Monday, March 18

5. Tax-Advantaged Retirement Plans

Tax_AdvantageTo encourage consumers to plan long-range, the U.S. tax code defines several types of tax-advantaged plans that enable individuals to save money for retirement and to grow those savings by investing them.

Among the most common plans are Individual Retirement Accounts (IRAs) and 401(k) and 403(b) Plans. Most IRAs are established by individuals while most 401(k) and 403(b) plans are sponsored by employers. But there are also some employer-sponsored IRAs as well as a Solo 401(k) option for individuals. Many individuals have both employer-sponsored and individual plans to maximize savings.

The key fact about these retirement plans is that they are not specific investments but are accounts or "shells" in which you can hold and manage a number of investments. The accounts typically offer investors considerable flexibility to match investments to their "age and stage," and to their goals and tolerance for risk. Here's a look at the primary features of the most common plans.

Individual Retirement Accounts (IRAs)

  • Traditional IRAs
  • Roth IRAs

401(k) and 403(b) Plans

  • Traditional
  • Dedicated Roth Contributions

457 Deferred Compensation Plans

Next: Individual Retirement Accounts (IRAs)