I am more specifically looking for advice about the tax-advantaged account types I have available to me, and what priority to place upon them - rather than general investment strategies.
Let's see what I can do....
IRAs (generally): allow for tax-efficient investment. These accounts can grow via capital gains and dividends without being immediately taxed. Check that out some time:
calculate compounding interest over a decade or two, first with annual tax and then without. The benefits are quite clear.
Roth and
Traditional: allow up to 5k of contributions per tax year. You may only contribute earned income. Accounts available at most brokerages. Invest in stocks, bonds, mutual funds, etc. Most discount brokers don't charge a fee for having an account. Contribution limits do phase-out at higher income levels.
The major difference between the two is that Traditional IRAs are tax-free (deduct the contributions from your income tax), whereas Roth takes after-tax contributions (no tax benefits in the contribution year). So one is tax later, the other is tax now. It seems simple, but a Roth presents some clear advantages:
Roth advantages:- When withdrawing, everything comes out tax-free
- You can withdraw your contributions at any time. (After all, you already paid tax on these)
- You can withdraw up to $10k without penalty to purchase your "first home"
- You can contribute even if you have a 401k
- You are never required to take distributions, and can pass the whole thing on to your heirs
The main disadvantage is you can't deduct your contribution. This could be a problem if, say, you only have $5k to put toward retirement. Such an amount would allow you to max-out a Traditional IRA, but you'd only have ($5k minus taxes) to contribute to a Roth. The other potential disadvantage is that if tax rates are significantly lower at the time you take your distributions, it would have been wiser to deduct the taxes when they were higher (using a Traditional IRA).
SEP IRA: This is more or less like a Traditional IRA. The main difference is that you must have self-employment income to contribute and the contribution limit is based on adjusted net profit from the business. The contribution you make is tax-deductible in that year. Again, you can open one of these at a discount brokerage for now annual fee, and invest in stocks, bonds, etc.
SIMPLE and self 401k: These two are more complicated than a SEP. You will incur a cost for setting it up, however the contribution amount will likely be higher. You should determine how much your business is likely to earn for you to see if it's worth the trouble setting one of these two up. Also consider that if you stop contributing to a SEP, you can contribute two one of these types of accounts in subsequent years.
Prioritizing: In my view, a Roth IRA is the more flexible tax-advantaged retirement offering. I would max out this before anything else.