LESSON SIX: RETIREMENT
Retirement Plan Options
a. Section 401k - A 401k plan allows employees to elect to contribute a portion of their income into an account in their name and instruct their employers to make contributions on their behalf for retirement. The contribution is treated as tax deferred to employee until withdrawal. This deferment is a tax savings to employee’s pretax income by way of salary reduction and therefore reduces employee’s tax liability. There are withdrawal provisions for distribution of money in plan. However all monies set aside in the plan are tax deferred for the employee until withdrawal.
b. Section 403b – similar to 401k plan but considered a tax sheltered annuity. However, this retirement plan is for non profit organizations, public, private and parochial school teachers, school superintendents, college professors, clergymen, and social workers. The investments in Section 403b plans are owned by the employee.
c. Section 457 – similar to 403b but reserved for employees of other public bodies such as states, counties, and municipalities. The investments in Section 457 plans are owned by the employer.
d. Traditional IRA – an individual retirement account where participant earns wages and does not normally participate in an employer maintained retirement plan. Investment in traditional IRA is tax deferred until withdrawal when the individual is likely to be in a lower tax bracket and can be deductible on Form 1040.
e. Roth IRA – similar to a traditional IRA except contributions is not deductible on Form 1040 and distributions are tax free.
b. Section 403b – similar to 401k plan but considered a tax sheltered annuity. However, this retirement plan is for non profit organizations, public, private and parochial school teachers, school superintendents, college professors, clergymen, and social workers. The investments in Section 403b plans are owned by the employee.
c. Section 457 – similar to 403b but reserved for employees of other public bodies such as states, counties, and municipalities. The investments in Section 457 plans are owned by the employer.
d. Traditional IRA – an individual retirement account where participant earns wages and does not normally participate in an employer maintained retirement plan. Investment in traditional IRA is tax deferred until withdrawal when the individual is likely to be in a lower tax bracket and can be deductible on Form 1040.
e. Roth IRA – similar to a traditional IRA except contributions is not deductible on Form 1040 and distributions are tax free.