401 K’s
The 401 K is a type of retirement plan that allows employees
to save and invest for their own retirement. With the
401 K you can authorize your employer to deduct a certain
amount of money from your paycheck before taxes are calculated,
and to invest it in the 401 K plan. The money is invested
in various options offered through a company’s plan.
How does it work?
The money you contribute to your 401 K account is deducted
from your pay before income taxes are taken out. By
contributing to the 401 K you can lower the amount you
pay each pay period in current taxes. You don’t owe
income taxes on the money until you withdraw it from
the plan.
IRA’s (Individual Retirement Arrangements)
Roth
You can establish a Roth IRA if you’re eligible for
a regular contribution to a Roth IRA or a rollover (or
conversion) to a Roth IRA. You’re eligible to make a
regular contribution to a Roth IRA even if you participate
in a retirement plan maintained by your employer. These
contributions can be $4,000 for 2005 through 2006. And
an additional $500 if you turn 50 during that year.
The Roth IRA provides no deduction for contributions,
but instead provides a benefit that isn’t available
for any other form of retirement savings: if you meet
certain requirements, all earnings are tax-free when
you or your beneficiary withdraw them.
The Roth IRA is effectively bigger that a regular IRA
because it holds after-tax dollars. If you can take
advantage of this feature of the Roth IRA by maximizing
your contributions you’ll add greater tax leverage to
your retirement savings.
The distributions from the Roth IRA’s are tax-free
until you’ve withdrawn all your regular contributions.
After that you’ll withdraw your rollover (conversion)
contributions.
Traditional
Traditional IRA’s are taxable to SOME taxpayers. In
addition, the earnings in the traditional IRA accounts,
which are tax-deferred as long as they remain in the
account, are taxable when they are withdrawn.
SIMPLE (Savings Incentive Match Plan of Small
Employers)
An IRA-based plan that allows employees to elect to
defer a part of their salaries into the plan for retirement.
Because this is a simplified plan, the administrative
costs should be lower than for other, more complex plans.
Under a SIMPLE IRA plan, employees and employers make
contributions to Individual Retirement Arrangements
(IRA’s) set up for employees, subject to a certain percentage-of-pay
and dollar limits.
With a SIMPLE IRA plan, you:
-Make either a contribution matching your employees’
contributions dollar-for-dollar up to 3% of pay or a
2% nonelective contribution for each eligible employee.
-Cannot have any other retirement plan
-Need to complete just a form or two
