Retirement Plan Guide: Know Different Types Of Retirement Plans
Table of Content
- 1 Retirement Plan Guide
- 1.1 Different Types Of Retirement Plans
- 1.1.1 Individual Retirement Account
- 1.1.2 Roth IRA
- 1.1.3 401(k) Plans
- 1.1.4 403(b) Plan
- 1.1.5 Profit-Sharing Plan
- 1.1.6 Simple IRA
- 1.1.7 Simplified Employee Pension Plan (SEP)
- 1.1.8 Salary Reduction Simplified Employee Pension Plan (SARSEP)
- 1.1.9 Payroll Deduction IRA
- 1.1.10 Defined Benefit Plan
- 1.1.11 Money Purchase Plan
- 1.1.12 409A Nonqualified Deferred Compensation Plans
- 1.1.13 IRC 457(b) Deferred Compensation Plans
- 1.2 What is the best retirement plan for you?
- 1.3 How much to contribute to retirement plan?
- 1.4 Which banks to opt for retirement account?
- 1.1 Different Types Of Retirement Plans
Retirement Plan Guide
After working hard for the most part of your life, all one want is to live a harmonious and tension-free retired life. But many a times, people just can’t save enough to lead their dream life after retirement. And thus, there comes an essential need for a retirement plan. But with so many different retirement plans available, how do you know which is the one for you? Well, here’s a Retirement Plan Guide that will help you understand which is the best retirement plan for you.
Different Types Of Retirement Plans
Individual Retirement Account
You can put away a certain amount in an IRA account every year and invest the amount tax deferred. Therefore, you don’t have to tax on annual investment profits, letting them grow faster. In a regular IRA, income tax is paid on the money at the time withdrawal after retirement.
Unlike in regular IRA, you make contributions after tax in Roth IRA. However, the amount gained within Roth is not taxed again. Moreover, you can withdraw contributions made to a Roth IRA account before retirement age without penalties.
It is a workplace retirement account and administered as an employee benefit. It permits the person to put away a part of their paycheck in a tax-deferred investment account, subtracting this amount from total taxable income.
Also known as a Tax-Sheltered Annuity or TSA Plan, 403(b) is a retirement plan designed for specific employees of public schools, tax-exempt organizations and some ministers.
A profit-sharing plan allows an employer to make changeable contributions i.e., the contributions you make is not set. Also, one can contribute for one year and may not for following years if they want.
Savings Incentive Match Plan for Employees permits both employers and employees to contribute to traditional IRAs set up for the employees. Any new employer, who has just started and not sponsored a retirement plan, can use this as a start-up retirement savings plan.
Simplified Employee Pension Plan (SEP)
Simplified Employee Pension Plan enables employers to contribute to traditional IRAs set up for employees. Any employer having a small or large business can set up a SEP.
Salary Reduction Simplified Employee Pension Plan (SARSEP)
SARSEP includes a salary reduction arrangement. It allows employees to decide if the employer should contribute a portion of their pay to their IRA put up under the SARSEP and how much.
Payroll Deduction IRA
When a Payroll Deduction IRA is established, employees set up an IRA with a bank and allow a payroll deduction amount for it. Similar to SEP, any business of any size can establish a Payroll Deduction IRA program.
Defined Benefit Plan
In Defined Benefit Pension Plan, an employer promises a stipulated pension payment on retirement that is decided by a formula which depends on the employee’s earning history and other details.
Money Purchase Plan
It is a type of defined-contribution plan and is similar to profit-sharing plan; however, the contributions made to it are fixed instead of changeable.
409A Nonqualified Deferred Compensation Plans
409A makes it possible for workers to receive their compensation for the particular year in following years. It differs from deferred compensation the same way as elective deferrals to qualified plans (such as a 401(k) plan) or to a 457(b) or 403(b) plan.
IRC 457(b) Deferred Compensation Plans
These plans are available to some state and local governments and non-governmental entities, which are exempted from tax under IRC Section 501.
What is the best retirement plan for you?
How do you choose the right retirement plan? The best retirement plan for you that suits your present situation for various factors like – How much can you contribute? How much can your employer contribute? Do you see your income expanding in the coming years? Will you always have a stable income? And other uncalled events that might hinder your contributing abilities.
How much to contribute to retirement plan?
Each and every plan has its own tax breaks. Therefore, it is better to invest as much as you can. But there are annual limits too. As of 2016, if a person is under 50, they can contribute up to $18,000. If they are 50 or older, they can add another $6,000, raising the maximum limit to $24,000. However, these contributions keep changing annually to track inflation.
Which banks to opt for retirement account?
There are many banks offer for retirement accounts but which one to choose? There are a few major private banks that provide additional tools to help you choose a better retirement plan and set the details. Wells Fargo My Retirement Plan, JPMorgan Chase Retirement Plan and Bank of America Retirement Plan are such plans. You need to know the Wells Fargo Routing Number, JPMorgan Chase Routing Number and Bank Of America Routing Number respectively for various transactions in these banks.