Many employees choose to work in a certain company for career growth. However, survey shows that there is another factor that an employee takes into account when choosing the company that he will apply to -- benefits. Having an excellent career is a definite advantage but coupling it with the numerous benefits that one gets from the company is extremely rewarding. And as companies of today are realizing this fact, management is working hard to give superior benefits to the most important driving force of their business -- their employees.
Retirement Plans
One of these benefits is providing a retirement plan for their employees. The choice of the type of retirement plan to give to one's employees should be based on the flexibility and amount of control of the employer. Since there are various retirement plans that are offered today, getting a briefing on each type of plan will aid the employer in choosing the best one for his employees.
Here is a rundown of the most common retirement plans offered by employers to their employees.
Personal IRA's
IRA stands for individual retirement account. This is a personal savings plan that has tax incentives to individuals who are saving money for retirement purposes. This retirement fund works by having an employee set aside a portion of his salary which will serve as his contributions. These contributions are tax-free and earnings are accumulated until one withdraws from the account. With this retirement plan, there are conditions to be followed and one of which is to pay a penalty if the entire amount is withdrawn before 59.5 years old. There are five different types of IRAs: traditional, education, SEP (Simplified Employee Pension), simple and Roth IRA.
Types of IRA's
The traditional type allows an employee to save up to $ 2,000 every year and can be tax-deductible provided that he meets the necessary requirements. The simple plan is similar to the traditional type but is generally set aside by the employer. Contributions can also be composed of 100% of the employee's salary provided that it will not go above $6500 each year. The education plan allows saving up to $500 per year and is tax-free. Beneficiaries are the ones who get the full effect of this type of retirement fund. Simplified Employee Pension is when an employer sets aside 15% of an employee's compensation to fund the employee's retirement plan. Roth is another type of IRA where contributions are not tax-deductible. Only the earnings remain tax-free upon withdrawing the amount. A qualification for Roth is also limited to having an income of $95,000 for single employees and $150,000 for married couples.
401K - Offered by Employers
The 401(K) plan got its name from the section number and paragraph of the Internal Revenue Code stating the tax-deferred savings plan for employees. The government realized that more people will be encouraged to save for their future if they receive benefits for doing so. With this plan, the employer sets aside money that is earned by the employee and is then given to a third party that will invest it in several investment opportunities such as funds, bonds, etc.
Keogh - For the Self-Employed
Keogh plan is another type of retirement fund that is advantageous because it is a tax-deferred retirement plan. This plan is perfect for self-employed individuals looking for a higher contribution plan. The amount put in this type of plan is only subjected to taxes if withdrawn.
Many variations of the most common types of retirement funds have been mushrooming in the financial market today, even so, it is still worth looking at the most conventional ones to get a better idea of how retirement funds work.
If you do not have a retirement fund, it is recommended to open one. Our favorite brokerage firm is TradeKing