Tuesday, June 16, 2009

Retirement saving through work is good option

EDITOR'S NOTE: We post a question from a reader and a response from Dan Danford every week, usually on Mondays. If you'd like to pose a question to us, post it in the comments.

QUESTION: I am self-employed, and my husband has a retirement account through his work. He works at a non-profit, so it is a 403(b). Right now, we’re contributing 15 percent of his income to his account, and saving nothing else for retirement beyond that. We have about $100,000 put aside for retirement so far and we’re in our late 30s. We can contribute more to his 403(b). Should we do that – or consider some other option such as a Roth IRA?

ANSWER: There are a variety of retirement programs for self-employed people, and determining the best one for you requires more information than you provided. Some are based on Individual Retirement Accounts (SEP or SIMPLE) and others are more formal (a one-person 401(k), perhaps, or a small pension). Traditional or Roth IRAs are an option, too, but the annual contribution limits make them more suitable as an augmentation than a complete retirement plan.

403(b) plans are similar to 401(k) plans, except they are provided through educational, medical, or certain nonprofit employers. I encourage their use, but they usually lack an "employer match" which is one thing that makes other retirement plans so popular.

You are doing the right thing by using the 403(b). The right next step is based on your retirement needs and the best way to fund them. Visit with a good advisor who can review the details of your circumstances and help you craft a successful course. Good luck.

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