1. Personal Retirement Savings & Investments
These include your contributions to:
401(k) Retirement Savings Plan
Employers in the United States offer their employees a 401(k) retirement savings plan. They present their workers with several investment options within the 401(k) accounts. Then, the employee selects and makes monthly contributions towards one of the investment accounts. In turn, the employer matches part or all of the employee's contribution, enabling the employee to save up to twice their contribution. If it is a traditional 401(k) plan, it reduces the employee's taxable income and only taxable on withdrawal. In contrast, salary deductions towards Roth 401(K) are on after-tax income, and their withdrawals are tax-free.
IRA Accounts
Individual Retirement Savings (IRA) accounts enable you to save for your retirement over a long period. They work like 401(k) retirement savings plans. Unlike the employer-sponsored 401(k), IRA accounts are self-sponsored, excluding any involvement from the employer. That way, the employee has more investment options. Still, there is no additional contribution/employer matching.
An employee can make a 401k rollover to IRA when changing jobs. The benefits are as follows:-
- You can diversify your investment options
- The rollover frees you from any communication with your old employer
- It can lower the administrative costs associated with maintaining the investment account
- You can opt for the Roth IRA account for tax-free withdrawals
- Take advantage of cash incentives by retirement planning services providers offering IRA accounts
Equity Savings & Taxable Brokerage Account
Equity savings and taxable brokerage accounts are ideal retirement plans for small business owners, freelancers, or independent contractors. They include investing in: -
- Stocks
- Tax-free bonds
- Immediate annuities
- Mutual funds
- Bank fixed deposits (FDs)
3. Pension Benefits
Like 401(k), corporations offer varying pension plans to their employees. Still, 401(k) is a defined-contribution plan, and pension is a defined-benefits plan. Here, a pension provides a pre-determined payment amount to the individual upon retirement. In turn, the employer bears the investment risks that arise due to any volatility in the financial markets. For this, most employers prefer 401(k) over pension plans.