We all want to retire. Right? Retirement looks different to everyone, but whether it is sipping drinks on the beach to traveling the world, our dream retirement seems increasingly out of reach. Thankfully, we can all get the retirement we want with proper planning and using the right tools! Unfortunately, relying on social security checks isn’t guaranteed for future generations anymore, so we need to be proactive about our retirement planning. In our mastering retirement series, we will cover all things retirement, from selecting the types of account you need to investing strategies and everything else in between. <\/p>\n\n\n\n

What Type of Retirement Account Is Best For Me?<\/h2>\n\n\n\n

There are a number of different types of retirement accounts and plans available, but it all depends on your unique situation as to what makes the most sense for your financial goals. Luckily, several different types of retirement accounts offer tax incentives for saving for the future and get us on our way to mastering retirement. <\/p>\n\n\n\n

We are going to cover a few different categories of retirement plans which should give you a little more clarity on what is available to you. The two fundamental types of retirement plans we are going to focus on in this article are:<\/p>\n\n\n\n

• Workplace Retirement Plans:<\/strong> 401(k)s, 403(b)s, 457(b)s<\/li>
• IRAs<\/strong>: Roth, Traditional, Self, Spousal<\/li><\/ul>\n\n\n\n

  This can get a little overwhelming, so we highly suggest talking with a financial coach or advisor to get more clarity before proceeding with any of these plans. Click here to check out our link on choosing retirement investments and the options you have available to you!<\/p>\n\n\n\n

  Workplace Retirement Plans: <\/h3>\n\n\n\n

  There are two major kinds of workplace retirements plans:<\/p>\n\n\n\n

  1) Defined Benefit Plans:<\/h4>\n\n\n\n

  When you hear defined benefit plans, think of a pension. The employee contributes a percentage of the salary annually to the pension, and then once they retire, they are paid a set amount monthly based on their years of service and the final salary they made before they retired. Essentially the more years you worked and the higher you were paid, the more you received monthly from your pension. <\/p>\n\n\n\n

  These plans are rarer today, but teachers, government officials, law enforcement officers, insurance employees, and nurses are typically among the small list of occupations that are offered pension plans.<\/p>\n\n\n\n

  Key Facts:<\/h5>\n\n\n\n

  • Set monthly income received for retirement based on years worked and salary during that period of time.<\/li>
  • Makes budgeting for retirement very straightforward.<\/li>
  • You are automatically saving for retirement just by showing up to work if you enroll in the pension!<\/li>
  • Typically there is a minimum number of years worked to qualify to receive payouts.<\/li>
  • Typically does not exclude you from receiving social security in addition to a pension.<\/li>
  • Zero income restrictions.<\/li><\/ul>\n\n\n\n

    2) Defined Contribution Plans:<\/h4>\n\n\n\n

    These plans are by far the most common type of workplace retirement plans available in the marketplace. You probably have heard of a 401k in which employees contribute to their individual accounts, and money is usually taken directly from the paycheck and deposited into the 401k. A lot of companies offer a company match up to a given percentage which means they will match you dollar for dollar up to the match %. In other words, it’s free money to invest for your retirement. This free money usually takes time to be “vested,” which essentially means in order to receive the full match, you need to work at the company for a certain amount of years. Ensuring you are fully vested and taking advantage of free money sure makes mastering retirement alot easier. <\/p>\n\n\n\n

    401(k)<\/h4>\n\n\n\n

    • Employees often match a portion of the money you put into your account each year. <\/li>
    • Typically there is a vesting schedule that requires you to work at a company for a given period of time before the money they have put in the account for you is truly yours. (Ex: 1st year 20% vested, 2nd year: 40% vested, 5th year: 100%)<\/li>
    • 401(k) has no income restrictions. <\/li>
    • Both Traditional and Roth 401(k) have annual contribution limits. ($20,500 for 2021)<\/li>
    • Taxes are deferred until the money comes out of the account.<\/li>
    • You are required to start withdrawing from your 401(k) at 70.<\/li>
    • Early withdrawal penalty until 591\/2<\/sup><\/sub> years old. <\/li><\/ul>\n\n\n\n

      403(b)<\/h4>\n\n\n\n

      If you didn’t read the 401(k) bullet points, please go back and read it because a 403(b) is almost identical except for a few minor differences. <\/p>\n\n\n\n

      • 403(b) plans share almost every characteristic of a 401(k) from the employee perspective.<\/li>
      • 401(k) is offered by for-profit companies, whereas a 403(b) is being provided by tax-exempt organizations such as nonprofits, religious organizations, schools, hospitals, etc.. <\/li>
      • 403(b) plans offer fewer investment options than the 401(k)<\/li>
      • Few of these plans offer matching programs.<\/li><\/ul>\n\n\n\n

        457(b)<\/h4>\n\n\n\n

        • In the first three years before retirement, you can contribute double the annual limit which would be $41,000 in 2022. This is subject to limitations based on the amount you have contributed in previous years. (IRS Docs)<\/a><\/li>
        • You can withdraw your money as soon as you leave your job with a 457(b) without incurring any penalties. <\/li>
        • Few of these plans offer matching programs.<\/li>
        • Potentially can contribute to both a 457 and a 403(b) or 401(k) plan if the employer offers such a plan. <\/li><\/ul>\n\n\n\n

          IRAs<\/h2>\n\n\n\n

          The IRA (Individual Retirement Account) is one of the most common retirement plans and provide the building blocks for mastering retirement. Any individual can set up an IRA at a financial institution to hold investments for their retirement. These investments can range from mutual funds, stocks, bonds, REITs, cash, and real estate, depending on the type of IRA you select. There are many different IRAs that all offer tax benefits and reward you for saving. <\/p>\n\n\n\n

          The two most common IRAs are the Traditional and Roth. The key characteristics of these plans serve as the basis for the other two other IRAs we will be talking about: The spousal and self-directed IRA.<\/p>\n\n\n\n

          <\/td>	Traditional IRA<\/td>	Roth IRA<\/td><\/tr>
          Contribution Limits 2021<\/td>	49 and younger (6,000) 50 and above: $7,000<\/td>	49 and younger (6,000) 50 and above: $7,000<\/td><\/tr>
          Tax Benefit<\/td>	Immediate: Contributions are Tax-Deductible in the year made<\/td>	Delayed: Tax-free Withdrawals from their account<\/td><\/tr>
          Income Limits<\/td>	None<\/td>	Under 137(k) single or 203(k) married<\/td><\/tr>
          Required Minimum distributions<\/td>	70 1\/2 years old<\/td>	N\/A<\/td><\/tr>
          Pre-Retirement penalty fee<\/td>	10% <\/td>	10%<\/td><\/tr>
          Who Maintains the Account?<\/td>	Self<\/td>	Self<\/td><\/tr>
          Who is it Best for?<\/td>	Individuals who believe their tax rate will be lower in retirement<\/td>	Individuals who believe their tax rate will be higher in retirement<\/td><\/tr><\/tbody><\/table>