Saving for Retirement Personal Finance Chapter 15.2

Personal Retirement Accounts Individual Retirement Account (IRA) – savings plan that allows individuals to set aside between $5,500 and $6,500 per year. Contributors benefit because they delay paying taxes until age 59 ½ or later.

Personal Retirement Accounts  Traditional IRA Deduct contributions from taxable income annually Pay taxes after retirement, contributions and earnings  Roth IRA Tax paid before it’s placed in the account Tax only on contribution, not money withdrawn  Education IRA Contributions not deductible Used for tuition, books, fees, and supplies

Personal Retirement Accounts  Keogh Plan – a tax-deferred retirement savings plan for self-employed individuals and their employees.  Simplified Employee Pension (SEP) Plans – small businesses establish employee pension plans  Annuity – an insurance company investment that provides a series of regular payments, usually after retirement.

Employer-Sponsored Retirement Plans  Defined-Benefit Plan, such as a pension - is a company-sponsored retirement plan in which employees receive, at normal retirement age, a specified monthly amount based on wages earned and number of years of service.  Defined-Contribution Plan – company- sponsored retirement plan in which employees may choose to contribute part of their salary as tax-deferred investment.

Employer-Sponsored Retirement Plans Types of Defined-Contribution Plans 401(k) plan Employers deduct an amount from an employee’s paycheck to put in individual accounts 403(b) plan Employees of government or not-for-profit businesses  Employers often make matching contributions to both types of plans

Government-Sponsored Pension Plans Social Security Benefits When you retire, you will be eligible for social security benefits if you paid security taxes Supplemental, not primary The longer you wait to receive benefits, the more money you will receive monthly Military Benefits Retired military personnel receive pensions after 20 years of active duty service The Veterans Administration (VA) provides pensions for survivors and disability pensions