of difference for your retirement.
The right advisor will help you grow your wealth while you’re still receiving income and maximize your accumulated wealth once you retire.
If you’re looking for an online retirement planner, Facet Wealth may be right up your alley. It offers comprehensive digital financial management from fee-only fiduciaries. This means you can plan your retirement with the assurance that your advisor is only suggesting retirement products that are in your best financial interest. Your advisor will work with you to tailor a retirement plan to best meet your retirement goal.
Facet Wealth may be especially appealing to those who are working with a tight budget. Its yearly flat rate fee structure means you know exactly how much its services will run you, which includes a dedicated one-on-one relationship with a certified financial planner (CFP).
The complexity of your finances and which services you need will determine your yearly fee. This means you won’t pay for comprehensive financial management if you’re only looking for retirement planning services. While Facet Wealth doesn’t offer face-to-face meetings with their advisors, you’ll have flexible access to video chatting with your advisor — you can schedule your appointments entirely around your schedule. Getting started is as easy as clicking a button here to schedule your first introductory call.
Blooom is a unique platform offering robo-advising and investment management for employer retirement plans, such as a 401(k). Blooom also manages eligible IRA, 401(a), 403(b), 457 and TSP (Thrift Savings Plan) accounts.
Connecting your account for management is simple on Blooom’s easy-to-use website. Once you’re set up, you receive a free financial analysis and custom-fit investment strategy plan. If you like what you see, you’re in business. Its sophisticated software will design a customized portfolio and offer in-depth investment planning from there.
You can choose from 3 tiers, Essentials ($45 yearly), Standard ($120 yearly) and Unlimited ($250). Only the top 2 tiers include robo-advising, but all include personalized portfolios.
Charles Schwab is a powerhouse in investment management and financial advising, including all things retirement. Plan your retirement directly from its highly sophisticated mobile investment app, which even allows you to make mobile deposits into your IRA account.
Schwab has an extensive roster of both retirement plans and investment products, including exchange-traded funds and mutual funds. You can open up the IRA of your choice or roll over an existing one. Charles Schwab also offers a brokerage account that exists within your workplace retirement account with a Personal Choice Retirement Account.
Most accounts with Charles Shwab have no account minimums or maintenance fees. IRAs offer free online equity trades along with ongoing financial guidance and multiple online retirement education resources.
Ellevest is a digital financial planner and investment manager designed for and by women (although Ellevest welcomes anybody to use its services). Ellevest’s proprietary algorithm accounts for women-specific financial considerations that standard financial planning may miss, like gender wage gaps and longer lifespans.
Retirement planning is included in the price of the top 2 Ellevest membership tiers, all of which are relatively affordable. You can choose from 3 tiers, Essential ($1 monthly), Plus ($5 monthly) or Executive ($9 monthly). You can open an IRA directly with Ellevest or roll over an existing IRA or 401(k) or 401(b). All 3 tiers offer financial education and access to financial coaching.
Find Your Perfect Retirement Plan Today
Planning for retirement can seem confusing, but arming yourself with a solid knowledge of retirement planning and the guidance of an expert can demystify the process. The earlier you start mapping out your retirement, the better.
Why not take the leap now? Benzinga’s list of the best retirement plans to get started on your retirement planning journey today.