Type of Retirement Accounts

A retirement account allows you to save money for retirement in a tax-advantaged way through either a tax-free growth or on a tax-deferred basis. To have a comfortable retirement, according to top leading financial experts, you will need to supplement at least 80% of your pre-retirement income. Social security benefits along with an employer-sponsored savings plan, such as a 401(k), might not be enough to accumulate the savings you need. Fortunately, you can contribute to both a 401(k) and an IRA.

Traditional IRA:

A traditional IRA is a type of retirement accounts that lets you invest pre-tax dollars and allows your earnings grow tax-deferred. While your contributions are qualified for tax deductions, you will pay taxes on your investment gains only when you make withdrawals in retirement.

Roth IRA:

A Roth IRA is a type of retirement accounts that you fund with after-tax dollars and is a great tax-efficient way to save your retirement. While your contributions are not tax deductibles, your future withdrawals are tax-free.

401(k):

A 401(k) is a retirement savings plan sponsored by an employer. It allows workers to save and invest a portion of their paycheck before taxes are taken out. Some employers have matching contributions with the most popular being 3%. Similar to a traditional IRA, taxes aren’t paid until the money is withdrawn from the account.

SEP IRA:

A Simplified Employee Pension (SEP) IRA is a type of traditional IRA for self-employed individuals or small business owners.

Simple IRA:

A SIMPLE IRA, or Savings Incentive Match Plan for Employees, is a type of traditional IRA for small businesses and self-employed individuals. As with most traditional IRAs, your contributions are tax-deductible, and your investments grow tax-deferred until you are ready to make withdrawals in retirement.

TSP (Thrift Savings Plan):

A TSP serves as a defined-contribution plan designed to give federal employees some of the same retirement-savings benefits offered to workers in the private sector. TSP can either be tax-deferred (traditional) or tax-exempt (Roth).

403(B):

A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for A 403(b) plan is provided by certain employees of public schools, employees of a number of tax-exempt organizations, and certain ministers. This is a pre-tax retirement account that is administered by state or local government sponsored.

457 (B):

The 457 plan is a type of nonqualified, tax-advantaged deferred-compensation retirement plan that is available for governmental and certain non-governmental employers in the United States. The employer provides the plan, and the employee defers compensation into it on a pre-tax (traditional) or after-tax (Roth) basis.

Pension Plan:

A pension plan is a form of Defined Benefit (DB) retirement plan.  These pensions provide a set level of income in retirement. The taxable part of pension payments is generally subject to federal income tax withholding.

Rollover IRA

A rollover IRA is a type of traditional IRA. It’s most often used by people who change jobs or retire and need to move their 401(k), which is attached to their employment, into a new financial vehicle. You generally can’t keep your investment in an employer-sponsored 401(k) when you no longer work for the employer (though there may be a specific grace period associated with each type of account or employer plan).

Simply withdrawing all the funds from a 401(k) is an option, but that can lead to hefty tax penalties. You’ll pay at least a 10 percent penalty for early withdrawal if you are below 59 1/2.

You can move your 401(k) value into a traditional IRA without tax consequences. This is because a traditional IRA is funded with pretax dollars just like a 401(k) is. You lose some of these tax benefits if you choose to roll any of your retirement funds into a Roth IRA, which is not funded by pre-tax dollars. At that time, you would have to pay taxes on those funds. Before determining how to complete a rollover IRA, speak with a Senior Portfolio Manager at Allegiance Gold to determine the best ways of putting your 401(k) funds into a precious metal IRA.

Traditional vs. Roth IRA

One of the biggest differentiators between traditional IRAs and Roth IRAs is that you fund traditional IRAs before taxes and Roth IRAs after taxes. That means traditional IRAs offer some tax incentives at the time you are saving. Earnings on your traditional IRAs may also be taxed, whereas Roth IRA earnings and withdrawals usually aren’t taxes.

The following table highlights the similarities and differences between the traditional and Roth IRAs.

