What Are The Main Retirement Plan Types?
Very few people know the details of all the retirement plan types that are there, leave alone which one is best. A retirement plan is a method of saving for your senior (read old age) years which is encouraged by the Government through heavy tax deductions and benefits. This plan is commonly known as IRA or Individual Retirement Plan and it is one of the best ways to ensure that your post-retirement years would be without any financial worries.
The Retirement Plan Types Offered In The United States Of America
The first and the simplest (read popular) is the traditional IRA. Under this plan you would save money with a custodian such as a bank, reputed financial institution, brokerage, etc. You would be putting in money in these accounts and the custodian would invest your money in whichever way they would find best for the highest possible returns. The benefits of this IRA are the savings itself and the savings you are entitled to through tax deductibility for the investments (contribution to the fund). This IRA has strict eligibility criteria that are regulated by the IRS (Internal Revenue Service) of USA.
Another very popular one among the retirement plan types available in USA is the Roth IRA. Under these retirement plan types you would have your funds invested in stock and securities which would provide very high returns. There is no tax deduction here which is a downside to this type of saving plan. There is also a penalty of 10% of the amount and federal income tax charged if there is an early withdrawal.
The third type of the retirement plan types is the simple IRA. This is a provision where the employer pays for his/her employees provided these are fewer than 100 and they earned up to US $ 5000 in the previous financial year. The contribution by the employer could be either a fixed two percent without the need of any savings by the employee or providing a 100% matching grant of maximum three percent of the monthly income of the employee subject to their contribution. The minimum payment here should not go below one percent. The employee has the freedom of stopping to contribute anytime during the year.
The benefit here is that the employers get tax deductions on the savings and so do the employees as the IRA sum would be taxed only on withdrawal. In this manner the employer provides benefits for the employees ensuring their loyalty while the employees get both savings and tax benefits.
