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Tax Benefits of the Top 10 Retirement Planning Programs |
Written by Roni Deutch
Tuesday, 06 May 2008
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With continual talk of an economic recession, and ongoing concerns with the social security system, it is now more important then ever to prepare for your retirement. This article lists the top 10 retirement planning programs in the United States and their tax related tax benefits. 401(k) A 401(k) plan is an employer-sponsored retirement plan. It is one of the most popular retirement planning methods in the United States as it allows workers to save for retirement while deferring income taxes on the saved money and earnings until the funds are withdrawn. In the most common plans the taxpayer can choose from a number of investment options, that usually combines mutual funds, bonds, or money market investments. Roth IRA The word IRA stands for individual retirement account. The distinguishing characteristic of a Roth IRA is its favorable tax structure. Contributions to an account are made only from income that has already been taxed, but withdrawals up to the total of contributions are federal income tax free, and withdrawals of earnings (anything above the total of original contributions) are usually free of federal income tax as well. Roth 401(k) A Roth 401(k) is a retirement savings plan that represents a unique combination of features of both a Roth IRA and a traditional 401(k) plan. Under the Roth 401(k), employees can contribute funds on a post-tax basis, instead of - or in addition - to pre-tax contributions to their traditional 401(k) plans. Traditional IRA A traditional IRA is a retirement account that is typically setup through a bank or brokerage. Unlike the Roth IRA, the only criterion for being eligible to contribute to a Traditional IRA is sufficient income to make the contribution. The main advantage of a Traditional IRA is that contributions are often tax-deductible. Simple IRA A simple IRA is an employer provided, non-qualified retirement plan similar to better known plans such as the 401(k). However it features simpler rules and less costly administration. Like a 401(k) plan, the Simple IRA is funded by a pre-tax salary reduction. However, contribution limits for Simple IRA plans are lower than for most other types of employer-provided retirement plans. Social Security The United States Social Security plan is a social insurance program funded by payroll tax contributions. It was setup to provide assistance for retired Americans, but taxpayers are strongly encouraged to start their own retirement plans as living off of social security benefits has proved difficult for many. In 2004, the U.S. Social Security system paid out almost $500 billion in benefits, which makes it the largest government program in the world and the single greatest expense in the federal budget. 403(b) A 403(b) plan is a tax advantaged retirement plan available to public education organizations, many non-profit employers, and self-employed individuals. The plan is very similar to the popular 401(k) plan where payments are put into a 403(b) account before income tax is paid on it. The funds are then allowed to grow tax deferred until the money is taxed as income upon withdrawal. 457 Plan The 457 plan is another kind of tax advantaged defined contribution retirement plan. However it is only available to governmental and certain non-governmental employers in the United States. The employer provides the plan that allows the employee make payment on a pre-tax basis. The plan is similar to a 401(k) plan, except, unlike a 401(k) plan, there is no 10% penalty for withdrawal before the age of 59 ½. Thrift Savings Plan The Thrift Savings Plan, or TSP, is a retirement plan for civilians who have been employed by the United States Government or who have participated in uniformed services. It offers the same type of savings and tax benefits that many employers offer their employees under 401(k) and similar plans. Old Fashion Savings Putting money into an old fashion savings account may seem like a good way to plan for retirement. However, it is not. All of the other plans listed on this list provide some type of tax benefits, and usually higher interest rates then a standard bank account. Article Source: http://www.ArticleBlast.com |
About The Author:
The Tax Lady the IRS tax problems. Nearly two years ago she launched Roni Deutch: The Tax Lady Blog to discuss her views on taxes and the economy.
The Tax Lady the IRS tax problems. Nearly two years ago she launched Roni Deutch: The Tax Lady Blog to discuss her views on taxes and the economy.
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