Planning for retirement is one of the most important things you’ll do in your life. Having that retirement savings is crucial to you and your loved ones. is going to take a closer look at retirement accounts over the next few weeks. Based on your individual situation, there are many retirement account types to choose from. Most online brokers provide retirement services so let’s take a look at some of the most common types of retirement accounts.

Types of Retirement Accounts

Individual Retirement Account (IRA)

The IRA is the most common type of retirement account. This is an account that is used by individuals to earn money over time and use those funds for retirement savings. The government has some major tax benefits associated with an IRA, which makes this an account that everyone should look into. There are several types of IRA accounts available. Here’s a look at the major types of IRA accounts.

Roth IRA- The Roth IRA is the single most popular type of IRA account because of its amazing tax advantages. In this retirement account an investor can earn income and then withdrawal completely tax-free. The power of compounding money means that this is quite simply the best deal on the market, especially if you start at a young age. The maximum annual contribution to a Roth IRA is the lesser of your taxable compensation for the year or $5,000 for those under 50 and $6,000 for those 50 and older.

Traditional IRA- The second most popular IRA type, the Traditional IRA lures investor in because of its tax-deductible contributions. Since contributions are tax-deductible this is a very good option for those individuals who are getting very close to retirement. The maximum annual contribution limits are same with the Traditional IRA as they are with the Roth IRA.

SEP IRA- The SEP IRA is geared to the self-employed and small business owners. Contributions to a SEP IRA are generally 100% tax-deductible and earnings grow tax-deferred. The current SEP contribution limit is the lesser of $49,000 or 25% of compensation.

Employee Sponsored Retirement Accounts

There are a couple major employee-sponsored retirement accounts that are widely used as a great means of investing in your future. Here’s a quick look at the 401(k) as well as the 403(b) plan.

401(k)- This is a retirement account offered by a corporation to its employees, which allows them to set aside tax-deferred earned income for retirement savings. There are caps in place that are set by either the plan or the IRS as to exactly how much you can invest in this type of plan annually. This cap is based on a percentage of the employee’s annual salary level. The 401(k) is a powerful retirement tool because it allows the average individual to receive increased buying power through a corporation plan, which means better rates and top-notch investment options. Many employers offer a matching program that can really help you maximize the earnings power of your 401(k) plan.

403(b)- The 403(b) plan is a retirement plan intended for certain employees of tax-exempt organizations, schools, and ministers. Who is eligible for this plan? The Internal Revenue Code section 501(c)(3) is the determining factor for who will be eligible to participate in the 403(b) plan. This plan has many of the same benefits as the 401(k), and it was designed to help those individuals who likely wouldn’t be able to participate in a 401(k) plan.

It is important to note that investing in a retirement account does not limit you when it comes to non-retirement investment accounts at all. It is often wise to have both a retirement account of some kind as well as a personal investment portfolio. If you don’t already have a retirement account, you should definitely consider the amazing advantages of opening one with many of the stock brokers that provide them.