Types Of Retirement Accounts

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Figuring out how to invest your money for retirement is tough because there are so many different types of accounts. If you don’t have a retirement plan through your employer, IRAs can be one of the best ways to compound long-term savings for retirement. Whether you’re single, married, or a small business owner, there are a number of beneficial IRA options that can help you achieve your retirement goals. If you are on this page, chances are you are trying to find out whether you can invest in pure physical gold bullion (or any other precious metal) inside your retirement account. Since each retirement account is different, choose yours from the list below:

Traditional IRA

A traditional IRA is a retirement savings account that doesn’t incur taxes on contributions until you withdraw your funds at the age of 70 1/2. Since the account is tax-deferred, interest and investments accumulate a lot faster than a taxable retirement account. Additionally, traditional IRA contributions are tax-deductible, as long as you’re not enrolled in a separate retirement plan through your employer. The maximum annual contribution for a traditional IRA is $5,000 for a single person and $10,000 for married couples. You can open a traditional IRA through a bank or broker. [Learn more]

Roth IRA

A Roth IRA is an individual retirement account that, unlike a traditional IRA, provides tax-free income when you remove your money from the account at the age of 59 1/2. However, contributions in a Roth IRA aren’t tax deductible like a traditional IRA. A Roth IRA account can also be used as an investment vehicle for stocks, mutual funds, money market accounts and certificates of deposits. The tax-free characteristic of the Roth IRA is a huge advantage over a traditional IRA. Although the Roth IRA lacks the annual tax deduction, you will save thousands of dollars in taxes when you withdraw your money for retirement. [Learn more]

Rollover IRA

A rollover individual retirement account enables you to funnel money from an existing 401(k), 401(b), or IRA plan. If you no longer work for your employer, but hold money in their 401(k) plan, you can open a rollover IRA to move the money into the new account. Rollover IRA contributions are limitless, allowing you to transfer as much money as you want from your employee-sponsored retirement account. A rollover retirement account can be set up through a bank or brokerage firm. [Learn more]

Spousal IRA

A stay-at-home mom can open their own IRA and have their working spouse fund the account, which is often referred to as a spousal IRA. The spousal IRA is essentially a term and nothing more than a regular Roth IRA, or traditional IRA. The idea is that a non-working spouse should have the freedom to establish retirement savings for themselves. An IRA cannot be jointly owned, but once money is deposited into the IRA it becomes rightful property of the account holder. This means that in the event of divorce, a stay-at-home spouse keeps the money. Another advantage is married couples are able to contribute $10,000 annually ($5,000 per person). [Learn more]

SEP IRA

A SEP IRA is similar to a traditional IRA, except it’s designed to benefit self-employed individuals and small business owners. Whether you’re a sole proprietor, corporation, or an LLC, you qualify to open a SEP IRA. Typically, contributions to a SEP IRA are tax deductible and the earnings are tax deferred. You can contribute as much as $50,000 annually, but the money cannot be withdrawn from the account prior to the age of 59 1/2, without suffering a 10% IRS penalty. The main advantage of the SEP IRA is the tax deduction. During tax time, if it turns out your business income was higher than expected, you can make a large contribution to your SEP IRA and significantly reduce owed income taxes for the year. [Learn more]

SARSEP

SARSEP stands for Salary Reduction Simplified Employee Pension Plan and is a retirement vehicle that was only made available to small businesses with 25 or fewer employees until being discontinued in 1996. Under a SARSEP, employees have individual SEP IRAs established in their names and both the employer and the account owner are able to make contributions. Contributions are pre-tax through salary reductions, and the employer contribution may not exceed either $52,000 or 25% of the employee’s salary, whichever is less. Employee contributions are dependent on salary reduction agreements set forth in the plan, but ultimately cannot exceed $17,500 (for 2014). Additionally, all contributions are limited by net profits. In short, SARSEP is a collection of SEP IRAs, and individual employee accounts operate through SEP IRA rules (for more on SEP IRAs, visit here)

SIMPLE IRA

SIMPLE is an acronym for Savings Incentive Match Plan for Employees, and is the common name for this type of tax-deferred employer provided retirement savings vehicle. The SIMPLE IRA was designed to encourage smaller employers (100 or fewer employees) to provide retirement plans for workers while avoiding the complicated setup process of larger benefits packages. One of the primary benefits of a SIMPLE IRA, for instance, is that they do not fall under the guidelines of the ERISA. Employers who offer SIMPLE IRAs are required to provide a certain minimum contribution to their employees accounts. Employees who participate are essentially opening up their own Traditional IRAs through the employer. One major downside is that contribution limits are relatively low (the limit for 2014 is $12,000). Additionally, SIMPLE IRA rollovers are more difficult and require a waiting period before they can be initiated. [Learn more]

401(k) Plan

401(k) plans as we know them today were not a conscious construct of the U.S. Government or the Internal Revenue Service. Rather, 401(k)s were the brainchild of benefits consultant Ted Benna. Named after section 401(k) of the Internal Revenue Code that was added in 1978, Benna realized that this type of plan could use the provision to create simple employee retirement plans with tax advantages. Today, nearly 95% of private employers feature a 401(k) option in their benefits package. As a defined contribution plan, a 401(k) is primarily funded through an employee’s pre-tax paycheck deductions. The most important benefit of a 401(k) plan is the possibility of employer match programs, which enable an investor to receive free contributions and exceed standard contribution limits. You are prohibited from investing in several asset classes through a 401(k), including real estate and precious metals; the vast majority of 401(k) money is put into mutual funds. [Learn more]

