With all the different retirement plans available, finding the perfect one for you will be an important financial question.

To help you decide, we’ve provided the basics on each of the six plans. But before we get into the details of each, we’ve prepared the summary below to let you know what each account type is best for:

Account TypeWho it’s Best For
Traditional IRA Best when you have no other retirement plan, or as a supplement to an employer plan; offers:
  • Tax deductible contributions
  • Self-directed, unlimited investing
  • Can have plan along with employer plan
  • Roth IRAExcellent plan for anyone looking to add tax-free retirement income to the mix; offers:
  • Contributions are not tax deductible
  • Distributions tax-free in retirement
  • Early withdrawal of contributions not subject to tax or penalty
  • Not subject to Required Minimum Distributions at age 70 ½
  • SIMPLE IRABasic plan for the self-employed, especially at lower incomes; offers:
  • Contribute up to 100% of earnings to maximum contribution allowed
  • Simple plan administration
  • Self-directed, unlimited investing
  • SEP IRAExcellent plan for higher income self-employed; offers:
  • Contribution limits to $55,000
  • Self-directed, unlimited investing
  • Can be offered to employees
  • Employer Sponsored 401(k)Any employee working for an employer that provides the plan; offers:
  • Tax deductible contribution up to $18,500
  • Employer matching contributions
  • Loan provision
  • May have a Roth provision
  • Solo 401(k)401(k) for self-employed sole practitioner; offers:
  • Total contributions up to $55,000
  • Can include your spouse
  • Loan provision
  • Self-directed, unlimited investing
  • Traditional IRA

    This is the simplest type of retirement plan, and virtually anyone with earned income is eligible to participate. The only limitation is that your contribution may not be tax deductible if you’re covered by an employer plan, and your income exceeds certain limits.

    • 2019 Contribution Limits: $6,000 or $7,000 if you’re 50 or older.
    • 2019 Income Limits: Only if covered by employer plan. If single – $64,000 to $74,000; if married – $103,000 to $123,000.
    • Investment Options: Unlimited, plus choice of trustee.
    • Tax Treatment of Contributions: Tax deductible, but may be limited if covered by employer plan.
    • Tax Treatment of Investment Earnings: Tax deferred.
    • Tax Treatment Upon Withdrawal: Taxable as ordinary income.
    • Tax Treatment on Early Withdrawal: Taxable as ordinary income + 10% penalty if taken before age 59 1/2.
    • Employer Matching Contribution: Not available.
    • Loan Provision: Not available.
    • Required Minimum Distributions Required at 70 1/2?: Required.
    • Other Provisions: Can make non-deductible contributions if income limits exceeded.

    Roth IRA

    A Roth IRA generally works the same way as a traditional IRA. But there’s one major difference, and it’s the main benefit of a Roth IRA: income from the plan can be taken tax-free in retirement.

    • 2019 Contribution Limits: $6,000, or $7,000 if you’re 50 or older.
    • 2019 Income Limits: For 2019: If you’re single – $122,000 to $137,000; if you’re married – $193,000 to $203,000.
    • Investment Options: Unlimited, plus choice of trustee.
    • Tax Treatment of Contributions: Not tax deductible.
    • Tax Treatment of Investment Earnings: Tax deferred.
    • Tax Treatment Upon Withdrawal: Tax free if age 59 ½, and in plan at least five years.
    • Tax Treatment on Early Withdrawal: Withdrawal of contributions not taxable; withdrawal of investment earnings subject to ordinary income tax + 10% penalty.
    • Employer Matching Contribution: Not available.
    • Loan Provision: Not available.
    • Required Minimum Distributions Required at 70 1/2?: Not required.
    • Other Provisions: Cannot make contribution if income limits exceeded.

    SIMPLE IRA

    A SIMPLE IRA can be either an employer sponsored plan, or one you take on your own if you’re self-employed. The contributions are more generous than a traditional or Roth IRA, and an employer sponsored plan can even include a matching contribution.

