The contributions are deposited in a company-sponsored plan or individual account, which accumulates earnings through investments. When the employee reaches retirement age, benefits are paid in regular installments or a lump-sum distribution.
WHAT IS VESTING?
Vest means to grant possession or control of something. While you are always in control of money that you contribute to a pension fund, your employer’s deposit is another matter.
Types of retirement plans and accounts
- Defined-contribution plans. These define the amount of contribution an employee can make to a retirement fund, usually as a percentage of salary. Earnings are not taxed until withdrawn. A 401(k) is an example of a defined-contribution plan.
- Individual retirement accounts (IRAs). An IRA allows the investor who either has no retirement plan at work or falls below a certain salary level to make annual contributions to a tax-favored account.
- Keogh plans. Keoghs cover small business owners and the selfemployed. They are similar to IRAs but allow more pre-tax earnings to be invested in a tax-deferred account.
RETIREMENT PLANS FOR SMALL BUSINESS OWNERS AND THE SELF-EMPLOYED
- SEP-IRA
- SIMPLE IRA
- Defined-benefit Keogh
- Defined-contribution Keogh
“Retirement plans are savings plans more than investing plans.”
The greatest advantage of retirement plans is this: The more you contribute to yourself, the less you contribute to the government in the form of taxes. Furthermore, if you have an employer who matches your investment, every dollar you contribute automatically earns a l00 percent return. But you have to weigh these advantages against a plan’s pre-defined retirement age of 55, 59, or 70, which dictates when you can withdraw your funds.
No comments:
Post a Comment