Saving for retirement can feel overwhelming, but breaking down the options makes it easier to decide on the best plan for you. Let’s explore some popular retirement savings accounts and what makes each one unique, including contribution limits and tax implications.
1. Traditional IRA
A Traditional IRA is a great choice if you earn taxable income and want to save for retirement with tax advantages. You can contribute up to $7,000 in 2024 (or $8,000 if you’re 50 or older), though these contributions may be limited if you’re covered by an employer retirement plan. Even if both you and your spouse work, you each can set up separate IRAs or take advantage of a Spousal IRA if filing jointly.
SEP IRAs fall under the umbrella of traditional IRAs, too. In a SEP, employers make deductible contributions for employees, and as of 2023, these contributions can be treated as Roth contributions.
2. Roth IRA
With a Roth IRA, contributions aren’t tax-deductible, but you can enjoy tax-free withdrawals if certain conditions are met. Unlike Traditional IRAs, Roth IRAs don’t require minimum distributions during your lifetime. However, contributions for high-income earners may phase out between $230,000 to $240,000 for couples filing jointly.
3. SIMPLE IRA
For smaller employers, a SIMPLE IRA provides an accessible retirement plan for employees. Employees with at least $5,000 in compensation over the past two years are eligible to join. Since 2023, SIMPLE plans can also accept Roth contributions, allowing greater flexibility in how funds are treated for tax purposes.
4. Defined Contribution Plans (401(k), 403(b), and More)
Defined contribution plans, like a 401(k) or 403(b), allow for higher contribution limits. In 2024, employees under 50 can defer up to $23,000, while those 50 or older can defer up to $30,500. Contribution limits for SEP and SIMPLE IRAs vary by income and employment status, so they’re worth investigating if you’re self-employed or have a small business.
Retirement Savings Contribution Credit
Low to moderate-income earners can benefit from the Retirement Savings Contribution Credit, offering a credit between 10% and 50% of eligible contributions, with maximum credits of $1,000 for individuals and $2,000 for couples filing jointly. Income limits apply, so check your eligibility.
Each plan offers different benefits, but they all work toward a more secure retirement. Start saving now—your future self will thank you!
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