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No Employer 401k? Fear Not!

Most people recognize the importance of saving for retirement. Planning for the long-term is filled with challenges, especially knowing where to start. 401k plans have grown in popularity over the last 20 or so years and are a great vehicle for retirement planning. However, it is not uncommon to work for a company that does not offer a 401k. While disappointing, you still have options. Your best bet may be to use an Individual Retirement Account (IRA). The two types to consider are Traditional IRA’s and Roth IRA’s.

A Traditional IRA account allows you to contribute pre-tax dollars and experience tax-deferred growth on your investments. They are designed for long-term investing and can be a great tool in your retirement planning arsenal. Key features include:

• Easy to set up

• Hold a wide variety of investments, including individual stocks, bonds, mutual funds, and exchange-traded funds (ETF’s)

• You can currently contribute up to $5,500 into the account per year. If you are above age 50, you are permitted an additional $1,000 “catch-up” contribution each year

 When you take money out of a Traditional IRA, you will owe ordinary income taxes on that amount. They also have rules for when you can withdraw the money. Distributions taken before age 59 ½ may be subject to a 10% early withdrawal penalty in addition to taxes.

A Roth IRA is similar to a Traditional IRA with a few key differences. All contributions to Roth IRA’s must be made with after-tax dollars. When you reach age 59 ½, all distributions are tax-free. Herein lies the power of the Roth IRA. All of the growth that may occur in the account over time is available to you tax-free in retirement!

Please note that both Traditional and Roth IRA’s have income limitations. If you make above a certain amount of income each year, the benefits of these accounts may be reduced or eliminated altogether.

If you are self-employed, two great options you should consider are:

 1)      SEP IRA. SEP stands for “Simplified Employee Pension” and requires very little administration. It is often referred to as the “procrastinator’s plan” due to its ease of use and flexible contribution deadlines. Like Traditional and Roth IRA’s, they allow for a wide range of investment options. However, the contribution limits are much higher with potential maximum investments of $53,000 per year. There are important details to keep in mind, which is why you should consult an investment professional for guidance on using this type of plan.

 2)      Individual or Solo 401k. These plans also offer similar benefits to a traditional 401k plan but require less maintenance. You are able to make contributions as both employer & employee, which creates the opportunity for substantial contributions each year. Unlike the SEP, Individual 401k plans do have administrative fees. These must be balanced with the potential benefits that the plan may provide. Again, it is best to consult an investment professional when making such decisions.

Additionally, you may want to set up a taxable investment account. Each of the account types listed about have contribution limits. Investing in a Traditional or Roth IRA is a great place to start but may still leave a gap in the amount most people need to save for retirement. A taxable account allows for a limitless amount of investment contributions. Bear in mind that these accounts do not offer the same tax-sheltering features. However, that should not deter you from considering a taxable account. Tax planning plays a critical role in an overall investment strategy, but taxes alone should not prevent you from investing for your future. It is always wise to seek out guidance from your tax professional before committing to any investment.

If you have any questions regarding these investment accounts or would like to learn more about maximizing your investment outlook, we are happy to engage with you. Please feel free to contact us at (713) 623-6600 or send us an email at!

Will Goodson

Will is a senior advisor who designs financial plans and investment strategies for clients. He is a University of Texas graduate and a CERTIFIED FINANCIAL PLANNER™ professional. Additionally, Will has obtained the National Social Security Advisor (NSSA®) designation and works closely with wealth management clients to determine the most optimal strategies for taking Social Security and Medicare. Read Will’s Profile HereRead More Articles by Will

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