CAMILLUS -- Saving and investing for retirement is a central goal in an individual financial program and should include an evaluation of the ultimate impact of both ordinary income taxes and estate taxes on retirement assets. Even with the numbers in hand, personal needs and preferences will influence your final decision.
RETIREMENT PLANS FOR INDIVIDUALS
Traditional IRA
A traditional IRA is a personal savings plan that gives you tax advantages for setting aside money for retirement. Contributions you make to a traditional IRA may be fully or partially deductible, depending on your circumstances and generally; amounts in your traditional IRA (including earnings and gains) are not taxed until distributed.
Roth IRA
The Roth IRA is a type of IRA in which contributions are not deductible, but distributions (including earnings) can be tax free if certain conditions are met. Contributions to a Roth IRA are made with monies on which taxes have already been paid. So the principal amount is never again subject to taxes or penalties.
Rollover IRA
You can move money in one traditional IRA to another traditional IRA without penalty, and without owing income tax on any earnings that may have accumulated. What you're doing is "rolling over" your IRA.
You may also move assets in an employer-sponsored plan, such as a 401(k), 403(b), or 457 into an IRA if you retire, change jobs, or your employer ends the plan. Moving the money to an IRA means that your retirement savings can continue to accumulate tax deferred until you are ready to begin withdrawals or move the money back into a new employer's plan. This type of IRA is sometimes known as a "rollover IRA".
403(b)
The 403(b) is a tax deferred retirement plan available to employees of educational institutions and certain non-profit organizations as determined by section 501(c)(3) of the Internal Revenue Code. Contributions and investment earnings in a 403(b) grow tax deferred until withdrawal (assumed to be retirement), at which time they are taxed as ordinary income.
Michigan Benefit Financial, Inc. offers specialized 403(b)/TSA services.
457 Plans
A 457 plan is a long-term retirement savings program offered to employees of state or local governments or certain tax-exempt organizations. A 457 plan allows you to defer compensation on a pre-tax basis through payroll deductions and defer federal, and in some cases, state taxes until you begin receiving annuity payments at retirement.
RETIREMENT PLANS FOR BUSINESS
401 (k)
Is a Employer sponsored retirement plan that is designed to permit employee contributions; either employer matched or unmatched, to a plan on a pre-tax, tax deferred basis. This plan will help participants save for retirement while reducing taxable income. The contributions and earnings will not be taxed until withdrawn, preferably after reaching retirement age as specified by the plan.
SEP IRA (Simplified Employee Pension)
SEPs provide a simplified method for you to make contributions to a retirement plan for your employees. Instead of setting up a profit sharing or money purchase plan with a trust, you can adopt a SEP agreement and make contributions directly to a traditional individual retirement account or a traditional individual retirement annuity (SEP-IRA) set up for each eligible employee.
SIMPLE IRA (Savings Incentive Match Plan for Employees)
Under a SIMPLE IRA plan, employees and employers make contributions to traditional Individual Retirement Arrangements (IRAs) set up for employees (including self-employed individuals), subject to certain limits. It is ideally suited as a start-up retirement savings plan for small employers who do not currently sponsor a retirement plan. Because this is a simplified plan, the administrative costs should be lower than for other, more complex plans.
Deferred Compensation
A plan to allow highly paid individuals the ability to defer compensation until a later date, typically after retirement. Many of these plans are very selective regarding participation and allow specialized plan design.
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