Retirement is a part and parcel of our lives. Every human gets old at some point of time with shredding muscles and narrowed bones and he has to quit his job and stay in peace for the rest of his living years. Retirement planning is a must in order to survive the years after retirement with a sigh of relief and no headaches for financial support. There are various flavours of retirement plans. You should them all and also the significance difference among them. The most common retirement plans are listed below and also it elaborates how you go about establishing each plan, funding it and then eventually taking distributions from the plans.
Have a look at some Retirement Plans!
- Traditional IRAs: IRA stands for Individual Retirement Account. A traditional IRA is an excellent supplement to an individual’s retirement income as the individuals can choose when they want to fund their traditional IRA. Contributions to a traditional IRA may be tax deductible and the earnings grow on a tax deferred basis. Contributions are subjected to statutory limits in this type of retirement plan.
- Roth IRA: this is the type of retirement saving account where individuals can make contributions with after tax money. On meeting the certain necessary requirements, distributions from the Roth IRA will be tax free. For this type of retirement plan, contributions are not tax deductible but qualified contributions are tax free. Since the contributions to Roth IRA are discretionary, you can choose when you want to fund your Roth IRA.
- SEP IRA: this retirement plan has been established by the employers, including the self employed ones. The SEP is an IRA based plan to which employees can tax deductible contributions on behalf of eligible employees, along with the business owner. The employees do not pay taxes on SEP contributions but however, the employee eligible to participate in his employers SEP plans must establish a traditional IRA to which the employer will deposit SEP contributions. Since the SEP plan is traditional IRA, SEP contributions which are once deposited become the assets of traditions IRA and hence, are subjected to the rules and regulations of the traditional IRA.
- SIMPLE IRAs: A SIMPLE IRA is a retirement plan which may be established by the employers allowing the eligible employees to contribute part of their pretax compensation to the plan. This means that the tax on the money is deferred until it’s distributed. This contribution o is often known as elective-deferral or salary reduction contribution.
- Qualified plans: Social security benefits, savings account and the retirement plan savings are the three most important sources of income for the retirees. A qualified plan, being established by an employer to provide retirement benefits for its employees and their beneficiaries, is a defined benefit or a defined contribution plan. These types of plans allow the employer a tax deduction for contributions it makes to the plan and taxes aren’t paid until these assets are distributed.