Posted by Maneesh Sethi :: September 4, 2007 @ 10:57 am

If you read my article on how to get rich, then without a doubt you are asking yourself one question: "How are you so smart, Maneesh?" But besides that, you are also probably wondering how to start down the investment path. There are many types of retirement accounts that you can open, so let's look at some of the major ones:

1. IRA - A standard, tax-deferred account.

2. Roth-IRA - This account is not tax-deductible, but the distributions from this account are tax-free. This means that when you take money out of the account, you don't pay any taxes.

3. SEP-IRA - This account is for business owners who want a simple, low cost retirement plan.

4. 401(k) - This plan is offered by employers and allows for pre-tax savings and, if you're lucky, employer matching.

5. SIMPLE - This type of plan is for small businesses that want to offer a 401(k)-esque plan without the complexities of actually setting up a 401(k).

There are a few more, including Money Purchase Pension Plans and Profit Sharing Plans, but we’ll focus on the above five since they are the most common types. First of all, SIMPLE IRAs (Savings Incentive Match Plan for Employees) and 401(k)s are generally offered by companies. If you are self-employed, you might consider opening up a SEP-IRA because they are very simple to deal with and contribute to.

Depending on your own financial situation, you might want to first look at a Roth-IRA. Unlike traditional IRAs, Roth-IRAs don't give you a tax-deduction when you deposit money into the account. However, when you withdraw from it, the money is tax-free. This means that you actually get to keep ALL the money that you made in interest when you pull the money out. Check out my article on compound interest --the tax savings from this can be HUGE.

If you have the opportunity to fund a 401(k) with employer matching, definitely fund that as much as you can. With employer matching, your company adds money to your account equal to the amount you invest, up to a certain amount. Basically, it’s free money.

For me, I have a Roth-IRA and a SEP-IRA. I fund my Roth completely every year (about $4,000) and the SEP as best I can (25% of my income). I put any money left over into my E*Trade index funds.

Check out this article for a lot of detailed information on retirement savings plans.

In a future article, I will discuss how to open up an IRA. Meanwhile, here is the main takeaway—strongly consider opening an IRA if you have the means to do so. As I noted above, I prefer the Roth-IRA because the tax-free withdrawal is absolutely amazing and its maximum deposit cap is decent. If you put a sufficient amount of money away for your retirement over a long enough timeframe, a comfortable retirement is inevitable. Do it.