After years of working hard, retiring can be one of the most rewarding things. Having a retirement plan before you retire is essential for financial security. It ensures that you will enjoy the fruit of your labor in the future.
In a report, most Americans are not ready for retirement. That’s why more and more retirement plans are emerging to cater to every person and their needs!
Are you considering retirement plans? Do you want to know more about the types of retirement plans available today? Read this article and learn about personal finances!
401(K)
This type of retirement plan is the most common plan in America. Here, you will give a percentage of your paycheck into an investment account.
In a 401(k) plan, the employee chooses the specific investments in their accounts. But, both the employee and the employer can contribute to this plan.
There are two types of 401(k), the Roth and the traditional. Roth 401(k) deducts the contribution to your after-tax income. That is why when you retire, you will have no extra taxes deducted on your investments.
Traditional 401(k) deducts the contribution from your gross income. As a result, there’s a deduction on your investment depending on the total amount of tax per year.
There are also Solo 401(k) plans available for self-employed individuals. To know more about 401(k) plans, visit Bogartwealth.com.
IRA
Another type of retirement plan is the Individual Retirement Arrangements or IRA. This type of retirement plan is available for everyone who is earning income. You can choose to open an IRA through different financial institutions.
Traditional IRAs are tax-deductible. It means that your taxable income will decrease depending on your investment.
A Roth IRA is not tax-deductible. But, you can continue contributing no matter how old you are as long as you are eligible.
SEP IRA or Simplified Employee Pensions are for self-employed individuals. These include freelancers, small business owners, and independent contractors.
Government Retirement Funds
Government retirement funds or 401(a) is a tax-delayed retirement plan. It allows both employees and employers to contribute a percentage of their income to the account. 401(a) is available for individuals working at:
- Government agencies
- Educational institution
- NGOs
A 401(a) is like 401(k), but it is non-transferable. It means that if you leave your employer, you cannot transfer your 401(a) to a 401(k) or IRA.
Also, in this plan, the employer decides the contribution limits. Plus, you must be at least 21 years old and working for at least two years to qualify for this plan.
Types of Retirement Plans
There are many types of retirement plans that may help you with your future goals. Choosing the right one depends on your goals, eligibility, and employer.
You may not see the benefits of your retirement plan now, but adding it to your investment portfolio is worth it. Not only will it benefit you in the future, but it can also benefit your family and future generation.
Did you learn something from this article about retirement plans? Please read our other articles as well and stay informed!