    • 2019 Contribution Limits: $13,000, or $16,000 if you’re 50 or older.
    • 2019 Income Limits: N/A.
    • Investment Options: Unlimited, plus choice of trustee.
    • Tax Treatment of Contributions: Tax deductible.
    • Tax Treatment of Investment Earnings: Tax deferred.
    • Tax Treatment Upon Withdrawal: Taxable as ordinary income.
    • Tax Treatment on Early Withdrawal: Taxable as ordinary income + 10% penalty if taken before age 59 1/2.
    • Employer Matching Contribution: Standard 3% employer match; at least 1%.
    • Loan Provision: Not available.
    • Required Minimum Distributions Required at 70 1/2?: Required.
    • Other Provisions: Contributions can be dollar-for-dollar (you can contribute 100% of income up to the contribution limit).

    SEP IRA

    Like the SIMPLE IRA, a SEP IRA Can be either employer sponsored or an individual plan for someone who is self-employed. It offers much more generous contributions than the plans discussed so far.

    • 2019 Contribution Limits: 25% of compensation, up to $56,000, or $62,000 if you’re 50 or older.
    • 2019 Income Limits: N/A.
    • Investment Options: Unlimited, plus choice of trustee.
    • Tax Treatment of Contributions: Tax deductible.
    • Tax Treatment of Investment Earnings: Tax deferred.
    • Tax Treatment Upon Withdrawal: Taxable as ordinary income.
    • Tax Treatment on Early Withdrawal: Taxable as ordinary income + 10% penalty if taken before age 59 1/2.
    • Employer Matching Contribution: Up to 25%, as long as the total contribution limit of $56,000 ($62,000 if you’re 50 or older) isn’t exceeded.
    • Loan Provision: Not available.
    • Required Minimum Distributions Required at 70 1/2?: Required.
    • Other Provisions: Can be for an individual or through an employer.

    Employer Sponsored 401(k)

    These are probably the most common employer sponsored retirement plans, and you should definitely participate in one if it’s offered. Not only does it provide a generous retirement contribution, but many also have an employer match and loan provisions.

    • 2019 Contribution Limits: $19,000, or $25,000 if 50 or older.
    • 2019 Income Limits: Generally not, but see HCE provision below.
    • Investment Options: Determined by employer.
    • Tax Treatment of Contributions: Tax deductible.
    • Tax Treatment of Investment Earnings: Tax deferred.
    • Tax Treatment Upon Withdrawal: Subject to ordinary income tax.
    • Tax Treatment on Early Withdrawal: Taxable as ordinary income + 10% penalty if taken before age 59 1/2.
    • Employer Matching Contribution: Offered by some employers.
    • Loan Provision: Up to 50% of vested balance, to a maximum of $50,000.
    • Required Minimum Distributions Required at 70 1/2?: Required.
    • Other Provisions: Employer match subject to vesting provisions; may offer a Roth provision.

    Highly Compensated Employee (HCE) Income Limitation. You may be considered an HCE, in which case your contributions to 401(k) plan will be limited. For 2019 an HCE is defined as follows:

    • Owned more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned or received,

    OR

    • For the preceding year, received compensation from the business of more than $120,000… and, if the employer so chooses, was in the top 20% of employees when ranked by compensation.

    Solo 401(k)

    Though this sometimes seems like a nearly exotic plan, it’s actually the standard 401(k) plan designed for a single self-employed individual. However, your spouse can participate in the plan as well. And if you do hire employees, you can add them to the plan, turning it into a standard employer sponsored 401(k) plan.

    There’s a twist on this plan: since you’re self-employed, you act as both employee and employer on the plan. That’s good news, because you can make an employee contribution plus a very generous employer match.

    • 2019 Contribution Limits: Employee portion, $19,000, or $25,000 if 50 or older.
    • 2019 Income Limits: N/A.
    • Investment Options: Unlimited, plus choice of trustee.
    • Tax Treatment of Contributions: Tax deductible.
    • Tax Treatment of Investment Earnings: Tax deferred.
    • Tax Treatment Upon Withdrawal: Taxable as ordinary income.
    • Tax Treatment on Early Withdrawal: Taxable as ordinary income + 10% penalty if taken before age 59 1/2.
    • Employer Matching Contribution: Permitted up to 25% of compensation.
    • Loan Provision: Up to 50% of vested balance, to a maximum of $50,000.
    • Required Minimum Distributions Required at 70 1/2?: Required.
    • Other Provisions: Total employee/employer contributions cannot exceed $56,000, or $62,000 if 50 or older.

