Understand Different Retirement Plans Available to You

Realize that different retirement plans are not created equal, so it’s important to know the differences to choose wisely.


different retirement plans

For many of us, trying to understand the world of investing can be like trying to learn a new language. You’ll find acronyms and terminology that no one else uses, not to mention charts that don’t seem to make much sense. Luckily, you don’t need to understand every part of it to put a plan in place that will set you up for a comfortable retirement. In fact, you really just need to know the basics of the different retirement plans available. 

Of course, it’s always nice to learn more, but it’s also important to get started. Retirement will be here before you know it, and you don’t want to put off your retirement investing.

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Discover the different retirement plans you could get

The best part about these different retirement plans is that you most likely only need to understand one of them. Each is available only to certain types of employees, so you’ll never have to worry about the others unless you switch to a job that offers one, or your significant other has one, and you combine your finances.

401(k):

The 401(k) is the most well-known of these plans. Available to employees of private companies (if they offer it), the 401(k) is available to millions of workers in the world’s largest companies.

The 401(k) takes contributions directly from your paycheck before taxes. This means you’ll contribute more to your plan, it will grow more efficiently, and you won’t be taxed until you make withdrawals.

Self-employed individuals and small business owners can also use a type of 401(k) called a Solo 401(k) to take advantage of the tax incentives included. You can make withdrawals from your 401(k) at age 59 ½ without penalty. Before that, any withdrawal will pay any additional 10% fee aside from the taxes due.

403(b):

A 403(b) plan is similar to a 401(k) with some notable exceptions. The primary difference is in who it is available to. 403(b) plans are only available to workers of a non-profit, school district, religious group, or government organization.

The plans often provide fewer and more conservative assets to invest in. Most typically, these include mutual funds and annuities. There are also some advantages to how these plans vest, but some 401(k) providers may have beneficial vesting plans as well.

457(b):

The 457(b) plan is an option for state and local government employees. Employees fund the plan with pre-tax dollars just like with the other plans but can withdraw funds before the age of 59 ½ without paying a 10% fee on their money.

Think about IRAs as retirement plans too

All of the plans mentioned above are useful and effective tools, but they’re all specific to certain forms of employment. IRAs, on the other hand, are available for anybody with earned income. A regular IRA operates with the same tax treatment as a 401(k). A Roth IRA is funded with after-tax dollars and therefore is not taxed when withdrawing money.

Employer-sponsored plans could also have Roth options available, but they are rarer to find. Whether or not an employer offers Roth plans, an employee could still open a Roth IRA and fund it with their earned income.

Do you know what kind of plan is available to you? Which would you prefer to use?

Free Now!

Don’t ignore your 401(k)! Discover the best ways to make more from your 401(k), so your retirement isn’t dependent on Social Security alone—revealed in this FREE report, Retirement Calculator: 6 Important Tips from a Financial Advisor to Get the Most Out of Your 401(k).

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