What is the primary purpose of tax-deferred retirement accounts?
Tax-deferred retirement accounts allow individuals to postpone taxes on earnings until retirement, potentially lowering their current tax bill.
What is a Roth IRA?
A Roth IRA is a retirement account where contributions are made with after-tax dollars, but qualified withdrawals in retirement are tax-free.
How does the tax treatment of traditional IRAs differ from Roth IRAs?
Traditional IRAs allow for tax-deferred growth, while Roth IRAs allow for tax-free withdrawals in retirement after making after-tax contributions.
What is the significance of Required Minimum Distributions (RMDs)?
RMDs are mandatory withdrawals from tax-deferred retirement accounts starting at age 72 to ensure that funds are used during retirement rather than accumulating indefinitely.
What are the tax advantages of investing in a Health Savings Account (HSA) for retirement?
HSAs allow for tax-free contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses, making them a powerful retirement savings tool.
What is a tax-sheltered annuity (TSA)?
A tax-sheltered annuity allows for tax-deferred growth of retirement savings, usually offered to employees of non-profit organizations.
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What is a 401(k) plan, and how does it work?
A 401(k) plan is an employer-sponsored retirement account where employees can make pre-tax contributions, and employers may offer matching contributions.
How does a traditional pension plan differ from a 401(k)?
A traditional pension plan provides guaranteed income in retirement, while a 401(k) is a defined contribution plan where the amount of retirement income depends on investment performance.
What is the primary purpose of a beneficiary designation for retirement accounts?
A beneficiary designation specifies who will inherit the account in the event of the account holder's death, ensuring that assets are passed on according to their wishes.