PERSONAL FINANCE Chapter 3

Wealth Building  Baby step 4  Tax-favored

Pretax Retirement Plans  IRA  401K  403B

IRA  You must have an earned income to be eligible.  Max of $5,000 a year

401K  It is self-funded and contributions are often matched by the company  Has replaced the old pension plan.

403B  Is found in non-profit organizations such as churches, hospitals and schools.  It is like a 401K, except there usually no matching of contributions.

After Tax Retirement Plans  Roth IRA  Grows tax free  Good if you will be in a high tax bracket at retirement  No taxes when you cash it out  You must qualify to use a Roth IRA

 Why would we want the option of a pretax and after-tax retirement plan?