    NOTE: This plan has some quirks with the contribution calculations, depending on if you’re a Schedule C filer, or you’re incorporated. Consult with a CPA before taking this plan.

    Comparing All Six Retirement Accounts

    If you’re looking at a choice between retirement plans, we’ve prepared this table showing each of the six retirement plans, and their specific features, side by side.

    Plan/ CategoryTraditional IRARoth IRASIMPLE IRASEP IRAEMPLOYER 401(k)Solo 401(k)
    2019 Contribution Limits$6,000 or $7,000 if you’re 50 or older.$6,000, or $7,000 if 50 or older$13,000, or $16,000 if 50 or older25% of compensation, up to $56,000, or $62,000 if 50 or older$19,000, or $25,000 if 50 or older$19,000, or $25,000 if 50 or older
    2019 Income LimitsIf covered by employer plan, Single, $64,000 to $74,000, married, $103,000 to $123,000Single, phased out from $122,000 to $137,000; married, phased out from $193,000 to $203,000N/AN/AGenerally not, but may be subject to HCEN/A
    Investment OptionsUnlimited, plus choice of trusteeUnlimited, plus choice of trusteeUnlimited, plus choice of trusteeUnlimited, plus choice of trusteeDetermined by employerUnlimited, plus choice of trustee
    Tax Treatment of ContributionsTax deductible, but may be limited if covered by employer planNot tax deductibleTax deductibleTax deductibleTax deductibleTax deductible
    Tax Treatment of Investment EarningsTax deferredTax deferredTax deferredTax deferredTax deferredTax deferred
    Tax Treatment Upon WithdrawalTaxable as ordinary incomeTax free if age 59 ½, and in plan at least 5 yearsTaxable as ordinary incomeTaxable as ordinary incomeTaxable as ordinary incomeTaxable as ordinary income
    Tax Treatment on Early WithdrawalTaxable as ordinary income + 10% penalty if taken before age 59 1/2Withdrawal of contributions not taxable; withdrawal of investment earnings subject to ordinary income tax + 10% penaltyTaxable as ordinary income + 10% penalty if taken before age 59 1/2Taxable as ordinary income + 10% penalty if taken before age 59 1/2Taxable as ordinary income + 10% penalty if taken before age 59 1/2Taxable as ordinary income + 10% penalty if taken before age 59 1/2
    Employer Matching ContributionNot availableNot availableStandard 3% employer match; at least 1%.Up to 25%, up to total contribution limit of $56,000 ($62,000)Offered by some employersPermitted up to 25% of compensation
    Loan ProvisionNot availableNot availableNot availableNot availableUp to 50% of vested balance, to a maximum of $50,000Up to 50% of vested balance, to a maximum of $50,000
    Required Minimum Distributions Required at 70 1/2YesNot requiredYesYesYesYes
    Other ProvisionsCan make non-deductible contributions if income limits exceededCannot make contribution if income limits exceededContributions can be dollar-for-dollarCan be for an individual or through an employerEmployer match subject to vesting provisions; may offer a Roth provisionTotal employee/employer contributions cannot exceed $56,000, or $62,000 if 50 or older

    Where to Open a Self-Directed Retirement Plan

    Every retirement account in this guide can be opened as a self-directed investment account, except an employer sponsored 401(k) plan. The investment firm that acts as trustee for employer plans is determined by the employer, not the employee. The investment options in this section will not apply to an employer plan. However, we will make a suggestion for employer plans shortly.

    Getting back to self- directed retirement plans, you must decide if you want to open an actual self-directed account or a managed account.

