• Personal retirement account that an employed person in the US can set up with a deposit that is tax deductible up to $2,000 per year. Such deposits qualify as a deduction against income earned in that year, and interest accumulates tax-deferred until the funds are withdrawn at age 59 and a half or later.
• People who are not covered by any pension plan at work may use an IRA to save for retirement. In a traditional IRA, the contributions are made from the person’s taxable income, and grow tax-free and it is taxed when the person withdraws it after he or she retires. Note that an IRA is not considered a “Pension Plan,” and the provisions of ERISA do not apply .
• Roth IRAs allows retirement savings to grow tax-free. You pay taxes on contributions, but not on withdrawals (subject to certain rules). To participate in a Roth IRA, taxpayers are subject to certain income limits.
• Education IRA helps you meet the rising cost of higher education. Annual contributions of up to $500 can be made on behalf of any child up to the age of 18. Allowable contributions are reduced for married couples with adjusted gross incomes between $150,000 and $160,000 and for singles with adjusted gross incomes between $95,000 and $110,000. Couples with incomes over $160,000 and singles with incomes over $110,000 may not contribute. Though an Education IRA is funded with after-tax dollars, all earnings can be withdrawn tax-free, along with the principal, provided they are used for qualified educational purposes.

SEP: A pension plan in which an employer contributes money to an individual retirement account (IRA) for each employee covered by the plan.

1. The IRA is owned by the employee, not the employer
2. Used for employers who cannot afford the time or money needed to administer and maintain a more complicated pension plan.
3. The employer directly funds, IRAs or annuities that are established by or on behalf of the employees.
4. The employee is vested immediately and pays no taxes on the employer’s contributions.
5. Earnings and contributions on funds in the plan are tax-deferred until withdrawn.
6. Designed for employers of 25 or fewer employees in which before tax dollars are contributed and earnings grow tax deferred.

An Annuity: is the payment of a regular income by a life company to an annuitant (individual receiving the annuity) in exchange for a lump sum either for life or shorter. Typically used for retirement pension. There are two classifications:

1. Compulsory Purchase annuity is bought from the proceeds of a pension fund and is taxable as earned income.
2. A purchased life annuity is bought with an individual’s capital and is taxed at a lower rate than a compulsory purchase annuity.

Considered the opposite of life insurance where a death benefit is paid, an annuity provides a benefit while the insured is alive.

Individual 401(k): retirement plan designed for self-employed individuals and owner-only business.

• Many benefits of traditional 401(k) but less administration required.
• Personal direction of how contributions are invested.
• Need to make contributions that are larger than what’s typically made
• Tax-deferred until withdrawn
• Also called Solo 401(k)
• Must have no additional employees other than the spouse of the proprietor or partnerships whose only employees are self-employed partners and their spouses.
• Allows you to put away more than the traditional methods

Simple IRA: A Savings Incentive Match Plan for Employees of small employers

• Retirement plan is simple to administer and offers contributions options that are flexible and substantial.
• Available to for-profit and not-for-profit employers having no more than 100 employees.
• For companies that don not have a 401(k) plan.
• Allow employees to set aside a percentage of their pre-tax wages into a special individual retirement account.
• Employers are required to contribute to the plan.
• All earnings and contributions grow tax-deferred until withdrawn.