Saving & Investing - Head Matters

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5. Types of Accounts

c. Retirement accounts (continued)


Retirement Accounts
Tool Where to find it What to look for Advantages Disadvantages Annual Contribution on limits Tax Advantages
401k retirement plan Employer-sponsored plan for
for-profit businesses
How much your employer matches, investments offered by plan and the historical performance of the plan. 10% penalty for withdrawal before age 59.5 Some employers will match up to a percentage of your salary as a benefit. Might be borrowed against for qualified expenses, such as higher education and first time home purchases if the plan allows. Investment choices may be limited by the brokerage insurance company offering the plan. Penalties for early withdrawal. $16,500 plus $5,000 catch-up for those age 50 and older. Employer match can be in addition Contributions can be made pre-tax and earnings grow tax-deferred, will be taxed upon withdrawal
403b retirement plan (sometimes called a TSA) Employer-sponsored plan for non-profit businesses How much your employer matches, investments offered by plan and the historical performance of the plan. 10% penalty for withdrawal before age 59.5 Some employers will match up to a percentage of your salary as a benefit. Can be borrowed against for qualified expenses, such as higher education Investment choices may be limited by the brokerage or insurance company offering the plan. Penalties for early withdrawal. $16,500 plus $5,000 catch-up for those age 50 and older. Employer match can be in addition Contributions can be made pre-tax and earnings grow tax-deferred, will be taxed upon withdrawal.
457 retirement plan Employer-sponsored plan for government employees Investments offered by plan and the historical performance of the plan. 10% penalty for withdrawal before age 59.5 Can be borrowed against for qualified expenses, such as higher education if plan allows. Investment choices may be limited by the brokerage or insurance company offering the plan. $16,500 plus $5,000 catch-up for those age 50 and older. Contributions can be made pre-tax and earnings grow tax deferred, will be taxed upon withdrawal.
SEP-IRA Employer-sponsored plan for small businesses How much does your employer contribute, investments offered by plan and the historical performance of the plan Owners invest in theirs and their employees account the same percentage, not to exceed 25% of compensation The employee cannot contribute to the account. 10% penalty for withdrawal prior to age 59.5 25% of compensation up to $49,000 Contributions are tax-deductible and earning are tax deferred, will be taxed upon withdrawal
Simple IRA Employer-sponsored plan primarily funded by employee How much does your employer contribute, investments offered by plan and the historical performance of the plan. 10% penalty for withdrawal before age 59.5 Small required match from the company Investment options determined by financial institution holding the IRA $11,500 or $14,000 for those age 50 and older, plus maximum 3% match from employer. Contributions are tax-deductible and earning are tax-deferred will be taxed upon withdrawal.
Traditional IRA   The company you choose and investments they offer. 10% penalty for withdrawal before age 59.5 You choose where to invest, not restricted by employer There are income limits that affect deductibility. $5,000 plus $1,000 catch-up for those age 50 and older. Contributions are tax-deductible (with certain income limits and earnings are tax-deferred until you withdrawal the money.
Roth IRA   The company you choose and investments they offer. You choose where to invest, not restricted by employer. There are income limits which affect one's ability to contribute to a Roth IRA $5,000 plus $1,000 catch-up for those age 50 and older. Contributions are NOT tax-deductible, but are tax-free upon withdrawal at anytime. All earnings are tax- and penalty-free after age 59.5 as long as the Roth IRA has been in existence for five+ years.

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