Everyone should have an Individual Retirement Account, known by their acronyms as an IRA. Because they are so universally practical for retirement, the government has ensured that there are IRA types available to fit the circumstances of most every individual. When you have money available on the side that you can commit to investments for long term retirement purposes, there really is no good reason not to enroll in one of these vehicles that helps you to save for your retirement with money that is tax deferred. Consider five of the different and most effective types of IRAs below.
The beauty of Self-Directed IRAs is that with them individuals can pursue many different types of investments of which they may not even be aware. It is easy to simply stick with the most common types of traditional IRA investments like stocks, mutual funds, bonds, and ETF’s, since these are the ones that you know best. The downside to this strategy is that such choices are not the ones that provide the best returns over time. The IRS actually gives you a variety of choices with Self-Directed IRAs that can include Gold IRAs, real estate, and even franchises and private businesses, to name a few. Some of the reasons to think seriously about these kinds of IRAs are the following:
- When you buy the shares of gold mining companies you can not expect to make the same returns on higher movements in gold prices as if you tangibly held gold coins and bars that you can put in this type of IRA.
- Some of the top returning investments over the long run turn out to be Real Estate Investments. It takes a good deal of money to get into many pieces of property, and the money in your IRA can be put to use effectively this way. Buying into the publically traded REIT’s through national companies like Equity Residential or Simon Property Group means that you often sacrifice potential profits in exchange for stability.
- With franchises you have the opportunity to make better returns than through simply owning stock shares in a franchise.
- By investing your funds in an opportunity such as a private venture, you have more control of the investment and the chance to see better profits than with a publicly traded company’s shares of stock. Venture capitalists know this and try to get in on these investments in the early stages. Having a stake in a successful business idea provides great rewards that you simply can not achieve in most stock and mutual fund opportunities.
All of these are good reasons to consider using the larger sums of money that you can build up in your retirement account for an investment that you may not be able to afford otherwise. You have so many choices with the Self-Directed IRA, from businesses, to Real Estate, to gold. Thinking outside of the typical retirement planning box can make all the difference.
Simplified Employee Pensions for Individual Retirement Arrangement plans are another type of IRA. What sets them apart from traditional IRAs is that they are plans for business owners and their employees that help them to save for retirement. This makes them a near-perfect choice for business owners who want to take care of their own future needs and those of their employees. The way they do this is by paying contributions in to a specifically set up account for everyone in the plan who is participating.
What makes these types of IRAs similar to traditional IRA accounts is the way they follow the same sets of rules for investments, distributions, and rollovers. The rules do require that each employee in the plan receives the same benefits. In fact, every employee who meets a short checklist has to be included:
1. Employees who have been with the company for minimally three of the last five years
2. Employees that are 21 years old
3. Employees who received at least $600 in wages in a tax year
Roth IRA plans offer a few unique features from standards IRAs. They permit you to make contributions beyond the usual 70 1/2 year old cutoff point. They also let you keep funds in the account for your entire life. You also have the option to set them up as annuities when you open a Roth IRA. These types of accounts allow you to take out permitted withdrawals without having to pay taxes on them at time of withdrawal, but they are penalized and taxed if you take unqualified withdrawals or distributions. The contribution limits on traditional IRAs and Roth IRAs are identical.
Another type of work connected retirement plan is the 401k. Many companies offer these versions of retirement saving accounts as an employee benefit. They provide you with an easy way to save by having automatic deductions taken out of each check. Employers generally offer some type of employer match to the employee savings, providing a chance to really increase your retirement savings with free money. Joining this type of retirement plan only requires filling in a form or two. Individuals benefit from control over their investment choices and over the specific amount of money which they choose to contribute. You also can change up the investments which you are in, your level of contributions, and whether you will continue to participate. To join, your company must invite you to be a part of the program. You can not start your own 401k.
Not everyone is able to participate in a 457b Account. This sets them apart from many of the other types of IRAs. If you work for a non-profit organization or a state or local government then it can be a potent choice for building up retirement investments. Part of the strength of these accounts lies in the higher limits for tax deferred contributions at $18,000 in both 2016 and 2015. There are two different kinds of 457b plans. One type is intended for the non-profit companies such as union, hospitals, and other charitable organizations. The other type covers those state and local employees such as teachers, police officers, and firefighters to name a few.
457b plans offer some distinctive advantages to other types of retirement plans. There is no 10% penalty for withdrawals of employees who are retiring before 59 1/2. With the 457b plan, the employees are permitted to have both these retirement accounts and any other available 401ks and to contribute to the two accounts at each plan’s maximum. These government retirement plans can be changed into personal IRAs or employer-run plans, while the non-profit plans are allowed to be rolled over to a different 457b plan.