Choosing the Right Retirement Account
Planning for retirement is a necessary financial step for every person to take. But how each person plans for retirement depends on their specific goals and what they’re looking for.
Some might just want to be able to live comfortably, without having to work full-time, and get by without any lavishness. Others might want to invest and grow their financial portfolio, using their retirement account as a tool. While we at First Western Federal Savings Bank specialize in non-recourse loans and self-directed IRAs, we’re still here to offer our insights to choosing the right retirement account for you. Learn more from our non-recourse lenders, and best of luck in setting up your retirement plan.
Roth IRAs
Roth IRAs are extremely common, and kind of like an umbrella term for many different types of IRAs. As we’ve discussed in previous blogs, they’re an individual retirement account that offers tax benefits — more specifically, you can start taking tax-free withdrawals once you’re 59½.
Self-Directed IRAs
Self-directed IRAs are a type of Roth IRA. They differ slightly from other IRAs, because you can use them for investment purposes, such as with a non-recourse loan. While investing with a self-directed IRA has higher risks than if you were to just let those savings sit, there’s also a much higher chance of reward.
NerdWallet explains a bit further: “A self-directed IRA is a type of traditional or Roth IRA, which means it allows you to save for retirement on a tax-advantaged basis and has the same eligibility and contribution rules. The difference between self-directed and other IRAs is solely the types of assets you own in the account.”
Solo 401(k)
An individual (solo) 401(k) is a retirement account where an individual sets this up on their own, and can make contributions to their account as both an employee and an employer. Solo 401(k)s are for anyone who’s self-employed and who doesn’t have their own employees. Basically, you have to be a business owner with no employees in order to have a solo 401(k), such as an independent consultant or contractor.
Solo 401(k)s can be used in tandem with a non-recourse loan. Similar to a self-directed IRA, this retirement account is great for anyone who wants to invest in assets (and who also meets the requirements/qualifications of the IRA).
SEP IRA
A simplified employee pension (SEP) IRA is a retirement account for small business owners or self-employed workers. As U.S. News reports, “As the employer, you can contribute up to 25 percent of your income or $56,000 in 2019, whichever is less. These accounts are easier to set up than a solo 401(k). If the business has employees, the employer must contribute for all who meet certain requirements.”
This type of IRA is not as lucrative for someone wanting to use their retirement account as an investment tool. Unlike a self-directed IRA or a solo 401(k), SEP IRAs cannot be used with a non-recourse loan.
Simple IRA
For small business employers who have fewer than 100 employees, a simple IRA is a relatively easy account to set up. With a simple IRA, employers are expected to contribute to their employees’ accounts as well.
Health Savings Account
People often don’t realize that their health savings account (HSA) can actually function as a retirement account. Each year, you can put up to $3,500 into your account ($7,000 for families) until the age of 55, at which point you can put $4,500 in annually. While HSAs are set up to help pay for health expenses, such as copays, glasses, and prescriptions, you can continue saving that money — and if you pay out of pocket, you can be reimbursed for it years later, as long as you keep receipts.
The money, like any savings account, continues rolling over indefinitely. You can’t use this money for anything other than health expenses without being fined, however, that changes once you turn 65. At that point, you can take money from your HSA and use it for any reason, though you’ll have to pay income taxes on any money you withdraw.
If your employer offers you a retirement account, you can still look into some of these options, particularly if you’re interested in investing and expanding your portfolio. As always, we at First Western Federal Savings Bank are happy to help you determine if your retirement account can be used for purchasing a rental property with a non-recourse loan. Whether you’re looking to purchase a long-term tenant rental, a vacation rental property, or are even interested in home equity loans or refinancing your existing loans, we’re the FDIC-insured bank with more than four decades of experience that you can rely on. Contact us today to learn more.