Choosing an IRA

Saving for retirement used to be simple. You got a job. Your company gave you a pension when you stopped working. End of story.

But company pension plans have gone the way of the Dodo bird and the burden of saving for retirement is squarely on our shoulders. And along with it, a dizzying array of choices when it comes to how to save.

So let's talk about which type of retirement plan makes the most sense for you.

As you know if you read IRAs: The Retirement Tool You Absolutely Need!, the BIG difference between a Traditional IRA and a Roth IRA is when your contributions are taxed; therefore, the basic rule is this:

If you expect to be in a lower tax bracket upon retirement, go with a Traditional IRA; if not, consider going with a Roth IRA.

Choosing a Traditional IRA
By choosing the Traditional IRA, you get the benefit now, while you are putting in the hard work on the job. And if you slip to a lower tax bracket when those days of punching the clock are over, you end up paying less in taxes than you would have if you had paid them upfront. More of that hard-earned money goes into your pocket, and that's a good thing!

Choosing a Roth IRA
With a Roth IRA, you give yourself a nice little retirement gift because the money you put away will come back to you tax-free. If you can afford to give up the tax break while you are still working, and you don't expect your tax status to be different when you retire, consider opening a Roth IRA.

Choosing a SEP IRA
If you are a business owner or work for yourself, you should consider a SEP IRA. The benefit for you, the employer, is that a SEP IRA is cheaper to set up than conventional retirement plans. It benefits your employees in that you can put up to 25% of an employee's paycheck (up to $46,000) into his/her SEP IRA, as opposed to the $5,000 or $6,000 he/she could put into a Traditional IRA.

Choosing a SIMPLE IRA
Those of you who own your own business and have less than 100 employees can set up a SIMPLE IRA. It is simpler (no pun intended!) and more cost-effective to set up and manage than a 401(k) plan, which is certainly a benefit to you. But for the employee, a SIMPLE IRA is not as advantageous as a 401(k) plan because it has lower contribution limits.

More Help Never Hurts
Our goal at Dolans.com is to help simplify the money maze we face every day. We hope we have made this simple and straightforward for you. But as in many financial decisions, there can always be some complicated questions that come along with your unique circumstances. Read all the advice in our IRA center. Check out IRAHelp.com, which is run by our good friend Ed Slott. Ed is a CPA and the country's leading authority on tax and estate planning for retirement savings. And if you still have other questions, speak with a financial advisor.