Benefits of Using an Individual Retirement Account
Individual retirement accounts are savings tools that help one in earning money for retirement There are several types of this accounts which include , the traditional individual retirement accounts, Roth IRAs, SIM PLE IRAs and lastly SEP individual retirement accounts. Also referred to as individual retirement arrangements, there are a lot of financial products that come with individual retirement accounts.
Taking a look at each of the individual retirement account, the traditional accounts are established or set up by individual tax payers ,SEP and SIMPLE individual retirement accounts are set up by small business owners and individuals who are self-employed. Contributions or the funds deposited on traditional retirement accounts are income tax deductions.
when your Roth accounts grow, they are not subject to tax deductions and upon retirement one can afford to withdraw their funds without incurring withdrawal taxes. SEP (Simplified employee pensions) are the retirement accounts that are operated by individuals in self-employment such as small businesses, freelancers and those taking independent contracts. Employers who have a workforce might opt to set up accounts where they make contributions after deducting some money from employees’ salary, this is a SEP account. For SEP accounts that are receiving contributions from the employer, the employee do not get to make personal contributions to the same accounts. In case the employees make withdrawals from the account, they undergo tax withdrawals.
For simple retirement accounts, they serve the same category as that served by SEP but the difference here is that the employees here can ,make contributions to the accounts too from their own funds not necessarily the employer’s . The 401k is a different savings plan that is more common with employees who have retirement’s plans that are facilitated by their employers when it comes to saving. This is also a way of spreading the company stock to the employees. This account does not work with a formula where contributions can be made as much as one wishes and as much as one can but rather there are limitations.
The 401 k accounts have been described as having the equivalent of a treasure in waiting because these kinds of plan save enough to enable one to make huge financial step[s upon withdrawal of the substantial amounts, having retired and with time on your hands , one could purchase a business or make dream enterprise a reality . Financial freedom is also a necessity in the future when we are jobless and this calls for plans in our young working years.