What are the various types of retirement plans?

A retirement plan allows you to save up money in a fund that you can later use to provide for you after you retire from work.

The United States government provides tax incentives in a bid to encourage citizens to start saving for their retirement. In fact, the government has sponsored a retirement plan through the Social Security system. Aside from this, there are also various retirement plans to choose from - starting from plans you buy yourself, retirement plans that are sponsored by the government or plans that are sponsored by your employer.

Here are some types of retirement plans:

• Social Security Retirement. This is a government sponsored plan and provides the retiree with retirement benefits, this will be dependent on your income, contributions as well as rules and regulations that are applicable to your situation. You can only get Social Security benefits if you have earned enough credits in the system.
• 401 (k) plan. This retirement plan allows an employee to deposit tax-free dollars and allow it to grow. The money that will be taxed will be the money withdrawn from the fun by the employee. There can be instances where an employer will match all that the employee has saved into the fund, subject to certain limits (which are currently set at a maximum of 30,000 or 25% of the employee's salary). With this fund, the employee is able to lower his taxable income, as well as decide on how the fund is to be invested.
• Traditional IRA or Individual Retirement Account. This is a private account that is established by the individual. One can deposit up to a certain amount into his IRA for a year. Tax application will vary depending on whether the employee is covered by a company-sponsored retirement plan or profit sharing.
• Defined Benefit Pension Plan. This plan gives the future retiree a specified amount as to how much he will get in regular payments upon his retirement. This is usually a company-sponsored plan, where a fund manager is hired to invest the funds.
• Keogh Plan. This kind of plan is primarily for self-employed individuals. He can save up for the fund and he can decide where to invest the fund (whether in mutual funds, stocks or bonds).
• Other retirement plans that are available (depending on whether they are offered by your employer or are available in the market as private-funded plans) are annuities, profit sharing plans or 403(b) plans (for those working in non-profit organizations).

You can actually get more than one of these plans, depending on how much you can afford and how much is allowed to you.

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