Traditional IRA, ROTH IRA, Rollover IRA Retirement Plan
Knowing how to invest your money for retirement plan could be a tough call, reason being that there are so many different types of accounts.
IRAs can be one of the advisable ways to compound long-term saving s for retirement especially if you don’t have a retirement plan with your employer. Irrespective of your marital status- single, married or the size of your business, there are a lot of beneficial IRA options that can help in achieving your retirement goals. If you are going through this post, there is high possibility that you are trying to find out whether you can invest in pure physical gold bullion or any other precious metals as the case may be using your retirement plan. There are different retirement plans, however you can make your choice from the list below.
This is a retirement savings account that does not incur taxes on your savings until you withdraw the savings at the age of 70 ½.
Unlike a taxable retirement plan, traditional IRA are tax deferred as a result of this interest and investments accumulate faster. Also, so far you are not enrolled in a different retirement plan through your employer, traditional IRA are tax-deductible. The highest yearly contribution you can put in a traditional IRA is $5,000 for a single person while for married couples it is $10,000. Traditional IRA can be opened through a bank or a broker.
A Roth IRA is an individual retirement plan this account provides tax-free income whenever you remove your investment from the account at the age of 59 ½ which is unlike the traditional IRA.
Contributions made into a Roth IRA account are not tax deductible just like that of a traditional IRA. Stocks, mutual funds, money market accounts and certificates of deposits can be safely invested in a Roth IRA account. A major advantage of Roth IRA over the Traditional IRA is its tax free characteristics which is a big plus. Although the Roth IRA is tax deduction free, thousands of dollars in taxes are saved when you eventually withdraw your money for retirement.
In the event that you no more work for your employer, but still hold some amount of money in their 401(k) arrangement, a rollover IRA can be opened to move the money into the new account. Rollover IRA commitments are boundless, permitting you to move as much money as you need from your employee supported retirement plan. You can set up a rollover retirement plan through a bank or financier firm.
Spousal IRA, SEP IRA, SARSEP Retirement Plan
This is a type of IRA retirement plan that a domestic partner can open and have their life partner fund the account on their behalf.
This is why it is commonly referred to as a spousal IRA. The spousal IRA is basically a term and simply a normal Roth IRA, or Traditional IRA. The idea behind having a spousal IRA is that a non-working spouse should have the freedom to build up retirement funds for themselves.
An IRA can’t be mutually owned by the two parties, however once money is saved into the IRA it gets to be the legitimate property of the account holder. This implies that in the event of separation, a stay-at-home spouse will have the money in the account to fall back to. Also, another advantage of Spousal IRA is that married couples are able to contribute $10,000 every year (i.e. $5,000 per individual).
An SEP IRA retirement plan shares some features with the traditional IRA, however unlike the traditional IRA, it is designed to benefit self-employed individuals and small business owners.
Irrespective of whether you are a sole proprietor, corporation, or an LLC, you can open a SEP IRA retirement plan. Basically, any contribution made into this type of account are tax deductible and the earnings are tax deferred. In this account, your contribution can be as high as $50,000 per annum, however, you cannot withdraw from the account before the age of 59 ½ years, else you suffer a 10% IRS penalty.
The major advantage of this account is the tax deduction. During tax time, if you gain more profits on your business than you expected, you can make a significant contribution to your SEP IRA retirement plan and significantly reduced owed income taxes to a reasonable amount for that year.
SARSEP retirement plan in an acronym for Salary Reduction Simplified Employee Pension Plan. This plan was originally made for small businesses with 25 or fewer employees until it was discontinued in 1996.
Under this retirement plan, employees have individual an SEP IRA retirement plan established in their names with both the employer and the account owner having the right to make contributions to the account. These contributions are pre-taxed through salary reductions, also the employer’s contribution may not exceed either $52,000 or 25% of the salary of the employee, whichever is less of the two.
The contributions made by the employee are dependent on salary reduction agreements spelled out in the plan, however the total contributions cannot exceed $17,500 (as at 2014). More so, all contributions made into this account are limited by the net profits. As a result of this SARSEP can better be defined as a collection of SEP IRAs and individual employee accounts operated in accordance to SEP IRA retirement plan rules.