    Managed Accounts

    Should you decide self-directed investing isn’t for you, you can choose a managed investing option. At Autopilot Finances we strongly recommend robo-advisors for this purpose. They provide essentially the same investment management services as traditional human investment advisors, but at a fraction of the cost.

    For example, where traditional human investment advisors charge between 1% and 1.5% annually to manage your portfolio, robo-advisors charge between 0% and 0.50%. Not only will that result in less money being paid for fees, but it will also improve your long-term investment results, since you’ll get the benefit of the full return on investment on your portfolio. (NOTE: robo-advisors are not available for SIMPLE IRAs or Solo 401(k)s.)

    Robo-advisors we strongly recommend include:

    You can see details of each robo-adviser in the table below:

     BettermentWealthfrontM1 Finance
    Minimum investment$0$500$100
    Retirement accounts offeredTraditional, Roth, SEP IRAsTraditional, Roth, SEP IRAsTraditional, Roth, SEP IRAs
    Retirement accounts not offeredSIMPLE IRA, Solo 401(k)SIMPLE IRA, Solo 401(k)SIMPLE IRA, Solo 401(k)
    Fees0.25% per year0.25% per yearNo fee
    Best for:People with a low starting balance, looking to invest based on their own personal risk tolerancePeople looking to minimize taxes and have access a broad array of financial/investing resourcesInvestors looking for the flexibility of buying and selling individual stocks or managed, pre-made portfolios

    Self-Directed Account

    A self-directed account will enable you to choose your own investments, create a portfolio, and manage it on an ongoing basis. You’ll have the option to invest in individual securities, like stocks and bonds, as well as funds, such as mutual funds, exchange traded funds (ETFs) and real estate investment trusts (REITs). Self-directed investing is best used by those who are experienced, and are comfortable choosing and managing their own investments.

    Investment brokers can accommodate this type of investing. Recommended investment brokers include:

    You can see details of each investment broker in the table below.

     FidelityAlly InvestTD Ameritrade
    Minimum investment$0$0$0
    Retirement accounts offeredTraditional, Roth, SEP & SIMPLE IRAs, Solo 401(k)Traditional, Roth, SEP & SIMPLE IRAsTraditional, Roth, SEP & SIMPLE IRAs, Solo 401(k)
    Retirement accounts not offeredAll retirement accounts are offeredSolo 401(k)All retirement accounts are offered
    Fees$4.95 per trade$4.95 per trade$6.95 per trade
    Best for…Self-directed investing offering no-fee index fundsSelf-directed investing with lower fees for frequent tradingSelf-directed investing with 360 local branches

    Employer 401(k) Investment Option – Blooom

    As already discussed, the investment firm holding an employer 401(k) plan is determined by the employer. However, there is an investment service called blooom that can manage your plan for you. For $10 per month, blooom offers robo-advisor service for your employer plan.

    What’s more, blooom can manage your plan wherever it’s held. There’s no need to move your plan to a specific investment broker. You don’t even need the permission of your employer or your retirement plan administrator to use the service. It works with the plan you have, where it is, and what investment options are offered within it.

    Blooom builds your portfolio, then maintains target allocations with periodic rebalancing. Once you sign up for the service, your employer 401(k) will be fully managed for you.

    How to Sign up for a Retirement Account

    Due to federal regulations, the sign-up process for retirement plans is pretty standard. The typical requirements include:

    • You must be at least 18 years old.
    • A US citizen or resident alien.
    • You must have a US address.
    • Provide your Social Security number.
    • Supply your full name, email address, and phone number.
    • Provide employment and income information.
    • Supply any required documentation to verify your identity.
    • Sign and date any required broker disclosures or documents, which can usually be done by electronic signature if you’re applying online.

    Sign up can be accomplished either online, by phone, or in-person. You can typically fund your account by check, wire, or – if you link your bank account – by electronic transfer.

    Armed with this information, we hope you can make an informed choice about the retirement plan you’ll participate in. Please also be aware that you can set up a self-employed retirement plan for a side business, even if you already have a plan through your employer. That’s another good reason to be aware of all the retirement plan options available.

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