Your Retirement Account

There are two types of retired people in the world. There are those who planned and saved and have the ability to enjoy retired life by traveling and living comfortably and then those who didn’t.

I don’t know about you but I want to be the former not the latter. So, what needs to be done to get there? You’ve seen the commercials and have heard the terms now it’s time to select your account. Like getting out of debt building a secure retirement takes vision and discipline.

Once you determine where you want to be financially and what you are willing to sacrifice to get there the next step is deciding which type account you want.

IRA - An IRA is a tax-advantaged retirement account into which an investor may contribute a portion of his/her earned income. The "I" stands for individual, which is important in that these programs are arrangements individual investors make for themselves - not through an employer- sponsored flexible spending account or a payroll-deduct retirement plan.

A Traditional IRA is available to those under age 70 ½ who have earned income. Traditional IRA earnings grow tax-deferred until withdrawal. Withdrawals are required beginning at age 70 ½ and are taxed. Contributions made to this IRA may be deductible, depending on certain factors.

A Roth IRA is a nondeductible IRA. Depending on certain income limits, taxpayers are able to save for retirement in such a way that allows the savings to grow tax- free. Taxes are paid on contributions, but qualified withdrawals are not taxed at all.

A 403(b) retirement plan, also known as a Tax-Sheltered Account (TSA), is designed exclusively for employees of non-profit institutions such as public schools, colleges, nonprofit hospitals, and other tax-exempt 501(c) organizations.

Employees make contributions into a 403b plan by making pre-tax payroll deductions. Depending on your 403b plan, you authorize pre-tax payroll deductions to be invested in a tax-sheltered annuity (TSA) contract or in a custodial account made up of mutual funds offered by your employer. Dividends and investment earnings grow tax deferred until they are withdrawn after age 59 1/2 at which time the withdrawals will be taxed as income. Withdrawals prior to age 59 1/2 usually incur an additional 10% penalty. However, most 403b plans allow investors to take out a loan.

There you have it. Don’t wait to long either before you start saving. Remember, the longer you save the more you will be able to enjoy your retirement.