July 11, 2024
Roadmap to Retirement: Nonqualified vs IRAs
Featuring a video to share with your clients!
The Roadmap to Retirement involves navigating numerous choices, including potentially deciding between a nonqualified account or the various Individual Retirement Accounts (IRAs).
Are you asking which is right for me? You’re not alone—many grapple with this question. This uncertainty can cause ‘Deer in the Headlights Syndrome.’ Fear of making a mistake and the hesitation to decide can paralyze individuals, preventing them from taking any action. In this article, we’ll delve into the distinctions between these choices.
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Roadmap to Retirement: A Guide to Retirement Plans
- Nonqualified Accounts: Nonqualified accounts operate outside the rules of qualified retirement plans. Unlike IRAs, they don’t offer tax advantages. Examples include a savings accounts and money market accounts.
- Individual Retirement Accounts (IRAs):
- Traditional IRA:
- A tax-deferred account where contributions can be made with pre-tax dollars.
- Withdrawals during retirement are taxed as ordinary income rates.
- Individuals can contribute up to $7,000 annually, with an additional $1,000 catch-up contribution for those aged 50 or older (as of 2024).
- Roth IRA:
- Contributions are made with after-tax dollars, but qualified withdrawals are tax-free.
- Ideal for those expecting higher tax rates in retirement.
- Same contribution limits as Traditional IRAs.
- Traditional IRA:
- SEP IRA (Simplified Employee Pension IRA):
- Designed for small businesses and self-employed individuals.
- Employers contribute to employees’ SEP IRAs, limited to 25% of each employee’s salary or $69,000 (whichever is lower) annually in 2024.
- SIMPLE IRA (Savings Incentive Match Plan for Employees):
- Designed for small businesses with less than 100 employees.
- Employers can match employee contributions or make non-elective contributions of up to 3% of eligible employees’ compensation.
- Employees can contribute up to $16,000 annually (as of 2024).
In summary, nonqualified accounts offer flexibility but lack tax benefits. Meanwhile, IRAs—whether Traditional, Roth, SEP, or SIMPLE—provide tax advantages tailored to individual and business owner’s needs.
Nonqualified Accounts & IRAs Marketing Materials, click here.