 

Features Traditional IRA Roth IRA
Who can contribute? You can contribute if you or your spouse are filing jointly and have taxable compensation but not after you are age 70½ or older. You can contribute at any age if you or your spouse are filing jointly, have taxable compensation and your modified adjusted gross income is below certain limits.
Are my contributions deductible? Yes, you can deduct your contributions. No, your contributions are not deductible.
How much can I contribute? The most you can contribute to all of your traditional and Roth IRAs is: $5,500 (for 2015 – 2018), or $6,500 if you’re age 50 or older by the end of the year
What is the deadline to make contributions? Your tax return filing deadline (not including extensions). For example, you can make 2018 IRA contributions until April 17, 2019.
When can I withdraw money? You can withdraw money anytime.
Do I have to take required minimum distributions (RMD)? Yes, you must start taking your RMD by April 1 following the year in which you turn 70½ and by December 31 of later years. Not required if you are the original owner.
Are my withdrawals and distributions taxable? Any deductible contributions and earnings you withdraw or that are distributed from your traditional IRA are taxable. None, if it’s a qualified distribution. Otherwise, part of the distribution or withdrawal may be taxable.
If I take distributions before I turn 59 ½, will there be an additional tax? Yes, you may have to pay an additional 10% tax for early withdrawals unless you qualify for an exception. Yes, you may have to pay an additional 10% tax for early withdrawals unless you qualify for an exception.

IRA versus 401(k)

The 401(k) started in 1978 when Congress passed the Revenue Act of 1978. This act included a provision that allows employees to avoid being taxed on a portion of income that they decide to receive as deferred compensation, rather than direct pay. The idea was that workers would make voluntary contributions and employers would match it up a portion of it; taxes would be deferred until the employee reached age of 59 1/2. It was supposed to supplement the two traditional income streams for retirees of social security and pensions. One leg, of the three-legged stool, that would support American workers into their golden years.  401(k) plans have become the primary source of income of retirees of more than 60 million American.

Both IRAs and 401(k)s are extremely common retirement savings vehicles, but they are used for different purposes. A 401(k) is a qualified employer-sponsored savings plan for retirement. That means that you can fund it as long as you work for the employer sponsoring it; often, the employer will match a certain percentage of the funds, which can help you grow a retirement savings even faster. You fund a 401(k) with pretax dollars, usually taken right from your check before you receive your payment. That makes it easy to save because you don’t really miss the money.

A traditional IRA is another pretax method for investing for retirement, but it’s not linked to an employer. Most people can invest in a traditional IRA with pre-tax dollars, making it a great option for the self-employed. You can also roll your 401(k) savings into a traditional IRA without tax consequences if you leave your current job or retire and need to move funds from the employer-sponsored 401(k).

Both of these options are solid retirement savings plans, but you can’t always hold physical assets like gold in a 401(k). If you are looking to diversify your portfolio with precious metals, contact Allegiance Gold to find out more about Gold IRAs

Type of Retirement Accounts

A retirement account allows you to save money for retirement in a tax-advantaged way through either a tax-free growth or on a tax-deferred basis. To have a comfortable retirement, according to top leading financial experts, you will need to supplement at least 80% of your pre-retirement income. Social security benefits along with an employer-sponsored savings plan, such as a 401(k), might not be enough to accumulate the savings you need. Fortunately, you can contribute to both a 401(k) and an IRA.

Traditional IRA:

A traditional IRA is a type of retirement accounts that lets you invest pre-tax dollars and allows your earnings grow tax-deferred. While your contributions are qualified for tax deductions, you will pay taxes on your investment gains only when you make withdrawals in retirement.

Roth IRA:

A Roth IRA is a type of retirement accounts that you fund with after-tax dollars and is a great tax-efficient way to save your retirement. While your contributions are not tax deductibles, your future withdrawals are tax-free.

401(k):

A 401(k) is a retirement savings plan sponsored by an employer. It allows workers to save and invest a portion of their paycheck before taxes are taken out. Some employers have matching contributions with the most popular being 3%. Similar to a traditional IRA, taxes aren’t paid until the money is withdrawn from the account.

SEP IRA:

A Simplified Employee Pension (SEP) IRA is a type of traditional IRA for self-employed individuals or small business owners.

Simple IRA:

A SIMPLE IRA, or Savings Incentive Match Plan for Employees, is a type of traditional IRA for small businesses and self-employed individuals. As with most traditional IRAs, your contributions are tax-deductible, and your investments grow tax-deferred until you are ready to make withdrawals in retirement.

TSP (Thrift Savings Plan):

A TSP serves as a defined-contribution plan designed to give federal employees some of the same retirement-savings benefits offered to workers in the private sector. TSP can either be tax-deferred (traditional) or tax-exempt (Roth).

403(B):

A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for A 403(b) plan is provided by certain employees of public schools, employees of a number of tax-exempt organizations, and certain ministers. This is a pre-tax retirement account that is administered by state or local government sponsored.

457 (B):

The 457 plan is a type of nonqualified, tax-advantaged deferred-compensation retirement plan that is available for governmental and certain non-governmental employers in the United States. The employer provides the plan, and the employee defers compensation into it on a pre-tax (traditional) or after-tax (Roth) basis.

