Planning for retirement can be scary. There’s so much information out there that it’s tough to know exactly what the best plan is. So we did the research to help you figure things out, finding defined contribution 401(k) plans to be the best option for most people. They’re easy to manage, they let you build wealth with pre-tax dollars, and they often can be bolstered by matching employer contributions.
The Best Employee Retirement Plan for Most
The most common 401(k) retirement plan—the defined contribution 401(k)—is also the best for a wide array of people. You can set it up so that a portion of each paycheck is peeled off to fund it, so you can schedule your path to retirement with confidence.
And, it’s also the plan that employers most commonly offer contribution matching for. That means you might double your retirement fund’s influx with every pay period. Check with your organization to see if this is available to you.
The Best Employee Retirement Plan Options to Consider:
- Defined contribution 401(k) – Best for most
- Individual retirement account – Best for tax advantages
- One-participant 401(k) – Best for the single employee business owner
- Cash value life insurance – Best insurance for retirement
- Federal thrift savings plan – Best for government and uniformed Employees
When It Makes Sense to Invest Into Employee Retirement Plans
If you want to reduce stress from thinking about how much money you’ll have in your golden years, investing into a retirement plan makes the most sense.
An employee retirement plan helps you save with little to no effort. You get tax breaks and your money earns a lot more interest than when it’s sitting in a primitive bank account.
If you have money set aside and you’re not sure what to do with it, investing it into an individual retirement account (IRA) is a fantastic way to grow your wealth with non-taxable income contributions. We’ll explain more when we talk in detail about each plan.
But, essentially, you don’t pay taxes on what you’re saving. It reduces your overall income, lowering your yearly taxes, too.
Paying into an employee retirement plan provides excellent social security protection, and you can decide exactly what your final number should be for how you want to live after retirement.
Think about it. You will know exactly what your predetermined monthly payout will be and sleep better because you’re saving for the future on autopilot.
There are also specific types of software like Empower that let you consolidate all your investments. This lets you see everything in one simple dashboard if you want to keep a close eye on how things are going.
An investment into a tool like this is a good Idea if you like the ability to analyze how your money is doing. Some tools are free and some cost you a little bit. Either way, it’s a win-win if you want a more hands-on approach with some retirement plans we’ll talk about.
But what plan will work best for you? Let’s dig in.
#1 – Defined Contribution Plans 401(k) — Best for Most
401(k) plans are a valuable employee benefit. They help you save for retirement and give you peace of mind knowing you have money set aside for the future.
Plus, your employer usually chips in on the effort. The best employers match what you put in fully, but most should at least contribute 50% to 75% of what you invest.
This is not saying if your employer doesn’t do this they are bad. It just means some companies put a large spotlight on helping employees save for retirement. It’s a retention benefit, and a big one at that.
If you’re a small business owner and you want to add this benefit for your employees, you can look into a service like Paychex that can find affordable 401(k) plans for you.
Bottom line, a 401(k) further increases your savings potential. And don’t worry about being forced to contribute too much. You can schedule the amount you want to come out of your paycheck so you save just the amount you feel comfortable with.
There are other defined contribution plans besides the 401(k). They work the same in essence, but are for different types of employees and institutions.
For example, schools, charities, and churches can invest into a 403(b). If you are a state or local government employee, your retirement plan will be a 457(b).
In the end, a 401(k) is the easiest path to a retirement plan. Normally there is an open enrollment period for benefits at work. If that’s the case for you, all you have to do is talk to your HR department about what you need to do in order to get started.
And HR managers can always look into a PEO provider like Paychex to add a 401(k) option to their company benefits today.
#2 – Individual Retirement Account — Best for Tax Advantages
This plan is for you if you don’t have an employer that gives you access to a 401(k) and you want to take the initiative to save on your own. And a provider like Empower can help you find one with ease.
An individual retirement account, or IRA, offers you significant tax advantages.
We will discuss two separate kinds of IRAs: a traditional IRA and the Roth IRA. Each has their own advantages.
If you know a thing or two about retirement plans, you know there are five other types of IRAs, but they are beyond the scope of this article.
The traditional IRA allows you to contribute funds and grow your investment tax-free up until you withdraw, which is very similar to a 401(k). The big difference is the limitless amount of investments you can use in your portfolio to grow your wealth.
This includes real estate, bonds, stock, CDs, and other, riskier investments. You can have an advisor if you choose, or you can manage your portfolio yourself. This is unlike the 401(k), which an employer manages.
The Roth IRA works differently for taxes. Your advantage is in saving after-tax dollars. You pay taxes upfront, which allows you to save without worrying about how much you will get charged later. And you pay no taxes on your gains.
You also get the flexibility to take out contributions (not earnings) at any time without penalty.
Either way, if you’re responsible for finding a good individual retirement account, head to Empower to get guidance on selecting the right one for your needs.
