When planning for retirement, it is crucial to fully utilize tax-deductible and tax-deferred savings plans available both individually and through your employer. Prioritize plans that involve employer contributions or matches. IRAs that you qualify for should be considered next. As you progress in building your retirement savings, it becomes increasingly important to consult with a financial expert.
Definitions and Key Plans
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Roth Accounts: Roth contributions are elective and included in gross income unlike pre-tax contributions. However, investments grow tax-free, and earnings can be withdrawn tax-free after age 59 1/2, provided the account has been open for five years, or in cases of disability or death. More on Roth Accounts
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SIMPLE Plans (SIMPLE IRA, SIMPLE 401k): These are designed for small business owners with 100 or fewer employees who don’t have other retirement plans. SIMPLE IRA Plan details or SIMPLE 401(k) details
Summary of Retirement Plans
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401(k): This plan allows employees to defer part of their wages on a pre-tax basis. Contributions are not taxed until withdrawn and are subject to annual limits. Learn more about 401(k) plans
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SIMPLE 401(k): Suitable for small businesses, this plan requires employer contributions alongside employee deferrals, offering tax-deferred growth. Explore SIMPLE 401K details
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Roth 401(k): Contributions are made with after-tax dollars, allowing tax-free growth and withdrawal under qualifying conditions.
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403(b): Available to employees of tax-exempt organizations, allowing pre-tax contributions that grow tax-deferred. 403(b) Plan Basics
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SEP-IRA: Employers can contribute to traditional IRAs set up for employees, ideal for various business sizes. SEP Contribution Limits and details
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SIMPLE-IRA: For small businesses and self-employed individuals, allowing employee salary deferrals and employer contributions. SIMPLE IRA Plan details
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Keogh Plan: A retirement plan for self-employed individuals offering both Profit Sharing and Money Purchase plans. Keogh Plan details
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Traditional IRA: Allows individuals to make tax-deductible contributions with the growth taxed upon withdrawal. Traditional IRAs
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Roth IRA: Contributions are not tax-deductible but offer tax-free growth and withdrawals. Roth IRA Contribution Limits
For a detailed understanding of these plans, visit the IRS website.
Disclaimer: This content may include concepts with legal, accounting, or tax implications and is not intended to provide specific legal, accounting, or tax advice. Consult a professional for tailored advice.
