Many people are very concerned with the state of Social Security these days and wonder if it’s even a viable entity anymore. Then on the other hand we all hear in the news about the latest company that’s decided to cut pensions and benefits, and there’s nothing that anyone can do about it. This is an unfortunate reality that only goes to show you some of the potential risks that face retirees today. This is why so many have taken it upon themselves to manage their own retirement accounts and start IRAs. SEP and Roth IRAs are a very popular forms of investment and here’s what they are and the difference between them:
A SEP IRA stands for “Simplified Employee Pension Investment Retirement Account.” It’s a retirement account that’s used widely by self-employed people that don’t have a company to set it up for them. It’s a great investment vehicle for small business owners and it takes a lot of the hassle out of the process. Traditional IRAs are typically filed by companies with departments that are familiar with the very complex investment process. The SEP IRA takes much less effort and expense to manage. It’s also a lot easier than a 401k. Though it’s similar to a traditional IRA, the owner can decide which funds and the amount of contributions you invest. Also, you can decide how much will be deducted from your taxes.
On the other hand you have Roth IRAs. These are also another popular form of retirement investment. There is, however, one great advantage that a Roth IRA has over the other forms of IRA’s. When you start one of these accounts, you pay the taxes up front. So let’s say that you take a thousand dollars and you put it into your Roth IRA account; you’re taxed on the principal going in. Whatever interest you draw on the money throughout the life of the account is totally tax free when you withdrawal it. You’re still paying taxes either way, but with a Roth IRA, you end up paying much less.
Whether it’s a traditional, SEP, or Roth IRA, all of these are pretty solid investments. There’s little to no risk involved and it’s not like you’re gambling with the money you put it. You don’t have to worry about losing everything in a big stock market swing. It’s important to have a good retirement calculator to figure out how much you’re going to need for later on and having an IRA account will help set you on the path of financial security for when the time comes that you need it most.
