Types of retirement accounts: How to prepare your financial future
This retirement account is one of the most used by workers in the United States, since it is a ‘standard’ option that is easy to access and in which the employer makes contributions to match the amount that the employee saves. Among the most outstanding benefits of the 401 (k) savings account is the exemption it offers in the payment of taxes. This means that the amount designated for savings, which will go directly to the 401 (k) will not be taken into account on your tax return.
SEP IRA for retirement
A simplified employee pension, or SEP IRA, is a type of savings account that is especially useful for self-employed people who do not have a fixed income. Among its advantages is a higher rate of voluntary contributions. Entrepreneurs and self-employed workers can access a cheaper retirement plan that allows them to increase their savings, with a maximum limit of 25% of total income, or an amount of up to $61,000 dollars.
A traditional IRA (Individual Savings Arrangement) savings account can be opened and managed by the beneficiary, regardless of whether he has access to a 401 (k) plan, as long as he has taxable income. Both the traditional IRA and the 401 (k) are similar. The taxpayer can deposit money tax-free into the account, which can grow until the person wishes to withdraw it. However, there are age restrictions and a maximum limit of money ($50,000) that can be accumulated and withdrawn.
The individual 401(k) savings account has both advantages and disadvantages. For example, it allows higher contributions than in other accounts, which mainly benefits small entrepreneurs and those who work independently and who do not have contributions from a employer. Another advantage of the individual 401 (k) plan is that the taxpayer can make voluntary contributions of up to 100% of their total income, whenever they want, acting both as an employee and as an employer.
With a traditional IRA savings account the age to start withdrawing the money saved is 72 years. In the case of the Roth IRA, the taxpayer can dispose of the money at any time, without penalties or taxes. The difference between this account and the traditional IRA, and even the 401 (k) plan, is that the beneficiary will pay taxes at the time of making their contributions and will only be able to open an account of this type if their annual income is less than $144,000 ( in 2022).
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