Types of Retirement Accounts

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Feb 24, 2018 // By:admin // No Comment

In the past retirement accounts have been mainly defined-benefit plans. An example of a defined benefit plan is a pension. But this type of plan you have a specific amount of money that you will receive upon retirement that is a percentage of your current income and the percentage depends on the length of time you have been working with the employer.
Pension plans have become less common over the years. People don’t stick with jobs for as long as they used to making a pension less useful. Now they have defined contribution plans that can be used by themselves or long with a pension.
There are two main types of retirement accounts that are defined contribution plans. They are the 401(k), or for a 403(b) for government employees, and the IRA. A 401(k) is where you can contribute up to a certain amount of your income towards a retirement account. This money is not taxed until you withdraw it at retirement and your employer has the option to give you an employer match.
There are two types of IRAs or individual retirement accounts. There is the traditional IRA and the Roth IRA. The traditional IRA is very similar to the 401(k). You contribute up to a certain amount of money to a fund of your choice from a bank or brokerage firm. This money is tax free until you withdraw it at retirement. With the Roth IRA, you pay taxes on what you contribute now, but at retirement, it is completely tax-free. You don’t even have to pay taxes on your gains.
Whether or not you are able to have a 401(k) or IRA and the amount you are able to contribute depends on your income. If you make too much money, you might not be able to have one or contribute as much as others. For example, each person is allowed to contribute up to $ 5000 a year to an IRA, but if you make over a certain amount, it will decrease until zero. Of course, if you have contributed to one in the past and just now are not able to contribute due to your increase in income, the money in your IRA is still yours and will still be taxed accordingly come retirement.

You should know a little more about the 401k rules before you invest in them. You can learn more about that and more about retirement accounts.

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