#3 – One-Participant 401(k) — Best for Sole Proprietors
This retirement plan is for you, the business owner, when you are the only employee. It also covers your spouse. You can get one from a provider like TD Ameritrade.
It used to be hard to save for retirement as an entrepreneur or solo operator . But now, with the one-participant 401(k) plan—also known as Solo-k or Uni-k—you can have the peace of mind to know you’ve done everything in your power to save for retirement.
It’s so much better than just trying to put profit or savings away in a plain old savings account. But, keep in mind that this is for business owners who are also the sole employee. If you are planning to hire more people, this plan is not for you.
The IRS will make you include all eligible people working for you. And that would make this retirement plan void if you try to use this after hiring employees.
For exact contribution values, look into a retirement planning firm like TD Ameritrade and they can give you the most up-to-date figures on what you can save every year with a Solo-k.
#4 – Cash Value Life Insurance – Best Insurance Plan for Retirement
#4 – Cash Value Life Insurance – Best Insurance Plan for Retirement
Cash value life insurance is a great value for you when you want to protect your family financially if something were to happen to you, while also accumulating cash value without paying monthly premiums for life insurance.
This plan also saves you money, because it prevents price hikes on renewal like is often the case on other life insurance plans.
Another benefit is that if you withdraw your cash value, it’s not taxable. This plan is similar to a Roth IRA in that sense.
The best part about this plan is you can cover a death benefit, protect your family from financial disaster, or have it as a source of income. It’s quite flexible while also protecting your future.
What we found is this type of policy is a quality third option for high salaried employees, who have maxed out other retirement plans they have.
#5 – Federal Thrift Savings Plan — Best for Government and Uniformed Employees
This plan is much like a 401(k) in that you don’t pay taxes on contributions and you save for your future with a certain percentage coming directly out of your pay.
The big difference is, as a federal employee, you get to select low-cost investments. The fees to invest are usually very low compared to plans available to everyone. So S&P 500 index funds, small-cap funds, and even bond funds are more affordable to invest into.
International stock funds and funds that invest in specially published securities can also be selected.
You can also get employer contribution matching with a federal thrift savings plan. Confirm with your employer to be sure.
For more information and details about each of this, speak with your HR department for details.
Methodology for Choosing the Best Retirement Employee Plans
Let’s face it. Retirement is a huge ball of “huh?”, so when we set out to find the best employee retirement plans for you, we looked for simplicity. We want your path to understanding this complex web of options easy.
Below, you’ll find our three-step approach to picking the plans laid out in this easy-to-follow guide. They are meant to help you focus on the most important areas to pay attention to when you get started.
Is the Plan Easy To Understand?
We started out with identifying which plans are easy to implement, save you the most in taxes, and give you the most benefits.
We led with those plans because wasting time on being your own investor is not what the majority of people want from their retirement plan.
Some plans let you manage your retirement, but most of them let you leave it up to an expert or your employer, so you can focus on making money. Your plan grows without your input at all with some options.
Yes, you should get familiar with how they work. But when you seamlessly invest into your retirement and it grows with incredible speed with little to no effort from you, it is much more stress-free, isn’t it?
What Benefits Do You Get from Your Retirement Plan?
Some plans offer more than others, and when we did our research we found many people wanted to know about tax breaks and advantages.
It’s important to look at all parts of your plan to make sure you understand every benefit you get for selecting the plan you want.
Tax-free contributions and the ability to transfer your employee retirement plan to any employer you move to are just a couple major examples of key advantages and benefits.
We point out the most obvious and explain them briefly, but this is the start. It’s up to you to further your knowledge on what benefits work best for you.
Building a Secure Future
Too many choices can leave you stumped and not wanting to tackle this important part of your life. So we left it to five options. The most common and useful plans.
We focus on simplicity and touch on all the retirement plans most of our readers like you fall into and would want to know about.
But the other thing that you’re responsible for is setting a timeline. Whether you’re getting a retirement plan from your employer or an IRA, you’ll need to do some math to schedule how much you need to put in so that you can retire right on time.
Government workers, schools, and charities have specialized plans. If you work in those fields, you can maximize your retirement strategy and even accelerate your schedule if you wield them correctly.
When you are starting your journey, crystallize in your head what you need to retire happy and secure. Ask yourself what plan is going to give the best return on your investment in the right amount of time.
Retirement planning is one of the most important decisions you can make. And, while there are many factors to consider when deciding how much money you’ll need for retirement, your company’s offered retirement plan should be a major consideration.
You might think you’re too young to worry about your future self, who will want to retire eventually. But the sooner you start saving for retirement, the better your chances are at making it a comfortable reality. The best employee retirement plan can do that for you.
Now you know way more than before, so use your new knowledge to secure your financial future.