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Another employer sponsored retirement option is called a pension. Pensions
are expensive for companies to administer and are not as prevalent as they
once were. Essentially, a pension is a plan where only the employer
contributes on your behalf. Generally, these plans require that you worked
for a minimum number of years in order to receive the complete package.
For example, a postal worker may be required to work for twenty years. After
twenty years of service, the employee will receive 75% of their salary each
year until death.
Freelance Retirement Plans
Freelance plans are retirement plans available to any individual. A popular
plan is called a Roth IRA, where IRA stands for Individual Retirement Account.
Even if you have a 401k with a company, you can still open a Roth IRA. Unlike
a 401K you pay into your Roth IRA with after-tax dollars. You can begin
collecting this money beginning at age 59 and a half.
Another freelance plan is a deductible IRA. When you contribute to a
deductible IRA, you use after-tax dollars just like the Roth IRA. However, unlike
the Roth IRA, you can deduct your contribution from your taxes each year.
Additionally, your money is put away tax-deferred until you start to withdraw
it at which time you’ll pay income tax.
In between the company sponsored 401K and the traditional IRA is the simple
IRA. The simple IRA is great for those who are self-employed business owners
with a small number of employees because you can to choose how you
contribute to the plan at the beginning of each year.
Contributions made to a simple IRA are made with pre-tax dollars. This gives
you the tax advantage other IRAs do not. Once you begin withdrawing your
money, you pay income tax. Until then; however, your money grows in the
account, tax-deferred.
Section 18 – Planning For Your Future
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