Which Retirement Account is Best for You?
This short quiz will help you identify which retirement account might be the best fit for your goals and needs. Remember, this quiz is just a starting point! To make sure you’re on the right track, talking to a financial advisor is a smart move.
Learn More:
Solo 401k
A Solo 401(k) is designed for self-employed individuals and business owners with no employees (other than a spouse). It offers high contribution limits and the potential to save even more in taxes than some other options.
Pros
- Big Savings Potential: You can contribute big amounts, both as an “employee” and “employer,” maximizing your retirement nest egg.
- Tax Benefits Now & Later: Contributions can often be deducted from your current income taxes, and growth within the account is tax-deferred.
- Loan Option: Many Solo 401(k) plans allow you to borrow against your funds, which can be helpful in a pinch (though there are rules).
- Investment Flexibility: You usually have a wide range of investment choices within a Solo 401(k).
Cons or Things to Consider
- Contribution Deadlines: Stricter deadlines to make “employer” contributions compared to some other retirement plans.
- No Full-time Employees: Outside of your spouse, you cannot have any full-time employees to contribute to a Solo 401k.
The bottom line? This account is a good fit if:
- You want maximum contribution limits to save as much as possible for retirement.
IRA
IRAs are a straightforward way to save for retirement, offering tax benefits for many people. Contributions may be tax-deductible, and your money grows tax-deferred within the account.
Pros
- Possible Tax Deductions: Contributions might be deductible from your current taxes, lowering your tax bill this year.
- Ease of Setup: Easy to establish one at most banks and investment firms.
- Wide Investment Options: You generally have many choices for how your money is invested within the IRA.
- Accessible: You can start with small amounts and add more when you can, giving flexibility.
Cons or Things to Consider
- Early Withdrawal Penalties: Taking money out before retirement age usually means a penalty in addition to taxes.
- Required Minimum Distributions (RMDs): You’ll have to start withdrawing money at age 72, even if you don’t need it yet.
The bottom line? This account is a good fit if:
- You want a simple way to save for retirement with potential tax deductions.
- You want flexibility in how much you contribute each year.
SEP IRA
A SEP IRA is designed specifically for self-employed people and small business owners. It’s incredibly easy to set up and offers generous contribution limits.
Pros
- High Contribution Limits: While not as high as a Solo 401k, you can often contribute a significant percentage of your income, boosting retirement savings.
- Employer-Only Contributions: No mandatory employee contributions (but you can contribute for yourself if you want).
- Tax Deductible Contributions: Your contributions typically lower your current taxable income.
Cons or Things to Consider
- Equal Treatment for Employees: If you have employees, you must contribute an equal percentage of their pay as well.
- Variable Contribution Limits: The amount you can contribute changes each year based on your income.
The bottom line? This account is a good fit if:
- You want high contribution limits (but do not quality for a Solo 401k) with an easy-to-manage account.
- You want to contribute to your employees’ retirement too.
Simple IRA
A SIMPLE IRA is a retirement plan for small businesses and self-employed individuals. It’s a great option if you want something uncomplicated with lower contribution limits than some other options.
Pros
- Easy, Low-Cost Setup: Simple to establish and often has lower fees than other retirement plans.
- Employer & Employee Contributions: You get the pre-tax benefit as the employer, and your employees can make convenient contributions through payroll deductions.
- Early Withdrawal Options: Slightly less restrictive for early withdrawals compared to some plans (though penalties might still apply).
Cons or Things to Consider
- Lower Contribution Limits: You can’t save quite as much as with Solo 401(k)s or SEP IRAs.
- Required Employer Match: You must either contribute a small matching amount or a fixed contribution for all eligible employees.
The bottom line? This account is a good fit if:
- You want a straightforward, low-cost retirement savings plan.
- You have employees or want an easy way to save alongside your spouse