How to Compare IRA Plans

All individual retirement accounts help investors save money toward retirement. Most consumers are familiar with the traditional or Roth IRA structure, but self-employed people and small-business owners may also consider (and offer to employees) simplified employee pensions (SEPs), SIMPLE IRAs and salary reduction simplified employee pension plans (SARSEPs). Not only are there several types of IRAs for consumers to choose from, but there are various investments offered by different financial services firms. With so many factors playing into IRA selection, the choice can become overwhelming without a plan.

• 1

  Look at the big picture to break down what plans you need to consider and research. Consider the SEP or SIMPLE IRA if you are a business owner so that you can contribute more into the plan and offer employees a benefits package to retain higher caliber talent. The traditional IRA and Roth IRA are consumer IRAs that allow supplemental savings if your employer has no plan or you want to save more.

• 2

  Ask yourself whether you need a tax deduction now or tax-free income later. Employer plans are generally tax-deferred plans with salary reductions, but consumer plans offer individuals a choice through the tax-deferred traditional plan and the tax-free Roth plan.

• 3

  See if you qualify for an IRA. Employer plans may require a minimum number of service years to become eligible. Consumer IRAs have income limits and are also affected by whether you are covered by an employer plan.

• 4

  Establish your earnings needs on the IRA money. There are many retirement savings calculators that calculate contributions, projected earnings and number of years before retirement to determine whether you will have enough to provide income during retirement. Conservative returns earn between 2 and 4 percent while moderate returns may earn as much as 8 to 12 percent depending on the economic conditions.

• 5

  Set your risk tolerance. Know that the more you hope to get in returns means the more risk you accept. Bank savings such as time certificates are conservative investments that don't fluctuate whereas brokerage accounts have wide ranges of risks depending on the strength and investment class of any one stock, bond or mutual fund. The higher risk classes fluctuate more broadly with high potential for losses, though all have potential loss.

• 6

  Find IRAs that don't require high custodian or management fees. Custodial fees are charged by any IRA custodian to maintain all administrative requirements with the investment and IRS reporting. Custodial fees are sometimes waived for high account balances. Management fees are usually associated with brokerage IRAs and may be a flat fee, but are sometimes a percentage of the account value, regardless of whether the account is earning and losing money.