Retirement Income Retirement Income Fund

Preparing Now For The Future: Retirement Income Fund

Retirement dreams of golfing everyday, traveling or just not having to answer to a boss are future dreams that many hard-working individuals aspire to. However, money is still an essential part of everyday life and is needed in order to eat, pay bills and to enjoy one's retirement plans.

Therefore, it is important to have a financial plan so that adequate financial resources are available. That plan should include pensions from a company, supplemental retirement income, pensions from the government and retirement income funds.

Specifically, there are a number of options that an individual can pursue when it comes to starting various retirement income funds. Three of those specific ways include a traditional IRA, Roth IRA and 401(k).

Traditional lRA

One of the early tax shelters that are available to individuals is a traditional IRA. IRA means individual retirement account.

Specifically, what an individual can do is contribute a certain amount of their income over the tax year and up to the deadline date for filing taxes. In addition, this amount of money, up to a certain limit, can be deducted on a taxpayer s tax return. Therefore, this amount of money is not subject to income tax. Additionally, as the taxpayer grows older, the limits for the contributions to an IRA increase in amounts that can be deducted.

Subsequently, when the taxpayer reaches a certain age, they are required by law to draw a certain percentage of this retirement income fund. This amount of money drawn out on a yearly basis is subject to income tax.

Roth IRA

Eventually the traditional IRA spawned a Roth IRA. The difference between a traditional IRA and the Roth IRA is that with the Roth IRA, the taxes on the amount contributed were paid prior to being put in to the this retirement income fund.

This then meant that when the individual is required by law to take out a certain percentage from their retirement income fund, when they reached that particular age, they do not have to pay taxes on that yearly amount.

401 K

One additional and a powerful way of building up a retirement income fund are through the use of a 401 K. A 401 K is a benefit that is offered by the employees company.

This particular retirement income account requires that the employee contribute a certain percentage of their wage into the 401 K. Once this commitment has been made then the employer contributes the same percentage or matches what the employee has placed into their retirement income fund.

The only limitations on this particular retirement income fund are that the employer will generally cap their match up to a certain percentage. However, this does not limit the employee from contributing more, although there is a limit, to their 401 K and still receive the tax advantages associated with this retirement fund.