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Retirement Plans 101

So, you’re ready to get serious about your financial future, starting with choosing the right retirement vehicles to meet your needs. With an array of available options, this can admittedly be a big task. But don’t let that dissuade you. To get you started, here’s a quick rundown of the pros and cons of some of the most common retirement vehicles.

Employer-run vehicles

  • You can make pre-tax (with a traditional plan) or post-tax (with a Roth 401[k]) contributions.
  • It includes federal protections preventing employers from misusing the assets.
  • Employers frequently offer some form of matching contributions
  • You can take advantage of high contribution limits (up to $18,000 for 2016 and $24,000 if over the age of 50).


  • You have less flexibility in choosing investments.
  • You have to wait to become vested and be able to receive benefits. With many company plans, this takes three years or more. Withdrawals before you become vested could bring fees.


SIMPLE IRA (Savings Incentive Match Plan for Employees)

  • Easier for small employers to launch.
  • Employer contributions are required.
  • You can make pre-tax contributions.


  • You face high early-withdrawal penalties.


SEP (Simplified Employee Pension)
A SEP is a common option for small businesses and self-employed individuals who contribute to an IRA or annuity set up for them individually. It is essentially a traditional IRA. See below for a their shared list of pros and cons.

Individual vehicles:
IRA (Individual Retirement Account)

  • You don’t pay taxes until you make a withdrawal.
  • Contribution limits are based on age and aren’t restricted by a high income.
  • Can be converted to a Roth IRA down the road.


  • Contribution limits are relatively low compared to other vehicles: a maximum of $5,500 a year or $6,500 if you’re 50 or older.
  • Age requirements: must be under 70½ to contribute.


Roth IRA

  • Contributions are taxed when you make them, but after you’ve had your account for five years, you won’t be taxed on your earnings.
  • No age restrictions for contributions.
  • Withdrawals can begin without penalty after age 59½.


  • Income eligibility restrictions (ineligible if your income is over $132,000 annually for single filers and $194,000 for married filers).
  • Contribution limits are relatively low compared to other vehicles: a maximum of $5,500 a year or $6,500 if you’re 50 or older.


This is a new type of Roth IRA offered by the U.S. Department of the Treasury, developed for individuals who don’t have access to a plan at work.


  • Easy setup.
  • No costs or fees.
  • No complicated investment strategies.
  • Backed by the U.S. Treasury.
  • Tax-free, no-penalty withdrawals.


  • Follows Roth IRA annual contribution limits.
  • It’s merely a “starter” account: When you’ve invested $15,000, it converts to a Roth IRA.



  • Similar to SEPs but allow you to contribute much larger amounts.


  • Trickier to set up and manage than other retirement vehicles.



  • Steady, guaranteed income during retirement.


  • Typically requires the help of a financial advisor due to complicated tax issues, fees and withdrawal restrictions.


Tax-efficiency considerations
Before you make your first move, remember that no matter which vehicle(s) you choose, tax efficiency is key to maximizing your return. Simply put, tax efficiency means considering the tax liability of different investments and how that will ultimately affect your returns. Determining the right type and mix of investments to help lower your tax burden—not for a given year, but over the long-term—will undoubtedly take some work, as it’s not a one-size-fits-all proposition, but it’s worth it. Your best mix is likely to vary based on considerations like your age, financial profile and risk tolerance, so don’t be afraid to seek help to get your financial future headed in the right direction.

Choosing the right retirement vehicle for your situation takes some serious consideration, but you can start out on the right foot by arming yourself with accurate info.

And remember that retirement can look a little different for women. To learn more, download our “A Woman with a Plan” ebook.

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This information has been provided for information purposes only and does not purport to be a complete description of the retirement plans referred to in this material. This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The retirement plans mentioned may not be available or a viable option for all individuals. Opinions expressed are those of the advisors at Sweet Financial Services and are not necessarily those of RJFS or Raymond James. All opinions are as of this date and are subject to change without notice. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding upon a conversion. Raymond James Financial Services, Inc. does not provide advice on tax matters. Tax matters should be discussed with an appropriate tax professional.

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