The Best Retirement Plan Options for Your Future

Retirement planning is an important part of financial security, and there are a variety of options available to help you save for your future. Individual retirement accounts (IRAs) are some of the best individual retirement plans, and they include traditional IRAs, Roth IRAs, and spousal IRAs. Anyone who earns income can open one on their own. Employer-sponsored retirement plans, such as 401(k)s, 403(b)s, and 457(b)s, are also great options.

A 401(k) plan is the most common type of employer-sponsored retirement plan. Your employer pre-selects some investment options and you transfer a portion of each paycheck to the account. If you leave your job, you can take your 401(k) plan funds with you or leave them where they are. To get the most out of your 401(k) plan, contribute as much as you can and choose your investments carefully to minimize fees.

You should also request any employer compensation that is available and be aware of your company's rights award schedule, which determines when you can keep employer-matched funds. Roth IRAs are another great option for retirement savings. This is usually a feature of a traditional 401(k) plan, but it's funded with money after taxes. An IRA is a retirement account that anyone can open and contribute to, as long as they earn income during the year or are married to someone who does. IRAs offer a greater variety of investment options than most employer-sponsored plans. That, coupled with the fact that you can open an IRA with any broker, means that you may be able to keep your fees lower with an IRA than with the plans mentioned above.

To get the most out of your IRA, carefully choose your broker and investments to minimize fees while keeping your investments diverse and in line with your risk tolerance. You should also choose the right type of IRA (traditional or Roth) depending on what you think will provide you with the greatest tax advantages and contribute as much as you can each year. In addition to traditional IRAs, there are several types of IRAs to consider. Do you want to get tax-free distributions in retirement? A Roth IRA may be right for you. Self-employed people and small business owners can contribute to an IRA, but there are also several special retirement plans available just to them that allow them to contribute more money per year since they don't receive the benefit of an employer-sponsored retirement plan. An annuity is a contract between you and an insurance company in which you pay a sum of money and that money is returned to you through regular payments.

Annuities can help you establish a guaranteed income stream for a certain period or for the rest of your life. Many annuities have liquidity characteristics that indicate that you or your heirs will receive the full investment amount. Your best bet is to buy something called an index fund and keep it forever. Index funds buy all stocks or bonds in a particular category or market. The advantage is that you know that you will get all the available returns on, for example, large US stocks or bonds in emerging markets. Retirement accounts aren't free and the fees you pay affect your returns, which can cost you a lot when you retire.

While most workers are responsible for their own retirement savings today, high schools don't have mandatory 401(k) classes or individual retirement accounts (IRA). Many people like to invest on their own, but when it comes to retirement savings, it's a good idea to work with a financial advisor who has a certified financial planning designation. Life doesn't move in a straight line, which means everything from your net worth to your investments to your retirement plan will likely suffer a setback at some point. And by offering withdrawals before the typical retirement age of 59 and a half years without an additional penalty, 457(b) can benefit retired civil servants who may have a physical disability and need access to their money. If you or your spouse have a retirement plan at work, you may not be able to deduct your contributions if your income exceeds the IRS limits. This is why Uncle Sam wants you to save for retirement and offers tax breaks on retirement accounts.

However, your ability to deduct your contributions may be limited if you (or your spouse) have a functioning retirement plan. For example, at age 50, you can start paying premiums until age 65 if that's when you plan to retire. In companies with fewer than 100 employees, approximately half of the employees are offered a retirement savings plan. Investment options within employer-sponsored retirement plans are limited to certain funds, leaving you with fewer options than in an IRA.