4 Most Common Retirement Plans Explained

Retirement planning is an important part of financial planning. There are many different types of retirement plans available, and it can be difficult to decide which one is best for you. In this article, we'll discuss four of the most common retirement plans: IRAs, Roth IRAs, Spousal IRAs, and Annuities.

An IRA (Individual Retirement Account) is one of the most popular retirement plans. It is a type of savings account that allows you to save money for retirement. You can open an IRA at a financial institution such as a bank or brokerage firm. Anyone who earns taxable income can open a traditional IRA. Contributions to a traditional IRA are usually tax-deductible, and the investment profits are tax-free. When you start making withdrawals after age 59 and a half, your IRA distributions will be taxed as ordinary income.

A Roth IRA is another type of retirement account that offers tax advantages. Contributions to a Roth IRA are not tax-deductible, but you don't have to pay income taxes on the withdrawals you make after you retire. You can also withdraw the money you contribute to a Roth IRA before you retire without paying any penalties, so it can also work as an emergency fund in distress.

A Spousal IRA is not a special type of individual retirement account, but rather a strategy that married couples can use to maximize their retirement savings through an IRA. If one spouse does not work or earns much less than the other, they can open a traditional or Roth IRA in their name and make contributions based on their household income.

An Annuity is a type of insurance contract that can supplement your retirement savings. Fixed annuities are often the best option because they have predictable benefits, tax-deferred growth, and in some cases, a death benefit that can be paid to a beneficiary in the event of death. The account is tax-deferred, so you don't pay taxes on your contributions or earnings until you start making withdrawals when you retire.

When choosing a retirement plan, some factors to consider are your age, investment time horizon, financial goals, risk tolerance, and fees associated with a retirement plan. It's important to do your research and find the plan that best suits your needs.