SIMPLE IRA, 401k, 403b Retirement Plan
This is an acronym for Savings Incentive Match Plan for Employees retirement plan. It is the common name for a tax-deferred retirement savings account that is usually provided by the employers.
This IRA was designed to serve as an incentive for smaller employers say 100 or less, to provide retirement plans for their workers while at the same time avoiding the rigors process associated with larger benefits retirement packages. A major benefit of this IRA is that they do not fall under the guidelines stated by the ERISA.
Employers that operates this retirement savings package are obligated to provide a certain minimum contribution to their employees’ accounts. Employees that sign up for this package are basically opening up their own traditional IRAs through their employer.
However, one major disadvantage is that contribution limits are lower when compared with other plans ($12,000 as at 2014). Additionally, SIMPLE IRA retirement plan rollovers more difficult, the plan requires a long waiting period before it can be activated.
A 401(k) retirement plan as we probably know it today was not a conscious construct of the United States government or the Internal Revenue Service as the case maybe but rather an innovation of Ted Benna, a renowned benefits consultant.
The 401(k) plan is named after the section 401(k) of the Internal Revenue Code which was included in 1978. Ted Benna understood that section 401(k) of the Internal Revenue Code can be used to construct a simple employee retirement plans with tax advantages.
Today, about 95% of employers include a 401(k) package in their benefits plan. A 401(k) retirement plan is a defined contribution plan, as such it is primarily funded through the pre-tax paycheck deductions of the employee. The major benefit of this plan is that there is the possibility of employer match programs, under this program an investor receives free contributions and is privileged to exceed the standard contribution limits.
You are restricted from putting resources into several assets classes through a 401(k), this includes real estate and precious metals; most of 401(k) money is put into mutual funds.
This plan is named after section 403(b) of the Internal Revenue Code.
It is a tax advantaged retirement plan which is only available to select public school workers, some churches ministers and tax-exempt not-for-profit organizations. Just like we have in the 403(b) plan, employee engaged in the 403(b) arrangement are able to concede cash from their paychecks into a retirement investment account.
As a matter of fact, 403(k)s act very much like the 401(k)s in many respect. Each of the two plans has a plan provider and plan administrator, and the options on investments available to a participant are limited when compared to what their specific plan offers. 403(b) plans were initially established to offer annuities as an investment choice as such it was originally referred to as “Tax Sheltered Annuities”.
457b, Thrift Savings (TSP), Solo 401k Retirement Plan
The 457b retirement plan is similar to plans like the 401(k) and 403(b) retirement plans.
The 457(b) retirement plan is funded by the employer and it is also a tax-deferred retirement plan. The name “457(b)” originates from the section that governs these plans in the Internal Revenue Code. It can also be called the “457 plan.” Returns are being deducted from the paychecks of the 457(b) retirement plan subscribers to be set aside in an investment account that is tax-free as this is the case for all defined contribution plan.
The 457(b) plan was established purposely for government employers and non-government employers like hospitals and charities. Its main aim was to serve as an alternative defined contribution plan. However, there are specific rules which differentiate the governmental and non-governmental 457 plans.
One difference that is imperative is the fact that public government 457s have to be funded by the employer, on the other hand, nearly all non-governmental 457s are not funded by employers (as this will mean that tax benefits will be removed the account, according to the guidelines of the ERISA).
Thrift Savings Plan (TSP)
This is a type of defined contribution retirement plan.
Federal employees or members of the armed services are the only ones that are exclusively entitled to establish such a plan. There are three parts of the FERS retirement packages among which the Thrift Savings Plan is, including the FERS annuities and Social Security. The Thrift Savings Plan was created by Congress as an alternative to the 401(k) plan for public workers.
This plan consists of about ten investment funds, under six categories called the G, F, C, S, I and L. Every one of these is basically a mutual fund portfolio organized based on the different level of risks attached to each. You are not entitled to hold individual securities through the Thrift Savings Plan.
Solo 401k Plan
The solo 401(k) retirement plan was established particularly for the self-employed individuals who have relegated earlier to using Profit Sharing Plans, Keogh Plans, or Individual Retirement plans (IRAs).
