A retirement plan is a financial arrangement designed to replace employment income upon retirement. These plans may be set up by employers, insurance companies, trade unions, the government, or other institutions. Congress has expressed a desire to encourage responsible retirement planning by granting favorable tax treatment to a wide variety of plans. Federal tax aspects of retirement plans in the United States are based on provisions of the Internal Revenue Code and the plans are regulated by the Department of Labor under the provisions of the Employee Retirement Income Security Act (ERISA).
Most often, retirement planning involves depositing money into a retirement account, and purposefully saving money for the future. There are many different types of retirement plans available, including an Individual Retirement Account (IRA) and a 401(k) plan. In most cases, employees are provided with a retirement plan by their employer and contributions to the plan are deducted from the employee’s paycheck. Some employers will match a certain percentage of an employee’s contributions, adding more money to their account. Most plans have different rules and guidelines, including details such as when the money can be withdrawn.
Each person’s situation is unique; therefore, retirement planning isn’t one standard plan for every person. Saving money for retirement through one or all of the available retirement planning options is the first place to start. Many employers have retirement planning options available to their employees. Some companies have pension plans, others have 401(k) plans and some have a combination of both. There are different types of pension and 401(k) plans, and you should check with your company’s human resource department for information specific to you.
Qualified retirement plans give employers a tax break for the contributions they make for their employees. Qualified plans that allow employees to defer a portion of their salaries into the plan also reduce employees’ present income-tax liability by reducing taxable income. Qualified retirement plans help employers attract and retain good employees.