your 401(k) #2: 403(b), 457, TSp & IRA

En Español

While the 401(k) is the most common employer-sponsored plan around, it’s not the only show in town. Plans similar to the 401(k) (aka “401(k) cousins”) include:

  • 403(b)
    • This is just like a 401(k) except it’s offered to employees of non-profit organizations.
  • 457
    • Again, similar to the 401(k), but offered to state and local government employees.
    • The 457 isn’t very common, but if you have one, you may qualify for double tax benefits. More on this in the next lesson!
  • Thrift Savings Plan (TSP)
    • Offered to federal government employees and members of the military. This is one of the lowest cost (“cheapest”) plans around, which is a huge benefit to anyone who has one.
    • Have a TSP? Make sure you sign up for military-specific updates here! I’m putting together a super thorough video all about the TSP for fellow military families. You won’t want to miss it!

 

ACCOUNT PLAYERS

  • Plan
    • The account and investment options offered to you
  • Provider
    • The big company (think Vanguard, Fidelity, Charles Schwab, etc) that manage the plan and your investments
  • Participant
    • That’s you!
  • Sponsor
    • Your company
  • Administrator
    • This is the specific person at your company who has been made the point person for the plan. They deal with things like:
      • Eligibility - Your ability to participate in the plan. Some companies allow you to jump right in immediately, others make you wait a year or so to enroll.
      • Enrollment forms - The paperwork you have to fill out if you want to participate, or be a part of, your company’s retirement plan
      • Summary Plan Description (SDP) - A long document, usually given to you when you first sign up for the plan. It includes a description of the investment options, as well as your rights and obligations as they pertain to the plan. Given the scope of info it covers, you may have gotten overwhelmed looking at it and threw it out. If that’s the case, make sure you find it or get another copy! This thing is chock-full of need-to-know info! As we get further into this unit, the items covered in the SDP will start to make a lot more sense to you.

 

IRA

IRA = Individual Retirement Accounts. Unlike the accounts mentioned above, IRAs are NOT offered by your employer. As their name implies, they are accounts that you (the individual) open on your own.

IRAs also come in many flavors. A simple description of the most common are as follows:

  • Traditional and Roth IRAs
    • The traditional vs Roth debate deserves its own video. In short, the difference has to do with how the money you put into your account AND withdraw in retirement is taxed. Stay tuned.
  • Spousal IRA
    • For non-working spouses. The working partner can contribute to these accounts on the spouse’s behalf.
    • This is great! Just because you’re not working now doesn’t mean you won’t need income to live off of when you get older.

Self-EMPLOYED or a small business employee?

  • SEP-IRA
    • Simplified Employee Pension. These have different rules than 401(k)s, so make sure to read up on those if you have or are thinking about opening an SEP-IRA.
  • SIMPLE IRA
    • Savings Incentive Matching PLan for Employees. These are usually offered by small businesses, have smaller deposit limits and employers can match a portion of what the employee puts in.

 

MISCONCEPTIONS

**Now, before you move on to the next lesson, I want to clarify a common misconception.**

None of the above plans are “investments” themselves. They are simply types of accounts that hold investments. You still have to choose which investments to buy or invest your money in.

I’ve often heard people say “I have a 401(k)” when asked how they’re invested. A 401(k) in itself is not an investment. The money and securities held within the plan are the investments.

 

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