Planning for retirement involves more than simply saving, it’s about understanding the tools available and choosing the approach that best fits your goals and circumstances. This month’s newsletter provides an overview of several retirement savings options, including IRAs, Roth IRAs, SEP IRAs, solo 401(k)s, and Health Savings Accounts, along with key advantages and considerations for each. You’ll also find a market update covering the recent rebound in stocks, how investors are responding to ongoing global uncertainty, and the factors currently supporting market resilience. If you have questions about which retirement savings strategies may make sense for you or would like to review your overall strategy, please don’t hesitate to reach out. |
Not All Retirement Accounts Are the Same: What Everyone Should Know |
By Charles Sherry, MSc |
Retirement as a formal idea and lifestyle is a relatively modern concept. For most of human history, people worked until they were physically unable and then relied on family or community support. It wasn’t until the industrial age that the concept of retirement was born. In 1875, the American Express Company established the first private pension plan in the United States. About 15 years later, Germany introduced the first national pension system, allowing older workers to exit the workforce and receive financial support. By 1899, there were 13 private pension plans in the U.S. In 1935, Social Security was established, and the first payment was made to Ida May Fuller in 1940 for $22.54. While relatively new, retirement today is firmly established, making it essential to begin planning for life after work decades in advance. Last month, we discussed Social Security. Social Security will help supplement retirement income, but additional resources are required to support your needs and lifestyle after work ceases. This month, we will provide a brief overview of the various vehicles that are now offered via legislation that can help fund your retirement. Creating our listRetirement accounts are simple in concept—tax-deferred savings that are available to you in retirement. But the details can be confusing. So, we’ll keep the discussion high-level, focusing on retirement options available outside employer-sponsored plans like 401(k)s and 403(b)s. Which option may be most beneficial for your situation? Let’s explore various account choices. If you have questions, your financial professional would be happy to help you find the right approach. As with any tax-related issues, feel free to check in with your tax advisor. 1. IRALet’s start with the traditional Individual Retirement Account, or IRA. As the name indicates, the account is opened by an individual, and it’s independent of an employer. Anyone who has earned income may contribute to an IRA account. If eligible, contributions are tax deductible. Earnings and capital gains in the IRA are tax deferred. Taxes are paid only when funds are withdrawn. In 2026, the maximum IRA contribution across all IRA accounts is $7,500 if less than 50 years old. If you are 50 or older, you may contribute up to $8,600. Advantages:
Disadvantages:
2. Roth IRAA Roth IRA is similar. If you are eligible to open and contribute to one, contributions are made with after-tax dollars, and qualified withdrawals are not subject to federal income taxes. A Roth has similar advantages and disadvantages to a traditional IRA. Though there are some differences. A Roth enables you to make tax-free withdrawals in retirement, and RMDs are not required. But contributions are made with after-tax dollars. 3. SEP IRABusiness owners have the option of setting up a Simplified Employee Pension Individual Retirement Account, or what is commonly called a SEP IRA. A SEP IRA is an employer-funded retirement plan that allows a business owner to make contributions to IRAs set up for themselves and their employees. Self-employed individuals, independent contractors, and small and large businesses can take advantage of SEP IRAs. Unlike an IRA, the business owner makes the tax-deductible contribution into his or her own account as well as employees’ accounts. Employees receive the same percentage of their pay as the owner. In other words, if the owner contributes 15% of compensation, employees receive 15% in their respective plans. In some respects, the SEP IRA is like a pension for the employees, as employees don’t contribute to the account. However, unlike a pension, it is a defined contribution plan, as it has a specific account balance, similar to a 401(k). Additionally, it can operate like a profit-sharing plan, giving the employer flexibility to boost contribution rates (reward employees) during more profitable years. For 2026, the maximum amount of compensation considered when calculating contributions is $360,000. For self-employed owners, net earnings must be reduced by both the retirement contribution itself and the self-employment tax, resulting in an effective contribution rate of about 20% of net earnings. The SEP IRA contribution limit for 2026 is 25% of an employee’s total compensation, up to $72,000. Advantages:
Disadvantages:
4. Solo 401(k)The solo (individual) 401(k) for business owners is a powerful tool that can be used to defer taxes and save for retirement as long as you are a small business owner with no employees (except your spouse). In 2026, the maximum you can contribute is $24,500 as the employee plus an additional 25% of compensation as the employer, with additional catch-up contributions if you are 50 or older. The $24,500 ceiling is a flat dollar limit. This feature is what makes the solo 401(k) such a powerful savings vehicle. For example, someone with $40,000 in earned income could contribute up to $24,500 to the plan under the employee contribution limit without tapping the employer contribution. In 2026, aggregate contributions are $72,000 if you’re under 50, with an additional $8,000 in catch-up contributions if you’re between 50 and 59 or 64 or older. If you are between 60 and 63, you may contribute an additional $11,250 in catch-up contributions. Advantages:
Disadvantages:
At lower income levels, contributions can be substantially higher versus a SEP IRA due to the employee deferral option, but be aware that a solo 401(k) doesn’t share the paperwork simplicity of the SEP IRA. At a much higher income, the SEP IRA may be the easiest option. 5. HSAFinally, let’s review the Health Savings Account, or HSA. If you have a high-deductible healthcare plan and your plan has an HSA option, you may contribute up to $4,400 as an individual or $8,750 for family coverage. If over 55 or older, you may make an additional $1,000 “catch-up” contribution. Advantages:
Disadvantages:
