Do you need to do it? It is important? Yes, it is important because it is your future. Let me tell you how you can do it in the best possible way. The first thing you need to check if you are covered by any retirement plan related to your employment is which is the retirement plan that your employer has offered you. Most retirement plans are authorized by the internal income code, such as Section 401 (K) or 403 (b). To date, there are many retirement plans available. You can choose the plan that suits your retirement planning requirements. Let’s analyze the most common plans.
401k Retirement Plans: The 401 (k) plan is an employer retirement plan under section 401 (k) of the Internal Revenue Code in the US, primarily by private sector companies.
A 401 (k) plan allows an employee to save for retirement while deferring income taxes on money and earnings saved until retirement. The employee can decide to have a portion of their salary paid directly into their 401 (k) account. In participant-led plans, the employee can choose from several investment options, usually a variety of mutual funds that emphasize stocks, bonds, and a combination of both. The 401 (k) plans of many companies also offer the option to buy shares of the company.
403 (b) Retirement Plans: The 403 (b) plan is a tax-advantaged retirement savings plan available to public education organizations, nonprofit employers, and self-employed ministers in the United States. The tax treatment in this plan is similar to the 401 (k) plan. In simple words, it can be said that an employee’s salary deferrals in a 403 (b) plan are made before income tax is paid and they are allowed to increase deferred taxes until the money is taxed as income when withdraws from the plan.
The Employee Savings Incentive Matching Plan (SIMPLE IRA) – This plan caters to companies with 100 or fewer than 100 employees and the good news is that it also includes the self-employed for self-employment retirement plans. The plan may be structured like a 401 (k) plan, but the downside is that the IRA contribution limit does not apply to this plan.
Simplified Employee Pension Plans (SEP-IRA) – This is for serving 25 or fewer employees. The plan may be structured like a 401 (k) plan, but the downside is that the IRA contribution limit does not apply to this plan. This is something we can say is small business retirement plans.