403(b) Plan

Named after Section 403(b) of the Internal Revenue Code, a 403(b) plan is a tax-advantaged  defined contribution retirement plan available to certain public school employees, tax-exempt non-profit organizations, and some church ministers. Much like with a 401(k), employee participants in a 403(b) plan are able to defer money from their paychecks into a retirement investment account. In fact, 403(b)s act very similarly to 401(k)s in many aspects. Each has a plan provider and plan administrator, and the investment options available to a participant are limited to what their specific plan offers. 403(b) accounts used to be referred to as “Tax Sheltered Annuities”, as they were initially set up to only offer annuities as an investment choice. [Learn more]

457(b) Plan

The name “457(b)” comes from the plan’s governing section in the Internal Revenue Code. This is often shortened to “457 plan.” The 457(b) plan is very similar to other employer-sponsored, tax-deferred retirement plans like 401(k) and 403(b) plans. As a defined contribution plan, 457(b) participants deduct income from their paychecks to be set aside in a tax-free investment account. These plans were created as an alternative defined contribution plan for two specific types of employers: government and tax-exempt, non-government employers (such as hospitals and charities). There are some different rules for governmental and non-governmental 457 plans. The most important difference is that public government 457s must be funded by the employer, whereas almost all non-governmental 457s are not funded by employers (as doing so would remove the tax benefits on the account, per ERISA guidelines). [Learn more]

Thrift Savings Plan (TSP)

A unique defined contribution plan that is only available to federal employees or members of the armed services, the Thrift Savings Plan is one of the three parts of FERS retirement packages (along with FERS annuities and Social Security). Congress established the TSP as a 401(k)-style alternative for public workers. The Thrift Savings Fund is made up of ten investment funds, under six categories that are called the G, F, C, S, I and L. Each of these is essentially a mutual fund portfolio organized based on varying levels of risk. You cannot hold individual securities through the TSP. [Learn more]

Solo 401(k) Plan

Introduced as part of the Economic Growth and Tax Relief Reconciliation Act of 2001, these were the first employer-sponsored retirement vehicles specifically designed for self employed workers, who had previously been relegated to using Profit Sharing Plans, Keogh Plans, or Individual Retirement Accounts (IRAs). Solo 401(k) plans have almost all of the same rules and requirements of normal 401(k) plans, with two very notable exceptions: first, the employer/owner and his business are not subject to the complex and costly guidelines of the Employee Retirement Income Security Act (ERISA). Second, there can be no other employees of the company who are considered full-time (1,000+ hours worked per year). [Learn more]

Employee Stock Ownership Plan (ESOP)

In an ESOP, the employer sets up a trust fund where it is able to share its own stock or designate cash to purchase existing shares of stock. In the United States, ESOPs are the most common method for employees to become part-owners of their company. Shares in an ESOP trust are allocated to specific employee accounts, although the formulas that govern the allocation of shares may differ from company to company. As with other employer-sponsored benefits, employees are (usually) not fully vested in their ESOP until they have reached a certain seniority. These accounts have tax benefits; for the issuing company, stock contributions are tax deductible and employees pay no taxes on received contributions and can roll over distributions into an IRA or other qualified plan. [Learn more]

Keogh Plan

Established in 1962 thanks to the efforts of Representative Eugene Keogh, a ‘Keogh Plan’ is a tax-advantaged pension plan designed for self-employed workers or unincorporated business entities. Not all self-employed persons can establish a Keogh Plan. Independent contractors, for instance, cannot open a Keogh. Rather, they are only available to self-employed individuals that open an unincorporated business. Keogh Plans come in both defined contribution and defined benefit varieties. Keogh Plans are notorious for their complicated paperwork, but remain a viable option for high earners who are self-employed. Establishing a Keogh Plan does not inhibit your ability to contribute to an IRA. [Learn more]

Money Purchase Plans

Money Purchase Plans are a retirement vehicle offered by some for-profit companies where contributions are made (by both employer and employees) based on a percentage of annual earnings. Unlike a Profit Sharing Plan, where contributions are tied to employer profitability on an annual basis, the percentage of annual earnings that are devoted to Money Purchase Plans remains the same each year based on the terms of the plan. Despite the required employer contributions, Money Purchase Plans are still defined contribution plans, just like a 401(k). This is because you, as the employee, still maintain control over the investments (to the degree that the plan allows) and are still responsible for deciding when money is withdrawn. All contributions made to your Money Purchase Plan are tax deductible, and all growth is tax-deferred. One major downside to some Money Purchase Plans is that they tend to have high administrative costs for a retirement account, which does eat into your investment returns. Also, you cannot take loans out of your Money Purchase Plan, unlike many defined contribution plans. [Learn more]

Profit Sharing Plan

Employers set up Profit Sharing Plans as an additional form of employee compensation that allows them to share (through a trustee) company earnings with participating employees. If you have a Profit Sharing Plan account, your employer will make contributions to your account that are invested and can grow tax-free. Like many employer sponsored retirement plans, you will usually not be considered fully vested until several years into the plan. Unlike a Money Purchase Plan, where the percentage of annual earning that are contributed to plan accounts is predetermined, Profit Sharing Plan contributions are tied to your company’s profitability. Typical defined contribution plan restrictions apply: no withdrawals prior to 59 ½; early withdrawals come with a 10% penalty; distributions are taxed as personal income. [Learn more]

Annuity

Annuities are offered by insurance companies, and act as an arrangement between you and the company to provide a source of income in retirement. If you have an annuity, or are considering purchasing one, this page can only offer a brief overview of generic annuity functionality and the ways in which precious metals can be used to create a well-diversified retirement strategy. You should carefully consider all of your retirement options before buying any complicated financial instrument. [Learn more]

You can also learn more about IRA options from the IRS website here.