A Guide to Individual Retirement Plans

An individual retirement plan is something everyone who is able should contribute to on their way to retirement.  These plans are defined by the US Government as an alternative way to save money for retirement at a reduced or non-taxable basis.  Unfortunately, most people fail to take full advantage of the various plans, instead relying solely on whatever corporate retirement plan their employer offers.  This short article will discuss the various features and benefits of the individual retirement plans offered by the US Government.

IRA (Individual Retirement Plan)

This is the basic plan offered to everyone whether they have a corporate plan and regardless of whether somebody else employs them.  This name actually applies to ANY of the following -- which in actuality are "TYPES" of IRA's.  

The unique aspect of a ROTH involves taxation.  Essentially, whereas a traditional IRA has tax-deductible contributions, the Roth has taxable contributions.  The key benefit is that upon retirement the distributions that come from a Roth IRA are not taxed.  This is a huge advantage for those who anticipate a much lower tax rate upon retirement.


The Salary Reduction Simplified Employee Pension Plan is the older version of the SEP designated below.  Specifically it applies to any SEP that was set up before the year 1997 that also includes a salary reduction agreement.  Essentially this plan allows employers to fund individual retirement accounts based on certain percentages and dollar limits set forth in the agreement.


The Simplified Employee Pension Plan is an easy way for small to medium size businesses to offer a retirement plan of some sort for themselves and their employees.  Essentially the plan defines an allowable contribution based on a percentage of salary not to exceed certain dollar limits, which is defined upon establishment.


The Savings Incentive Match Plan for Employees is the newest of the many retirement options for individuals and small businesses.  This plan is very close to the SEP and SARSEP in both application and theory.  The differences are based upon legislation changes that took place in tax regulations.  As with the SEP and the SARSEP, this plan allows the employee to make salary reduced contributions.  This plan has a matching component, which the employer contributes on behalf of the employee. 

Information is for educational and informational purposes only and is not be interpreted as financial or legal advice. This does not represent a recommendation to buy, sell, or hold any security. Please consult your financial advisor.