MODULE 8

3. Retirement Account Breakdown

Types of Retirement Accounts to Consider:

  • Roth IRA

  • Traditional IRA

  • Solo 401(k)

Follow along on page 22 of your workbook!

A QUICK BREAKDOWN

IRA

  • Traditional IRA: immediate tax benefits

  • Roth IRA: withdraw money tax-free in retirement

  • You only need a social security number and earned income

  • An annual contribution limit applies. This number changes annually.

  • Easy way to begin investing

SOLO 401(K)

  • For self-employed business owners with no employees

  • Set contribution limit (much higher than IRAs)

  • You need an Employer Identification Number

  • Additional paperwork might be needed if you earn significant income

  • Investment options a little more limited and may be more difficult to maintain.

  • Roth option available

Which Account is Best for Me?

Roth IRA: best for someone looking to make smaller contributions and expects to be in a higher tax bracket in the future.

Traditional IRA: best for someone looking to make smaller contributions and expects to be in the same or lower tax bracket in the future.

Solo 401(k): best for someone looking to make significant contributions and has an employer ID number.

How Do I Get Started?

Steps to Take

  1. First decide whether you’d like to be a hands-on or hands-off investor. If you feel comfortable choosing your investments, great! If not, there’s no need to worry. There are plenty of options to choose from if you don’t feel confident.

  2. Choose an account online based on your previous decision. You can do this at almost any online broker (I’ll give you some examples) and they will walk you through the process and any paperwork you need to fill out. Try looking for an account with minimal fees.

  3. Fund your account by transferring money from your bank. Set up automatic payments if you wish.

  4. Choose your investments-don’t just leave your money chilling in the account!

Hands-Off Approach Options

  • Robo-Advisor
    This will ask you questions about your preferences and goals, and determine how you should invest. It can adjust these investments over time, so you won’t need to do anything once the money is contributed. This can come with costs like advisory fees and expense ratios.

  • Target Date Fund
    You choose the date in which you’d like to retire, and it will diversify your portfolio, adjusting as time goes on. It strategizes for you, just like the robo-advisor. This isn’t quite as personalized as the robo-advisor, and it generally comes with less fees.

  • Financial Advisor
    You always have the option to hire a financial advisor to choose your investments for you. They can help you refine your goals and develop a personal strategy for you. This can sometimes be a more costly option.

IRA ACCOUNT OPTIONS

SOLO 401(k) ACCOUNT OPTIONS

Your Challenge for This Week…

Choose a plan! If you’re still stressed about making the “right decision” with your money, let me make it easy for you: the “right decision” is HAVING A RETIREMENT PLAN. Still unsure? Just start a Roth IRA by clicking on one of the links above and start contributing today.