If you are healthy and comfortable with a higher deductible, premium savings can be plowed back into an HSA, lowering taxes and providing you with a savings account that can be used for medical expenses. Moreover, it effectively doubles as a retirement account at 65 years old, as nonqualified withdrawals at 65 are taxed as regular income. As demonstrated, there isn’t a shortage of options available. Choosing the right approach, however, depends on your goals, employment status, income, and tax considerations. If you have questions, your financial professional is there to walk through your options and help find the best fit for you. As your goals or personal circumstances evolve, they can help guide any necessary mid-course adjustments. March showers bring April flowersLast month, markets were struggling under the weight of higher oil prices and uncertainty tied to the war with Iran. While a ceasefire has helped alleviate some worries, as we enter May, oil prices remain elevated, gasoline prices average over $4 per gallon, and the conflict in the Middle East has yet to resolve itself. But investors brushed aside concerns last month. During April, the S&P 500 Index, the tech-heavy Nasdaq Composite, and the Russell 2000 Index, which measures smaller publicly traded companies, set multiple new highs. |
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Why have investors seemingly looked past the war? In part, the answer to our question can be summed up with the two words “looked past.” 1. Investors look to the future and attempt to price in the economic fundamentals six, nine, and twelve months down the road. Collectively, investors believe the war won’t linger for a long period, and oil will eventually begin flowing through the now-blocked Strait of Hormuz. 2. A ceasefire has reduced hostilities, the economy continues to expand, and consumers have yet to cut back on discretionary purchases, despite rising gasoline prices. In other words, households are cutting back on savings, tapping into reserves, or relying more heavily on credit cards as gasoline prices surge. 3. Strong corporate profits are dominating the narrative. Earnings in the first quarter have soared, according to LSEG, coming in well above expectations. On a related note, the AI boom is driving profits of major tech firms. 4. While the Federal Reserve may be backing away from further rate cuts this year, it has not openly signaled rate hikes either. Please note, however, that the nominee to lead the Fed favors rate cuts. His confirmation appears assured, and he’ll take the helm on May 15. 5. Outside of a knee-jerk reaction, geopolitical uncertainty rarely derails markets for an extended period. We’ve seen this pattern play out repeatedly. While a war in the Middle East has disrupted oil supplies and other important commodities, stocks have proved to be exceedingly resilient. So far, the S&P 500 Index has avoided what analysts call a market correction—a 10% peak-to-trough decline. One year ago, the implementation of the president’s so-called Liberation Day tariffs lopped 10% off the S&P 500 in just two days (according to S&P 500 data provided by the St. Louis Federal Reserve). In summary, investors aren’t ignoring the war. Instead, they are pricing it as temporary and manageable, while focusing on earnings, the economy, and future rate policy. Yet, I want to caution that risk never completely dissipates. Investors could be underpricing pitfalls. What could change sentiment? Markets could react negatively again if:
This isn’t our base case, but if we were to see one or more of these scenarios play out, we’d expect a renewed bout of volatility |
I trust you found this review to be insightful. If you have any questions or simply want to talk through your portfolio or other financial goals, please don’t hesitate to reach out to me or anyone on our team. |
The views stated in this letter are the opinion of the author and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with or without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. The return and principal value of stocks fluctuate with changes in market conditions. Shares when sold may be worth more or less than their original cost. Crypto-Currencies, Digital Assets and other Block-Chain related technology (such as Bitcoin, Ethereum, NFTs and others) are not securities, not regulated, and not approved products offered by Cetera. Crypto-currencies and other block-chain related non-securities products cannot be recommended, offered, or held by the firm. Mutual funds are sold only by prospectus. Investors should consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained directly from the company or from your financial professional. The prospectus should be read carefully before investing or sending money. The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The NASDAQ Composite Index includes all domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite Index is a broad based index. The S&P 500 is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Russell 2000 Index includes 2000 small-cap U.S. equity names and is used to measure the activity of the U.S. small-cap equity market. The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index represents 23 developed market countries. The MSCI Emerging Markets Index is a free float-adjusted market-capitalization-weighted index designed to measure the performance of global emerging market equities. The Bloomberg Barclays US Aggregate Bond Index, or the Agg, is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States. Investors frequently use the index as a stand-in for measuring the performance of the US bond market. The hypothetical investment results are for illustrative purposes only and should not be deemed a representation of past or future results. Actual investment results may be more or less than those shown. This does not represent any specific product or service. A diversified portfolio does not assure a profit or protect against loss in a declining market. The return and principal value of stocks fluctuate with changes in market conditions. Shares when sold may be worth more or less than their original cost. The return and principal value of bonds fluctuate with changes in market conditions. If bonds are not held to maturity, they may be worth more or less than their original value. Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes. Before rolling over your retirement account, consider all available options, which include remaining with your current retirement plan, rolling over into a new employer’s plan or IRA, or cashing out the account value. When deciding between an employer-sponsored plan and IRA, there may be important differences to consider—such as range of investment options, fees and expenses, availability of services, and distribution rules (including differences in applicable taxes and penalties). Depending on your plan’s investment options, in some cases, the investment management fees associated with your plan’s investment options may be lower than similar investment options offered outside the plan. |
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Not All Retirement Accounts Are the Same: What Everyone Should Know
