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WHERE DO YOU WANT YOUR MONEY TO TAKE YOU TODAY?

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like SEPs. Then you have the traditional IRAs and the Roth IRAs. One of the best features of retirement accounts is their tax-deferred earnings status. As discussed in Chapter 10, by investing money in accounts such as IRAs and 401(k)s, all your earnings may grow on a tax- deferred basis. This makes these accounts very attractive for all tax- paying people, not just those in high tax brackets.

For the novice investor, all these accounts and their different fea- tures and advantages may be overwhelming, but by increasing your knowledge, you will be better able to choose which type of account is right for you. Plus, a financial advisor will be able to guide you through the seas of the various types of retirement accounts.

EMPLOYER-SPONSORED RETIREMENT PLANS

There are two types of employer-sponsored retirement plans: basic and supplemental. The basic plan calls for automatic employee par- ticipation after a certain term of employment, such as one year. The supplemental plan is a voluntary program that enables employees to increase the amount of money being set aside for their retirements. Although the supplemental plans are the most common, we also touch on basic plans, so that you are familiar with them as well.

Basic Plans Basic plans have participation requirements that employers institute to help keep their costs down. For the most part, employers have decreed that in order to be eligible for the retirement plans, you must meet at least age (such as 21) and years-of-service requirements. Often times, there is also an income-level requirement. This is because employers feel that there is a higher turnover ratio for those people who are newly hired and younger. To help keep their admin- istrative costs low, they’ve sought to disallow those categories of employees from participating. Of course, the belief is that once those newly hired, younger people are with the company longer, they are more apt to stay, and so they merit the retirement plan.

Employer pension plans are a type of basic plan. However, you may find that you are expected to contribute to your own pension plan. There are both noncontributory and contributory pension plans.

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