Pension Plan:

A pension plan is a form of Defined Benefit (DB) retirement plan.  These pensions provide a set level of income in retirement. The taxable part of pension payments is generally subject to federal income tax withholding.

Rollover IRA

A rollover IRA is a type of traditional IRA. It’s most often used by people who change jobs or retire and need to move their 401(k), which is attached to their employment, into a new financial vehicle. You generally can’t keep your investment in an employer-sponsored 401(k) when you no longer work for the employer (though there may be a specific grace period associated with each type of account or employer plan).

Simply withdrawing all the funds from a 401(k) is an option, but that can lead to hefty tax penalties. You’ll pay at least a 10 percent penalty for early withdrawal if you are below 59 1/2.

You can move your 401(k) value into a traditional IRA without tax consequences. This is because a traditional IRA is funded with pretax dollars just like a 401(k) is. You lose some of these tax benefits if you choose to roll any of your retirement funds into a Roth IRA, which is not funded by pre-tax dollars. At that time, you would have to pay taxes on those funds. Before determining how to complete a rollover IRA, speak with a Senior Portfolio Manager at Allegiance Gold to determine the best ways of putting your 401(k) funds into a precious metal IRA.

Traditional vs. Roth IRA

One of the biggest differentiators between traditional IRAs and Roth IRAs is that you fund traditional IRAs before taxes and Roth IRAs after taxes. That means traditional IRAs offer some tax incentives at the time you are saving. Earnings on your traditional IRAs may also be taxed, whereas Roth IRA earnings and withdrawals usually aren’t taxes.

The following table highlights the similarities and differences between the traditional and Roth IRAs.

 

Features Traditional IRA Roth IRA
Who can contribute? You can contribute if you or your spouse are filing jointly and have taxable compensation but not after you are age 70½ or older. You can contribute at any age if you or your spouse are filing jointly, have taxable compensation and your modified adjusted gross income is below certain limits.
Are my contributions deductible? Yes, you can deduct your contributions. No, your contributions are not deductible.
How much can I contribute? The most you can contribute to all of your traditional and Roth IRAs is: $5,500 (for 2015 – 2018), or $6,500 if you’re age 50 or older by the end of the year
What is the deadline to make contributions? Your tax return filing deadline (not including extensions). For example, you can make 2018 IRA contributions until April 17, 2019.
When can I withdraw money? You can withdraw money anytime.
Do I have to take required minimum distributions (RMD)? Yes, you must start taking your RMD by April 1 following the year in which you turn 70½ and by December 31 of later years. Not required if you are the original owner.
Are my withdrawals and distributions taxable? Any deductible contributions and earnings you withdraw or that are distributed from your traditional IRA are taxable. None, if it’s a qualified distribution. Otherwise, part of the distribution or withdrawal may be taxable.
If I take distributions before I turn 59 ½, will there be an additional tax? Yes, you may have to pay an additional 10% tax for early withdrawals unless you qualify for an exception. Yes, you may have to pay an additional 10% tax for early withdrawals unless you qualify for an exception.

IRA versus 401(k)

The 401(k) started in 1978 when Congress passed the Revenue Act of 1978. This act included a provision that allows employees to avoid being taxed on a portion of income that they decide to receive as deferred compensation, rather than direct pay. The idea was that workers would make voluntary contributions and employers would match it up a portion of it; taxes would be deferred until the employee reached age of 59 1/2. It was supposed to supplement the two traditional income streams for retirees of social security and pensions. One leg, of the three-legged stool, that would support American workers into their golden years.  401(k) plans have become the primary source of income of retirees of more than 60 million American.

Both IRAs and 401(k)s are extremely common retirement savings vehicles, but they are used for different purposes. A 401(k) is a qualified employer-sponsored savings plan for retirement. That means that you can fund it as long as you work for the employer sponsoring it; often, the employer will match a certain percentage of the funds, which can help you grow a retirement savings even faster. You fund a 401(k) with pretax dollars, usually taken right from your check before you receive your payment. That makes it easy to save because you don’t really miss the money.

A traditional IRA is another pretax method for investing for retirement, but it’s not linked to an employer. Most people can invest in a traditional IRA with pre-tax dollars, making it a great option for the self-employed. You can also roll your 401(k) savings into a traditional IRA without tax consequences if you leave your current job or retire and need to move funds from the employer-sponsored 401(k).

Both of these options are solid retirement savings plans, but you can’t always hold physical assets like gold in a 401(k). If you are looking to diversify your portfolio with precious metals, contact Allegiance Gold to find out more about Gold IRAs