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Understanding the different types of retirement accounts can be a challenge, especially if you are a student in high school. Fortunately, there are simple and effective means to understand how these accounts and what they can do for your financial future.
The main types of retirement accounts are the defined contribution plan (DC), defined benefit plan (DP) and the retirement savings plan individual (IRA). Each has its own advantages and disadvantages, so take the time to learn more about each so you can choose the one that best suits your financial situation.
The defined contribution plan is usually offered by an employer. You contribute a certain amount every month, or every year, depending on the rules of the plan. The employer may also contribute a portion of the amount paid by the employee. The benefits include the ability to invest without taxes until you begin to withdraw funds after retirement; however, the contributions are not insured because they are based on the performance of the stock market.
The defined benefit plan is similar to the DC except that the employer pays a fixed amount to employees each year while working and after retirement; however, the contributions are not insured because they are based on the performance of the stock market. The benefits include insurance against loss of capital due to fluctuations in equity markets as well as protection against future inflation with fixed payments made by the employer during your professional career and after retirement .
Finally, an IRA is a type of personal account that allows individuals to directly invest and prepare for retirement without going through an employer or a financial institution specific. The benefits often include fiscal incentives such as tax credits or tax-exempt in some cases; however, there is not always a lot of flexibility as to the amount invested or as to the options available for investment comparable to the plans offered by the companies where you work .
The main types of retirement accounts are the defined contribution plan (DC), defined benefit plan (DP) and the retirement savings plan individual (IRA). Each has its own advantages and disadvantages, so take the time to learn more about each so you can choose the one that best suits your financial situation.
The defined contribution plan is usually offered by an employer. You contribute a certain amount every month, or every year, depending on the rules of the plan. The employer may also contribute a portion of the amount paid by the employee. The benefits include the ability to invest without taxes until you begin to withdraw funds after retirement; however, the contributions are not insured because they are based on the performance of the stock market.
The defined benefit plan is similar to the DC except that the employer pays a fixed amount to employees each year while working and after retirement; however, the contributions are not insured because they are based on the performance of the stock market. The benefits include insurance against loss of capital due to fluctuations in equity markets as well as protection against future inflation with fixed payments made by the employer during your professional career and after retirement .
Finally, an IRA is a type of personal account that allows individuals to directly invest and prepare for retirement without going through an employer or a financial institution specific. The benefits often include fiscal incentives such as tax credits or tax-exempt in some cases; however, there is not always a lot of flexibility as to the amount invested or as to the options available for investment comparable to the plans offered by the companies where you work .
