How should I contribute toward my retirement?
As a general rule, the first place you should look to contribute would be an employer sponsored retirement plan. These types of accounts will allow you contribute more funds towards retirement. Additionally, many employers will match contributions up to a certain amount. It is encouraged to contribute at minimum enough to take advantage of your employer’s contribution.
What types of Retirement Accounts are available?
For an individual wishing to set up a retirement account on their own, they would utilize an IRA- Individual Retirement Account. The IRS limits the dollar amount that can be contributed to any retirement plan, for 2023, the limit an individual can contribute is $6500. Or $7500 for those aged 50 or older.
What about ROTH IRA options?
ROTH is an alternative to traditional retirement accounts in that it allows you to save for tax free income in retirement. In a traditional retirement account, you may qualify for tax deductions each year you put funds into your account, the funds will the be taxed as income later when you withdraw the funds in retirement. Roth accounts are the inverse, you will receive no tax deductions for funding the account, however, once you have reached the age 59 ½ the funds can be withdrawn without owing tax.
What about Employer Sponsored Plans?
Employer Sponsored Plans are retirement accounts available through your employer. As of June 2023 all employers in Colorado with 5 or more employees are required to offer a plan, or sign up their employees for the Colorado Secure Savings Program, which will open a ROTH IRA for each participant. These accounts will be subject to the IRS contribution limits for IRAs. With the Colorado Secure Savings Program employers are not able to contribute towards the retirement accounts for their employees.
What are the other options?
For most employers, the two most used options we see are 401K and the SIMPLE IRA
Each of these plans allow for employers to choose between offering a match of an employee’s contribution- or make a contribution for all eligible employees, whether or not they have made any individual contributions. There are a variety of 401K options, but in general they have more requirements to set-up and manage, require an additional tax filing and have additional rules that must be reviewed. A traditional 401K is available to all companies, regardless of their size. Whereas, a SIMPLE IRA can only be used for companies up to 100 employees. In general the requirements for a SIMPLE IRA are not as strict, and there are no requirements for a tax filing. Employers electing to establish a SIMPLE IRA are required to provide a contribution to employees retirement accounts.
Regardless of what size company you have or work for, working with an investment professional can help you determine how you should go about saving for your retirement or providing a plan for your employees. It is helpful to meet regularly to ensure that the plan still matches the goals of the company and employees.