7 Retirement Plans You Should Know About

This year I started investing in my 401K but I have plans to turn it into a Roth IRA before this year is over. I remembered when I first started on the journey of financial literacy and I didn’t know what any of the retirement terms meant because yeah! It’s not taught in school but that’s a post for a different day. So after reading and researching, I finally was able to make an intelligent decision as to where I’ll invest. Therefore, if you’re like I was in the past and all of this sounds foreign to you, this post is for you!

Let’s get familiar with retirement terms.

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401k, A 401(k) is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account.

 

401a, A 401a plan can be either a supplemental or core retirement plan for employees who meet eligibility rules. A 401a plan may provide for either mandatory employee contributions or voluntary employee after-tax contributions. However, a 401a plan does not permit employees to make 401k contributions.

 

403b, A 403(b) plan is a kind of defined contribution retirement plan. It may be offered to employees of government and tax-exempt groups, such as schools, hospitals, and churches. Employees who are eligible can defer money from their paychecks into their 403(b) accounts, which work the same way as 401(k) plans.

 

457, A 457 plan refers to a non-qualified, tax-advantaged deferred compensation retirement plan. Eligible employees are allowed to make salary deferral contributions to the 457 plan. Earnings grow on a tax-deferred basis and contributions are not taxed until the assets are distributed from the plan.

 

TSP,  The Thrift Savings Plan (TSP) is a tax-deferred retirement savings and investment plan that offers Federal employees the same type of savings and tax benefits that many private corporations offer their employees under 401(k) plans.

Roth IRA An individual retirement account allowing a person to set aside after-tax income up to a specified amount each year. Roth contributions (but not earnings) can be withdrawn penalty- and tax-free at any time, even before age 59½.

Traditional IRA  A traditional IRA is a tax-deferred retirement savings account. You pay taxes on your money only when you make withdrawals in retirement. Deferring taxes means all of your dividends, interest payments and capital gains can compound each year without being hindered by taxes. IRAs can be opened at most financial services providers, online or in person. That includes local banks and credit unions, brokerage firms and big mutual fund superstores or discount brokerages.

 

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