It was the first employer-sponsored retirement vehicle that was created as part of the Economic Growth and Tax Relief Reconciliation Act of 2001. Its rules and conditions are somewhat similar to that of a normal plan, except that the employer/owner and his business are not subject to the complex and costly guidelines of the Employee Retirement Income Security Act (ERISA) and there can be no other employees of the company who are considered full-time (1,000+ hours worked per year).
Employee Stock Ownership (ESOP), Keogh, Money Purchase Retirement Plan
Employee Stock Ownership Plan (ESOP)
The ESOP is a retirement plan where an employer creates a trust fund with the aim of buying existing shares of stock or sharing its personal stock.
The ESOP retirement plan is commonly practiced in the United States, and it is usually used by employees who are looking to become partners in their company. There is however a rule that govern the allocation of shares, even though each company has its own rule, it is necessary that the shares in an ESOP are allocated to specific employee accounts.
Employees are not entitled to the ESOP retirement plan until they have gotten to a certain senior level, this is usually the case with every employer-sponsored benefits. The employee’s accounts usually have tax benefits; for the issuing company, Employees don’t have to pay tax on the contributions they get and they have the privilege of rolling over the distributions into an IRA or any qualified plan but stock contributions are tax deductible for the issuing company.
The ‘Keogh Plan’ which was created by a Representative Eugene Keogh in 1962 is a pension plan that is intended to assist self-employed workers or unincorporated business bodies.
This retirement plan is tax-advantaged as it exempted from taxation and also has other tax benefits. This plan is not available to every self-employed individual. For example, an Independent contractor cannot establish a Keogh Plan. The Keogh Plan can only be established by self-employed individuals that open an unincorporated business.
Keogh Plans come in both defined contribution and defined benefit varieties. People usually try to avoid the Keogh Plan because of its intricate formalities, however, self-employed individuals who are earn above average still consider the Keogh Plan a feasible one. You are still entitled to contribute to an IRA even when you have opened a Keogh Plan.
Money Purchase Plan
Some companies that were established solely for making profits offer a retirement plan vehicle where the employer and the employees make contributions based on a fraction of annual earnings, this plan is known as the Money Purchase Plans.
This is quite different from the Profit Sharing Plan. In the Money Purchase Plan, the fraction of annual earnings that is paid remains the same every year based on the terms of the plan, unlike the Profit Sharing Plan where contributions are tied to employer profitability on an annual basis.
It is similar to the 401(k) in the sense that they are both defined contribution plans despite the employer contributions that is required in the Money Purchase Plans. This is due to the fact that even as the employee, you have control over the investments and is in charge of choosing when money is withdrawn, although, there is a degree to which the plan can allow this privilege.
The Money Purchase Plans has some disadvantages, one of which is that it has very high administrative costs for a retirement plan, which sometimes is deducted from your investment returns coupled with the fact that every contribution that is committed to the Money Purchase plan is tax deductible.
In addition, you don’t have the privilege of taking loans out of your Money Purchase Plan, which is not the case for other defined contribution plans.
Profit Sharing, Annuity Retirement Plan
Profit Sharing Plan
Employers establish this type of retirement plan as an additional form of employee compensation.
A Profit Sharing Plan retirement account is an investment vehicle that allows the employer to share (this is done through a trustee) company earnings with participating employees. For an employee that operates a Profit Sharing Plan account, the employer contributes to the employee’s retirement account that are invested and can grow tax-free.
Similar to many other retirement plans sponsored the employer, the employee will usually not be regarded as fully vested in the Profit Sharing Plan until after a couple of years into the retirement plan. This is different from a Money Purchase Plan, where the percentage of annual earnings that are contributed to plan accounts is known ahead of time. Profit Sharing Plan contributions are dependent on the company’s profitability.
Just like other retirement plans, there are restrictions: no withdrawals prior to 59 ½ years of age; early withdrawals attracts a 10% penalty; distributions are taxed as personal income.
Annuities are offered by insurance companies, and this acts as an arrangement between you and the company to provide a source of money during retirement.
For those that currently have an annuity or retirement account to do so, this page can only provide you with a brief overview of generic annuity functionality and the different ways precious metals can serve as a sort of well-diversified retirement plan strategy. It is very important that you consider carefully all of your retirement plan options before investing into a complicated financial instrument.
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