There’s more than one way to skin a cat. While that old idiom raises some eyebrows, it still holds true today. When it comes to retirement planning, there is more than one way to go about it. Many seniors are insecure about their retirement savings. Luckily, we have options available to help us build a nest egg. American Express offers a quick and insightful breakdown of the different types of retirement plans.
Different Types of Retirement Plans
Living longer, dealing with inflation, and new legislation all have seniors wondering how to protect their nest eggs. In addition to Social Security, seniors can utilize six different types of retirement plans:
- Traditional IRAs
- SEP IRAs
- Simple IRAs
- Roth IRAs
- Solo 401(k)
Each retirement account offers its own set of advantages and disadvantages in the form of three defining factors: tax benefits, contribution limits, and withdrawal restrictions.
Pros and Cons of 401(k)s
Of the different types of retirement plans, the 401(k) is probably the most common. That’s because most employers offer enrollment with some type of matching. One pro is Standard 401(k)s, Simple 401(k)s, and Solo 401(k)s have high contribution limits, so you can invest more to earn more. Additionally, these investments grow tax free until you choose to withdraw. The main con to a 401(k) is having limited investment choice.
Pros and Cons of IRAs
IRAs are available to everyone; however, they aren’t sponsored by employers. It’s up to the individual to contribute to these accounts, which can be seen as a con to some and a pro to others. The main pros of an IRA are that it also has tax free growth, reduces your taxable income, and has considerably more investment choices than a 401(k). However, traditional and Roth IRAs have a lower contribution limit.
SEP and Simple IRAs are employer sponsored retirement plans for small businesses and self-employed individuals. They both offer high contribution limits and guaranteed vesting and matching. That is a considerable pro for an employee and a con to an employer, depending on your position.
There are a lot of different types of retirement plans. The answer may be that you need multiple retirement plans. That way you can diversify your investments and protect yourself against inflation. Regardless, the Council for Retirement Security is dedicated to ensuring that every senior can count on their Social Security benefit no matter what other plan they have in place.