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Definition of Retirement Accounts

HELPFUL DEFINITION OF SOME VARIOUS TYPES OF RETIREMENT ACCOUNTS

  • IRA:

    An account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis. The three main types of IRAs are:

    • Traditional IRA:

      You make contributions with money you may be able to deduct on your tax return, and any earnings can potentially grow tax-deferred until you withdraw them in retirement. Many retirees also find themselves in a lower tax bracket than they were in pre-retirement, so the tax-deferral means the money may be taxed at a lower rate.

    • Roth IRA:

      You make contributions with money you’ve already paid taxes on (after-tax), and your money may potentially grow tax-free, with tax-free withdrawals in retirement, provided that certain conditions are met.

    • Rollover IRA:

      A Traditional IRA intended for money “rolled over” from a qualified retirement plan such as a current or past employer-sponsored plan; example: 401(k) or 403(b).

  • SEP IRA:

    A retirement plan established by employers, including self-employed individuals. The SEP is an IRA-based plan to which employers may make tax-deductible contributions on behalf of eligible employees, including the business owner.

  • SIMPLE IRA:

    Is a savings incentive match plan for employees that may be established by employers, including self-employed individuals. Contributions to the SIMPLE IRA are not taxed, but distributions from the SIMPLE IRA are.

  • BENEFICIARY IRA / INHERITED IRA:

    An individual retirement account that is left to a beneficiary after the owner’s death.

  • A 401(k):

    plan is a qualified employer-established plan to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pretax basis. Employers offering a 401(k) plan may make matching or non-elective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings in a 401(k) plan accrue on a tax-deferred basis

  • 403(b):

    A retirement plan for certain public school employees, employees of tax-exempt organizations and ministers. Individual 403(b) accounts are established and maintained by eligible employees.

  • 457(b):

    457(b) plans are IRS-sanctioned, tax-advantaged employee retirement plans offered by state and local public employers and some nonprofit employers.

  • DEFERRED COMPENSATION PLAN:

    A portion of an employee’s compensation that is set aside to be paid at a later date. In most cases, taxes on this income are deferred until it is paid out. Forms of deferred compensation include retirement plans, pension plans, and stock-option plans.

  • PENSION PLAN:

    A pension plan is a retirement plan that requires an employer to make contributions into a pool of funds set aside for a worker’s future benefit. The pool of funds is invested on the employee’s behalf.

  • TSP / THRIFT SAVING PLAN:

    The Federal Employees’ Retirement Security Act of 1986 established the Thrift Savings Plan, or TSP. It is a qualified retirement plan made available to current and retired federal government and agency employees. The Thrift Savings Plan is a defined contribution plan that is quite similar to a 401(k) plan seen at companies in the private sector. As with other qualified retirement plans, employees contribute money to the account through payroll deductions, and the employer makes matching contributions up to a certain limit as defined by the plan. Contributions are tax-deferred until retirement as are earnings within the account.

  • TIAA-CREF:

    A retirement plan for those working in education, medicine, culture and research.

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