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Difference Between Retirement Plans

It is important to make good choicesas long as the money is not being
when it comes to saving for yourwithdrawn.)
retirement. Having a Financial PlannerThere are technically five (5) types of
or Accountant review your currentIRA's: Traditional IRA, Educational IRA,
portfolio and your goals for the futureSEP IRA (simplified employee pension),
is the first thing you should do; asSimple IRA and Roth IRA.
they can help you determine investmentA Traditional IRA grows tax-deferred,
vehicles that align with your riskmeaning you do not pay taxes on any of
tolerance and savings objectives.the money growing within your account.
But where do you start? Which retirementBecause you are funding your IRA with
plans should you focus on? What are themoney that has already been taxed, you
differences between the variouswill only pay taxes on your investment
retirement plans out there?gains as you take withdrawals. Some, who
Many Advisors would agree; that if thequalify, may even be able to deduct
company you work for offers a 401(k)their IRA contributions.
plan, a pension plan or a 403(b), youA ROTH IRA is different from a
should take advantage of the opportunityTraditional IRA in that your
to enroll. Typically, employers makecontributions grow tax-free. Meaning,
monetary contributions towards theseyou do not have to pay tax on your
plans and the internal fees associatedinvestment gains even when taking them
with these types of accounts are usuallyin the form of withdrawals. Your
lower than with individual retirementcontributions are also not deductible.
plans. Because of these features, overIf you choose a ROTH IRA, you must first
time, it benefits you two-fold to putopen a traditional IRA, and then roll
your money into them.those monies into the ROTH account.
Though investing in anCollege professors and teachers have a
employer-sponsored plan has itsspecial retirement plan or pension
advantages, it has some disadvantages ascalled a 403(b). This plan is not tied
well. The investment options you haveto their specific employer and can move
are usually very limited. And more oftenwith them as they transfer from school
than not, you are required to name ato school. If you're vested (meaning you
spouse or child as your beneficiary.have the right to keep all the money in
This being said, it is still anthe account) and change schools or even
excellent way to save and acquire forcareers, the amount in your 403(b) plan
retirement, it just shouldn't be yourcontinues to grow tax-deferred.
only investment vehicle.If your retirement plan/pension includes
With the current trends of changingstock options (ability to purchase
careers every 5 to 10 years, many of usshares of company stock), or if your
will need to roll our 401(k)'s longemployer gives shares of stock to your
before we actually plan to retire.plan, you can keep them as the shares
Transferring or "rolling" yourwill be in your name. You can also sell
employer-sponsored retirement plan to athe shares of stock for the going market
self-managed IRA may be the best optionrate. You have two choices should you
for you. Keep in mind that somedecide to keep your shares of stock: you
companies will automatically cash outcan continue to use your former employer
your retirement plan if the balance isas your housing agent, or you can roll
under a certain amount. If this happens,the stocks into an IRA that you have
they will be required to hold back 20%opened with a brokerage firm.
for taxes, and you may get hit with aThere are many choices and options for
10% penalty for withdrawing the cashyour retirement investing. In addition
before 59 ½ years old. Thoughto the research and articles you will
generally, your former employer wouldread on your own, it is still always
simply perform a direct transfer (calledprudent to sit with a Financial Planner
trustee-to-trustee exchange) to youror Accountant to thoroughly review and
IRA, incurring no penalties or taxassess your current financial situation,
ramifications.to determine where you are now, and how
A major benefit to IRA's (individualto achieve your financial goals in the
retirement account) is the tax break.future.
Contributions to an IRA reduce the*** This article is intended for
income you need to pay taxes on at theinformational purposes only, and should
end of the year. At the same time younot replace discussing your individual
receive this tax break, your money isneeds with your local Insurance Agent or
also growing tax-deferred. (Meaning youFinancial Representative.
do not have to pay taxes on the growth



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