Retirement Savings Plans

Retirement savings plans are available through most employers and financial advisors. Retirement savings plans can be funded with pre-tax or taxed earnings. A common theme among retirement savings plans is tax deferred growth of earnings and dividends. The following is a summary of some of the most popular retirement savings plans.

Types of Retirement Savings Plans Available

The most common of the retirement savings plans is the 401K. This type of retirement savings plan allows for an employee to make pre-tax contributions into an account. The employer has the option to match the employee's contribution. An individual 401K is an option for small businesses that employ only the owner or the owner's immediate family.

SEP IRAs are another type of retirement savings plans which may be offered. SEP IRAs are funded by the employer and each eligible employee must have their own account. Keogh plans are also a viable option for an employer who wants to offer retirement savings plans for their employees. Like SEP IRAs, all eligible employees must be a part of Keogh plans.

Generally, of the retirement plans available for individuals, the Roth IRA is often the best. Roth IRAs are funded by taxed dollars and are set a limit of $3,000 annually. Contributions may be withdrawn from the account at any time without penalty or taxation since the money has already been taxed. Here is the great part of the Roth: after age 59½, you will pay no taxes on accumulated earnings when withdrawn. Traditional IRAs are similar to Roth IRAs as they both have a $3,000 annual contribution limit. Traditional IRAs are funded with tax deductible contributions that must stay in the account. If funds are withdrawn from an account before age 59½, they are subject to penalty and income taxation. Funds withdrawn after age 59½ are not subject to any penalty but are still subject to income tax.