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RUNNING HEAD: Retirement Plans Executive Summary

Retirement Plans Executive Summary

Kathryn Schrader

University of Phoenix

Retirement Plans Executive Summary

Introduction

With baby boomers becoming retirement age, ever increasing health care costs, longer life expectancy, and today’s unstable economy, many Americans are researching alternative retirement plans. This paper will address retirement plan options, the importance of plan participation, and give examples of time value of money (TVM) rewards of early enrollment.

Retirement Plan Options

• 401(k)

A 401(k) is a defined contribution plan. According to Martocchio, 2005, 401(k) plans offer three distinct tax benefits, which include:

1) employees do not pay income tax on contributions until the employee withdraws the funds,

2) employee contributions to the plan are from taxable income, and

3) investment gains are not taxed until participants receive payments.

A 401(k) plan may be “rolled over” into another 401(k) plan if the participant leaves the employer at which the participant is contributing.

• 403(b) tax-deferred annuity (TDA)

Another type of defined contribution plan is the 403(b) tax-deferred annuity (TDA). Section 403(b) of the Internal Review Code is a type of retirement plan available to employees of public education institutions or private tax-exempt organizations. Congress enacted the 403(b) plan so that these types of organizations are able to provide a qualified retirement plan to employees. TDAs may be individual or group contracts and can be fixed dollar or variable (Martocchio, 2005, p. 111).

Employees may make contributions to tax-deferred annuities (TDA) through salary reduction agreements with the employer. Public organizations are prohibited from offering 401(k) plans. However, private tax-exempt organizations may offer both 401(k) and 403(b) plans (Martocchio,...