At one time, retirement accounts were straightforward. These days, there are many retirement account options, leading to confusion and questions. Let’s review some key differences between sponsored retirement accounts and non-sponsored retirement accounts.

Sponsored Retirement Plans
Sponsored retirement plans are offered and managed by companies and organizations as a benefit to employees. Sponsored retirement plans include:

• 401(k) plans
• 403(b) plans for employees of nonprofit organizations and public schools
• 457(b) plans or civil servants and public service workers

When an employee diverts some of their salary to a sponsored retirement plan, contributions are invested by the account owner through the choices made available in the plan. One benefit of many sponsored retirement plans is employer matching. Another benefit is that contributions from
your salary can reduce pre-tax income. Sponsored retirement plans do, however, come with contribution limits and early withdrawal penalties.

Non-Sponsored Retirement Plans
The most common non-sponsored accounts are:

• Traditional IRAs (pre-tax contributions, tax-deferred growth)
• Roth IRAs (after-tax contributions, tax-advantaged growth)

Non-sponsored retirement plans typically provide more investment options than those offered through employee-sponsored plans. You should also be aware that there are IRS-mandated contribution limits for both IRA types. Required minimum distributions (RMD) must be taken from Traditional IRA
accounts when an investor reaches 72 years.

Roth IRAs don’t have RMD requirements, however, with limited exceptions, withdrawals must be taken
after age 59 ½ and after a five-year holding period to avoid early withdrawal penalties.

As you begin planning for retirement, it’s good to know the options available to you. Choosing the right retirement plan is important when thinking about post-employment years. We will work together and find the best option to fit your retirement needs. Call the office today.

Source: Steve Lindquist – gbfinancial.org

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