It is never too early to start planning for retirement, especially if you want to stop working earlier or downgrade to a part-time job at some point. You may also think about putting your retirement money to fund IRA with bitcoins. Aside from setting aside money for savings monthly, there are retirement plans available out there. Some are offered by employers (meaning they contribute to the fund) while there are those that can be fully funded by an individual.

Retirement plans are also an advantage when filing taxes because most of them can be declared to reduce your taxable income. On the other hand, some plans can be withdrawn tax-free. Below are the retirement plans you need to know about.

Defined Contribution Plans

1. 401(k) Plan

This is a popular and great way to save for retirement, especially when your employer contributes to the plan. Basically, contributions are deducted from pre-tax wages, and they are not considered taxable. This money is then invested in high-return investments like stocks, but you will not have to pay taxes on the gains unless you withdraw them.

When you retire, distributions are considered a taxable gain, although any withdrawals before 59 ½ years of age might net some penalties and taxes. However, you may not be able to take out loans or access the money easily, or you may have to pay a penalty to do so.

2. 403 (b) Plan

This is similar to the 401(k) plan but it is offered for employees in special sectors like charities, churches, and public schools. There are also instances when employers contribute to the fund, matching what you put into it.

3. 457 (b) Plan

This is the version of the 401(k) plan for local and state government employees. One advantage of this plan, compared to the 401(k), is that there is no 10% penalty for withdrawals before the age of 59 ½ years. Unfortunately, though, they do not have employer contributions, making them less attractive than the 401(k) plan, plus an emergency withdrawal is significantly more difficult.

IRA Plans

1. Traditional IRA

While there are a few different versions of IRA plans, this is the most common. It is a tax-advantaged kind of retirement plan, meaning you enjoy a lot of tax breaks while saving for your retirement. Any contributions are done pre-tax and are thus non-taxable. However, once they are withdrawn after retirement, they become taxable. Withdrawing them before retirement might also incur additional penalties and taxes.

The best thing about these plans is that they can be used for tons of investments, from real estate, bonds, stocks, CDs, and many others. You will need to invest the money on your own, deciding where and how you will do it. If you are not sure, you can always get an advisor to help you out.

This kind of a retirement plan is a great option if you cannot get a 401(k) plan with an employer contribution. If you have a higher income, you might lose the tax deduction.

2. Roth IRA

This is a newer version of the traditional IRA and is great because of its significant tax benefits. You will have to pay taxes on the money you put into the account because the contributions are made with after-tax money. However, you will not need to pay the taxes on both the contributions and earnings from the account after retirement.

What makes this kind of retirement plan popular is that it is non-taxable after withdrawal, which means you get more money when you need it more. Another great feature is the plan's flexibility, especially when you need to take out the contributions for personal needs. This is, however, limited to only contributions and not the earnings. You will not have to pay any penalties or taxes to do so, which is why it is such a great retirement plan.

Much like the traditional IRA, you will need to decide where and how much money to invest. Plus, there are income limits if you want to contribute to this kind of retirement plan. But there are some back-door methods to do it.

3. Simple IRA

One disadvantage of 401(k) plans is that employers need to undergo non-discrimination tests yearly. This is to make sure that higher-income employees are not contributing much more than the normal, rank-and-file employee. In comparison, a simple IRA ensures that the same benefits are given to every single employee. Employers can choose between contributing 3% to match the employee's, or a 2% non-elective contribution even if the employee is not putting any money into the retirement plan.

While it is not as much different as a 401(k) plan from the perspective of the employees, they benefit from the matching contribution from their employer. However, there is a limit of $13,500 employee contribution (in 2020) as opposed to $19,500 for other retirement plans. This is hardly a problem because most people contribute less yearly. Lastly, employees also have to decide where and how much to invest the money on.

4. Self-Directed IRAs

Not everyone wants to put their money on the usual investments. Some people choose to invest in precious metals, tax lien certificates, real estate, and even fund IRA with cryptocurrency. They have the flexibility that other retirement plans lack.

Health Savings Account (HSA)

There are tons of other options to save money for the future, and not all of them are traditional retirement plans. For example, some people are using an HSA (health savings account) to whittle away money tax-free. You can contribute up to $3,450 for a single person or $6,900 for a whole family. Those over 55 years of age, however, can contribute $1,000 more. This money may be used for medical expenses or can be rolled over year after year.

While this money can be used when they are older and require it for medical costs, the best thing is, contributions and withdrawals are both tax-free, so long as it is used for an approved medical expense.

If you use it before retirement for any purpose beyond medical expenses, you will need to pay taxes and a penalty of 20%. To avoid it, keep any receipts for medical expenses and have them reimbursed.

There are various forms of employment and many retirement plans cater to these different circumstances. But for most employees, the options mentioned above are ones you definitely need to know about.