Along with saving taxes, a retirement plan also secures your future. You can save more in taxes by choosing the right kind of retirement plans according to your financial situation. Before you select one, it’s important to know the various types of retirement plans available:
1. Individual Retirement Arrangements (IRAs)
2. Roth IRAs
3. 401(k) Plans
4. 403(b) Plans
5. SIMPLE IRA Plans (Savings Incentive Match Plans for Employees)
6. SEP Plans (Simplified Employee Pension)
7. SARSEP Plans (Salary Reduction Simplified Employee Pension)
8. Payroll Deduction IRAs
9. Profit-Sharing Plans
10. Defined Benefit Plans
11. Money Purchase Plans
12. Employee Stock Ownership Plans (ESOPs)
13. 457 Plans
14. 409A Nonqualified Deferred Compensation Plans
Contributions to retirement plans are usually tax deductible. You can claim a deduction on your individual federal income tax return for the amount you contributed to your IRA. Roth IRA deductions, however, are not deductible. With the exception of a Roth, contributions and investment gains are not taxed until they are distributed.
Businesses offering retirement plans to their employees can help them save taxes and reduce turnover by making this perk attractive to workers.
The sooner you start making contributions to your plan(s), the more you will have when you retire. Before setting up a retirement plan, consult a tax professional or a financial institution that can provide further insight.