Retirement Account Cheat Sheet
- tonyamanning1
- Feb 15
- 5 min read
Updated: Apr 4
Individual Retirement Account (IRA)
Most of us know we should have an IRA, but it often gets confusing from there. With so much information available about tax strategies, diversification, penalties, and limitations, it can quickly become overwhelming. This guide aims to provide a clear overview of the most common types of IRAs and the essential details you need to know about each one. Our goal is to help you understand IRAs better, enabling you to allocate your money intentionally and ask informed questions when meeting with your financial advisor or tax professional.
Company 401(k)
A 401(k) is a company-sponsored plan generally offered through your employer.
Benefits:
Automatic deductions from your paycheck
Generally include a company match (commonly 3-4%). This translates to free money to build wealth
Contribution Limits
$23,000 per year or $30,500 if you are over 50.
This is significantly more than the limits for non-401(k) retirement accounts
Withdrawals:
Penalty exceptions
Disability
Qualifying Medical Expenses (exceeds 7.5% of adjusted gross income)
Terminal illness
Court-ordered distributions (divorce or legal separation)
Disaster recovery (economic loss due to a federally-declared disaster)
Birth or adoption expenses (up to $5,000 per child for qualified expenses)
Within this category are two types of accounts, the Roth 401(k) and the Traditional 401(k). Both share the traits we've discussed, so we'll highlight the differences here.
Roth 401(k)
Contributions
Contributions come from after-tax dollars. This means your contributions come out of your check after your taxes have been taken out.
Your contributions will grow tax-free, so when you take out the money you will not have to pay taxes on it.
You will have to pay taxes on the employer match, so it's not completely tax-free growth.
Withdrawals
You can begin taking money out tax and penalty-free if you are 59 1/2 years old and have had your account open for 5 years or more
Contributions can be accessed at any time without penalty
There is a 10% penalty for earnings taken out before reaching 59 1/2 years of age
Penalty exceptions
Disability
Qualifying Medical Expenses (exceeds 7.5% of adjusted gross income)
Court-ordered distributions (divorce or legal separation)
Traditional 401(k)
Contributions
Contributions come from pre-tax dollars. This means your contribution will be larger but you will have to pay the taxes on the investment and growth when the funds are used.
Federal and State (where applicable) income tax will be applied when the funds are withdrawn.
Withdrawals
You can start receiving distributions tax and penalty-free at 59 1/2 years old, regardless of how long you have had your account.
There is a 10% penalty plus income taxes if you withdraw from the account before 59 1/2.
Has a Required Minimum Distribution (RMD). This means that you will be required to take money out of your account (at least 4% per year) once you hit age 73.
Traditional IRA
Contributions are typically tax-deductible in the year you make them, reducing your current taxable income.
There are limitations on the amount that can be contributed:
Under 50 years old: $7,000 per year
50 and older: $8,000 per year (includes $1,000 catch-up contribution)
Withdrawal Restrictions:
Minimum age for penalty-free withdrawals: 59½
Required Minimum Distributions (RMDs): Must start at age 73
Early withdrawals (before 59½) incur a 10% penalty in addition to the payment of income taxes on the withdrawn amount
Exceptions to the early withdrawal penalty include:
First-time home purchase (up to $10,000)
Qualified education expenses
Certain medical expenses
Disability
Death
Investments grow tax-deferred, meaning you don't pay taxes on gains while the money is in the account. Withdrawals in retirement are taxed as ordinary income
Roth IRA
Contributions are made with after-tax dollars, so they are not tax-deductible
There are limitations to the amount that can be contributed:
Under 50 years old: $7,000 per year
50 and older: $8,000 per year Income Restrictions:
Single filers: Phase-out begins at $146,000, completely phased out at $161,000
Married filing jointly: Phase-out begins at $230,000, completely phased out at $240,000
Withdrawal Restrictions:
Money that has been contributed can be withdrawn at any time without penalty
Earnings on contributions can be withdrawn with no taxes if:
If you have your account open for 5 years or more
You are 59 ½ years old or older
Early withdrawal of earnings may result in:
A penalty of 10%
The requirement to pay income taxes on the amount withdrawn
Exceptions to the early withdrawal penalty include:
First-time home purchase (up to $10,000)
Qualified education expenses
Certain medical expenses
Disability
Death
Investments grow tax-free
No required minimum distributions (RMDs) during the original account holder's lifetime
Super IRA or Mega Backdoor Roth IRA
A Super IRA is an advanced retirement savings strategy (not a separate type of IRA that allows high-income earners to contribute significantly more money to a Roth IRA than the standard contribution limits. Here's a breakdown of how it works:
Super IRA/Mega Backdoor Roth IRA Strategy:
This strategy requires a 401(k) plan, through the employer, that allows:
After-tax contributions beyond the standard 401(k) contribution limit
In-service withdrawals or in-plan Roth conversions
How it works:
You contribute after-tax dollars to your 401(k) beyond the standard limits
Immediately convert these after-tax contributions to a Roth account
This allows you to potentially contribute up to $46,000 additional dollars to a Roth account in 2024
Key Requirements:
Must have a 401(k) plan that supports this strategy (Not all employers offer plans compatible with this approach)
Requires careful tax planning
Potential Benefits:
Significant tax-free growth
Ability to contribute much more to a Roth account
Circumvents typical Roth IRA income limits
Caution: This is a complex strategy that requires:
Consultation with a financial advisor
Careful understanding of your specific 401(k) plan rules
Potential tax implications – Consult a tax professional
SEP IRA (Simplified Employee Pension)
Designed for self-employed individuals and small business owners.
Contributions are tax-deductible for the business.
There are limitations to how much can be contributed in a year:
Maximum of 25% of compensation or $69,000, whichever is less
Withdrawal Restrictions:
Minimum age for penalty-free withdrawals: 59½
Required Minimum Distributions (RMDs): Must start at age 73
Early withdrawals (before 59½) incur a 10% penalty in addition to the payment of income taxes on the withdrawn amount
Exceptions to the early withdrawal penalty include:
First-time home purchase (up to $10,000)
Qualified education expenses
Certain medical expenses
Disability
Death
Potential Benefits
Investments grow tax-deferred
Withdrawals are taxed as ordinary income in retirement
Higher contribution limits compared to traditional and Roth IRAs
SIMPLE IRA (Savings Incentive Match Plan for Employees)
For small businesses with 100 or fewer employees
Contributions are tax-deductible
There are limitations to how much can be contributed:
Under 50 years old: $16,000 per year
50 and older: $19,500 per year (includes $3,500 catch-up contribution)
Withdrawal Restrictions:
Penalty-free withdrawals start at 59½
If withdrawn within the first two years of participation:
Early withdrawal penalty is 25% (higher than other IRAs)
After two years, a standard 10% penalty applies
RMDs required at age 73
Investments grow tax-deferred
Withdrawals are taxed as ordinary income in retirement
Important Notes:
Contribution limits are cumulative across all IRA types, meaning the limitations cannot be exceeded when you add the contributions from all of the IRAs together.
Excess contributions are subject to penalties
Income limits may affect your ability to contribute to or deduct contributions from certain IRA types
It is important to involve both a financial advisor and a tax professional. Ideally, the two should work together as the best retirement strategy depends on your current financial situation, your current tax situation, expected future tax rates, and your retirement goals.
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