10 Retirement Accounts You Should Be Investing In

When it comes to retirement savings, the various options can look into to secure your future can be pretty confusing. Whether you already have a retirement account or you're totally new to the terms and conditions of these kinds of accounts, educating yourself about the options available to you can help you get a leg up on your savings.

When it comes to learning financial literacy, it's incredibly important to help young people save money as soon as they are able. This means that, though many people in their early 20s feel like they have an endless amount of time, they should actively be saving as soon as they start making money. The world of finance is large and complex, so the sooner you start to learn how you can protect and boost your investments, and understand which investment accounts you'd like to set up—for example, mutual funds, stocks, options and bonds, among others—the longer your money will have to grow wherever you've decided to place it. This is especially paramount if you want to develop money skills that will set you up for early retirement.

These retirement accounts you should be investing in can be a great place to start, allowing you to mix and match where you place your money to ensure as much of it is growing over time as you can afford.

1. 401(k) plans

A 401(k) plan is probably the easiest place to start when it comes to starting a retirement account and finding the best retirement plan for you. These are most often offered by your employer, and most have some sort of company match program where your employer will match your contributions to your account—which is basically free money.

Additionally, you can schedule the money to be taken out of your paycheck, so you don't even have to think about transferring money from one place to another. Your money can be placed in high-return investments like stocks, and you won't have to pay taxes on this money until you withdraw it. There is also no income limit for those investing in a 401(k), unlike IRA accounts, which limit the amount you can contribute to your retirement accounts based on your income.

The only con to a 401(k) is that if you need to access the money for an emergency, there's a penalty fee to do so. Additionally, where you can invest your money is limited by what investment options your employer offers.

These accounts are typically how most 20-somethings start to save up for retirement, which is amazing for their future. When you start saving in your 20s, you have an extra decade on the average person for your money to grow, which can pay off big time by the time you're 65. And that's just one of many reasons why you should invest in your retirement before you turn 30.

2. 403(b)

A 403(b) plan—also known as a tax-sheltered annuity—is similar to a 401(k), but it's offered for those employed by schools, churches, charities, and other tax-exempt organizations. With these accounts, your employer would contribute pre-tax money towards your retirement, so your contributions are not taxable income and the funds grow tax-free until you retire. Additionally, you might be able to take a credit for elective deferrals contributed to your account.

3. Traditional IRA

You can also open an IRA, which is one of the most popular retirement account options because of all the benefits they offer. These accounts are tax-advantaged, you can purchase an unlimited amount of investments, and any contributions are not taxable income—they won't be taxed until they are withdrawn at retirement.

The only disadvantages to these types of accounts are that they have income limits, meaning the amount that you can contribute to the account depends on your income, but also your age. Typically, if you're under 50, you're allowed to contribute up to $5,500 a year. Like many of the other accounts, there are also penalties if you try to pull any funds from this account before retirement.

4. SEP IRA

For those small business owners and their employees, or self-employed individuals that are looking into retirement accounts, SEP IRAs are made especially for them. Contributions to these accounts are made by your employer (or yourself if your self-employed), but each employee must open their own account. Contributions are limited to 25% of the employee's compensation, or up to $56,000.

5. Roth IRA

These types of IRA accounts offer additional tax benefits. Contributions are added post tax, so you don't get a tax deduction when you put money into your account, but your money will grow tax-free in the account and can come out tax free once you are 59 and 1/2 or older. This distinguishes itself a traditional IRA, which taxes your money when you take it out upon retirement.

At this point, Roth IRAs allow for contributions up to $6,000 or $7,000 if you're over 50—and you can use this account in addition to a 401(k).

You can also withdraw money from your Roth IRA at any time, because you've already paid taxes on that money, but you may be taxed if you withdraw your investment earnings.

One major con to a Roth IRA account though is that you won't be eligible to open an IRA account if you earn too much. As your income rises, the amount you're allowed to contribute to your account will shrink, and may prove more difficult to navigate if you're a savvy investor.

6. Health Savings Account (HSA)

These accounts are typically associated with health insurance and medical expenses, but they can also be used as a retirement account where you can save money for potential medical expenses on a pre-tax basis.

However, you can only contribute to a Health Savings Account if you have a High Deductible Health Plan (HDHP). Currently, the minimum deductible is $1,350 for an individual and $2,700 for a family. The contribution limit is $3,500 for a single person and $7,000 for a family. Once you're over 55, you can add an extra $1,000 to your account.

These funds can roll over year to year if you don't use them, and they can earn interest which is not taxable.

7. Guaranteed Income Annuities (GIA)

With these accounts, individuals can buy their own GIAs to create their own pensions. Income annuities allow the conversion of some of your money from your retirement funds into a stream of guaranteed lifetime income by paying an initial premium. Afterwards, you'll receive checks at regular intervals throughout the year for the rest of your life.

These sorts of accounts are usually set up at the beginning of retirement, and they insure against the possibility of outliving your savings. You can open one of these accounts by paying a premium of at least $5,000 or more.

8. Cash Balance Plans

A cash balance pension plan involves an employer crediting an employee's account with a percentage of their yearly compensation plus interest. These are defined benefit plans, meaning it's an employer-sponsored retirement plan. Therefore, the amounts that will contributed to your account are defined ahead of time, and both you and your employer know what to expect—even if your portfolio's value changes.

Many of the benefits to cash balance plans are similar to those of a 401(k)—investments ensure specific benefits upon retirement. When a cash balance plan is used in conjunction with a 401(k), these accounts allow you to cut the amount of taxes you'll have to pay and build up their savings fast, as contribution limits increase as you age.

9. SIMPLE IRA

A SIMPLE IRA, or a Savings Incentive Match Plan, is a tax-deferred, employer-provided plan. These are similar to 401(k) and 403(b), but a SIMPLE IRA is less complex and has fewer administration costs.

Employers providing these types of retirement plans can't have more than 100 employees, and they require a certain minimum contribution by the employer to each employee's account.

One drawback to a SIMPLE IRA is that it cannot be rolled over to a traditional IRA without a waiting period, which can be rather long.

10. Defined Benefit Plan

And finally, a Defined Benefit Plan is an employer-sponsored retirement plan that uses formulas and consideration of each employee's salary history to determine the benefits that will be offered to that employee.

With these plans, companies must offer portfolio management and investment risk in the plan. There are also restrictions regarding how and when the employees can access the money in their retirement plans—and any deviations from these rules incur penalties.

However, many choose these types of retirement accounts because their benefits are guaranteed for life and they rise to accommodate increasing living expenses.

By opening a couple of retirement accounts you should be investing in—like a 401(k) and a Roth IRA—you'll give yourself the best chance to remove any uncertainty surrounding the question of how much money you'll need to retire. Saving as much as you can before you retire can ensure that you'll be as free as possible to travel wherever you want to, buy anything you'd like, and live your life as you'd love to live it without worrying too much about covering your expenses.