What Is a Retirement Plan?
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What Is a Retirement Plan?
When we talk about "retirement planning," we don’t mean daydreaming about all that leisure time. A retirement plan is an investment instrument that helps you accumulate money that can provide you an income in retirement. Most retirement plans are authorized by the Internal Revenue Code. For example, 401(k)s, Keogh plans, individual retirement accounts (IRAs), and other plans enable you, your employer, or both, to contribute to various investments for your retirement.
Things To Know
- Most retirement plans offer tax-deferred earnings.
What most retirement plans have in common
Although many types of plans exist—each with its own special features, advantages, and disadvantages—these plans share a number of common attributes. For instance, most retirement plans offer tax-deferred earnings. You do not pay taxes on the earnings until you withdraw funds from an account.
Many plans also enable you to contribute pre-tax dollars to these investments. This enables you to lower your current income for tax purposes and defer taxes until you withdraw funds when you retire and may be in a lower tax bracket.
Stay informed
Yet because of the variety of plans—and the variety of reasons for withdrawing money from them—people sometimes have questions about when, how, and how much they can take from their plans. It is important to get the answers to your questions—those answers can save you thousands in unnecessary taxes and fees.