There are different types of pension plans in USA. I would suggest you to go for qualified pension plans as they provide very good tax exemption.
Let’s take a look at different types of retirement plans that are available. Let’s take a quick look at them below:
- Government sponsored plans
There are so many government-sponsored retirement plans. The social security plan is the most significant one among them.
- Personal plans
There are so many personal plans. However, the Individual Retirement Agreement (IRA) is the most popular one. There are various types of IRA plans. Different plans have different tax plans.
We are talking about contracts here. These contracts are involving insurance company. As far as annuities are concerned, there are variable as well as fixed annuities.
- Employer-sponsored pension plans
Employer-sponsored pension plans are equally popular too. Let’s take a closer look at it below. First and foremost, there are 2 types of such plans. The first one is referred to as non-qualified and the second one as qualified.
Qualified pension plans
Let’s have a closer look at the qualified pension plans below. Qualified pension plans have to meet the requirements of Internal Revenue Code. They also have to comply with the rules of ERISA requirements. Therefore, such plans come with many benefits for the pension seeker. What are those benefits you were talking about? Well, first and foremost, they allow employers to deduct the annual contributions for each employee. Such earnings and contributions will be protected from tax. The best thing about qualified pension plans is that you will get lots of tax deduction, which other plan may not be able to give. If you want to Learn More about US Pension Plans, then you should click here.
There are different types of qualified plans and let’s take a closer look at them below.
Defined benefit plans
Let’s first examine defined benefit plans. We are talking about company retirement plans here. When you retire, you will get a specific amount depending on your salary history. Your years of service also will be taken into consideration. Here both the employee and employer will make an equal contribution into the pension plan. As you can see, the employer has to bear the investment risk here. Who benefits the most with such a plan? Those who have 20 years or more until their retirement will find this plan very helpful. The most important thing here is that it involves larger annual contributions.
Let’s examine pensions next. According to the pension plan, you will be given a certain amount when you retire. This amount is guaranteed. How do they calculate the amount? They consider several factors for the calculation. The salary of the employee is going to be a big factor. The number of years you have been in service also will be taken into consideration. Last but not least, they will consider fixed percentage rate as well here. PBGC is the government agency that will ensure that you will get your pension. They make sure that employer-covered pension plans benefit the employee. The good thing is that they will ensure that you get the pension amount even when the company faces financial troubles. As far as eligibility is concerned, company policy will be the main concern. You will have to check with the company to learn more about this.