Skip to main content
Tag

Retirement Savings

Retirement Savings

retirement savings

A retirement savings account is a type of retirement plan account that is envisioned to replace all three different types of individual retirement accounts that are currently used in the United States: traditional IRA, Roth IRA and Simple IRA.[1] Contributions would be made on an after-tax basis.[2] This is a major part of what the George W. Bush Administration’s called the ownership society.

There are several types of Retirement Savings:

  • Traditional IRA – contributions are often tax-deductible (often simplified as “money is deposited before tax” or “contributions are made with pre-tax assets”), all transactions and earnings within the IRA have no tax impact, and withdrawals at retirement are taxed as income (except for those portions of the withdrawal corresponding to contributions that were not deducted). Depending upon the nature of the contribution, a traditional IRA may be a “deductible IRA” or a “non-deductible IRA”. Traditional IRAs were introduced with the Employee Retirement Income Security Act of 1974 (ERISA) and made popular with the Economic Recovery Tax Act of 1981.
  • Roth IRA – contributions are made with after-tax assets, all transactions within the IRA have no tax impact, and withdrawals are usually tax-free. Named for Senator William V. Roth, Jr., the Roth IRA was introduced as part of the Taxpayer Relief Act of 1997.
  • SEP IRA – a provision that allows an employer (typically a small business or self-employed individual) to make retirement plan or Retirement savings contributions into a Traditional IRA established in the employee’s name, instead of to a pension fund in the company’s name.
  • SIMPLE IRA – a Savings Incentive Match Plan for Employees or Retirement savings that requires employer matching contributions to the plan whenever an employee makes a contribution. The plan is similar to a 401(k) plan, but with lower contribution limits and simpler (and thus less costly) administration. Although it is termed an IRA, it is treated separately.
  • Rollover IRA – no real difference in tax treatment from a traditional IRA, but the funds come from a qualified plan or 403(b) account and are “rolled over” into the rollover IRA instead of contributed as cash. No other assets are commingled with these rollover amounts.
  • Conduit IRA – Tool to transfer qualified investments from one account to another. In order to retain certain special tax treatments, funds may not be commingled with other types of assets, including other IRAs.