Question 1

What are 401(k) and 403(b) Plans?

Accepted Answer

A 401(k) plan is a company-sponsored retirement account in which employees can contribute a percentage of their income. Employers often match a percentage of the contributions. There are two basic types of 401(k)s—traditional and Roth—which differ primarily in how they’re taxed. Employer contributions can be made to both traditional and Roth 401(k) plans.

A 403(b) plan, often known as a tax-sheltered annuity (TSA) plan, is a retirement plan specifically designed for eligible employees of public schools, tax-exempt organizations, and certain ministers.

Question 2

What is a 457 Plan?

Accepted Answer

A 457 plan is a tax-advantaged retirement savings plan for many state, local government, and some nonprofit organization employees. The 457(b) is the most common type. Like a 401k plan in the private sector, the 457(b) allows employees to save pre-tax earnings in an account, reducing their annual income taxes while postponing the taxes due until the money is withdrawn during retirement.

Question 3

What is the difference between a traditional IRA and a Roth IRA?

Accepted Answer

A traditional IRA and a Roth IRA are both tax-advantaged options for retirement savings; however, they vary in terms of how taxes are applied to your contributions and earnings:

Traditional IRA
Contributions are made with pre-tax dollars, which reduces your taxable income for the year you contribute. You pay taxes on the contributions and earnings when you withdraw the money.

Roth IRA
Contributions are made with after-tax dollars, so there's no immediate tax break. When you retire and start withdrawing from your account, the money you paid in and the money earned is tax-free.

Question 4

Why is an annuity considered a beneficial retirement option?

Accepted Answer

Annuities are investment products offered by insurance companies that can assist in establishing a guaranteed income stream or a retirement savings fund. They effectively enable individuals to create a personalized pension fund or Individual Retirement Account (IRA). Annuities are available in various forms, allowing investors to pursue a range of retirement objectives.

Question 5

What is a Profit-Sharing Plan?

Accepted Answer

A profit-sharing plan is a retirement strategy that distributes a portion of the company's profits to employees, determined by its quarterly or annual earnings.

Question 6

What is a Pension Plan?

Accepted Answer

A pension plan is an employee benefit in which the employer commits to making regular contributions to a designated fund, ensuring that payments are available for eligible employees upon their retirement.

Question 7

What is the difference between a SEP & Simple IRA?

Accepted Answer

A Simplified Employee Pension (SEP) is an Individual Retirement Account (IRA) that can be established by an employer or a self-employed individual. Small businesses and self-employed individuals can utilize SEP IRAs to address their retirement savings requirements. The contribution limits for SEP IRAs are set annually and are often higher than those for standard IRAs and 401(k) plans.

A Simple IRA is designed to be opened by a small business owner on behalf of up to 100 employees, including the owner if that person is a sole proprietor. Simple IRA contributions can be from both an employee and an employer.

Question 8

What is a Deferred Compensation Plan?

Accepted Answer

Deferred compensation refers to a plan in which an employee chooses to postpone receiving a portion of their compensation until a designated future date. This option is often selected by highly compensated executives.