Retirement Plans continued
A 401(k) is a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts. Elective salary deferrals are excluded from the employee’s taxable income (except for designated Roth deferrals). Employers can contribute to employees’ accounts. Distributions, including earnings, are included in taxable income at retirement (except for qualified distributions of designated Roth accounts).
A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers. Individual accounts in a 403(b) plan can be any of the following types:
*An annuity contract, which is a contract provided through an insurance company,
*A custodial account, which is an account invested in mutual funds, or
*A retirement income account set up for church employees. Generally, retirement income accounts can invest in either annuities or mutual funds.
The 457 plan is a type of non-qualified tax advantaged deferred-compensation retirement plan that is available for governmental and certain non-governmental employers in the United States. The employer provides the plan and the employee defers compensation into it on a pre-tax basis. For the most part the plan operates similarly to a 401(k) or 403(b) plan most people are familiar with. The key difference is that unlike with a 401(k) plan, there is no 10% penalty for withdrawal before the age of 59½ (although the withdrawal is subject to ordinary income taxation). Also 457 plans (both governmental and non-governmental) can allow independent contractors to participate in the plan where 401(k) and 403(b) plans cannot.
Keogh plans are a type of retirement plan for self-employed people and small businesses. There are 2 basic types of Keogh Plans: defined-benefit, and defined-contribution.
In a defined-contribution plan, a fixed contribution (percentage of total paycheck or a fixed sum) is made per pay period.
The defined-benefits plan is more complex. It relies on an IRS formula to calculate the rate of contributions. It may be set up as a profit-sharing plan, where the pension that one can withdraw after retirement depends on how much they invest in the plan while they worked.
In either case, as in other retirement plans, the funds in the plan can be invested in stocks, bonds, mutual funds, etc.
An employee stock ownership plan (ESOP) is a defined contribution plan that provides a company’s workers with an ownership interest in the company. In an ESOP, companies provide their employees with stock ownership, typically at no cost to the employees. Shares are given to employees and are held in the ESOP trust until the employee retires or leaves the company, or earlier diversification opportunities arise.
There are annual limits on the amount of deductible contributions an employer can make to an ESOP limited to 25 percent of the compensation otherwise paid or accrued during the year to the employees who benefit under the plan.
Please continue on to the following financial information pages:
- Invest for Retirement
- Types of Investments
- Beginner’s Guide to Financial Statements
- Finance videos
- Daily Dividend Report
- ETF Investing Report
- Insider Buying Report
- Market Movers Report
- Symbol Lookup
- Market Most Actives
- Quotes and Charts
Complete Retirement Plan information can be found at the official U.S. IRS site