With more than 60 million people configuring a 401(k) for themselves, it’s easy to see why they’re the most popular way to gradually generate passive income. 401(k) plans offer a tax-advantaged way to save for retirement, making it easier for you to secure your future.
A traditional 401(k) allows you to enjoy deferred taxes on your investment gains and your earnings are taxed only when they come out of the account. That means you can avoid taxes on earnings, such as capital gains and dividends until you withdraw them at retirement.
Some of the most important features of 401(k) plans include:
A SIMPLE IRA, also known as a Savings Incentive Match Plan for Employees, lets smaller companies provide their employees with retirement benefits. SIMPLE IRAs are ideal for small business owners because they lack the reporting requirements and the associated paperwork that’s required for many other workplace retirement plans, like 401(k)s.
Earnings saved in a SIMPLE IRA can be invested in a wide variety of different securities and funds, and since it’s a tax-deferred account, you won’t have to pay capital gains taxes when you buy and sell different investments inside your account. Withdrawals in retirement, however, are taxed as normal income and SIMPLE IRAs are not available as Roth accounts.
Key features of SIMPLE IRAs include:
*This blog does not constitute solicitation or provision of legal advice and does not establish an attorney-client relationship. This blog should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction.*