The "old fashioned" defined benefit (AKA final benefit) plans mostly only exist in the public domain and unions. Some small professional business entities will use defined benefit.
Most retirement plans today are money purchase 401(k) and similar plans that accumulate cash balances to be paid when you reach retirement age.
There are two types of retirement categories: ERISA sanctioned qualified plans and non ERISA, non-qualified plans. ERISA plans like 401(k), 403(b), 412(i) allow tax deduction able contributions, tax deferred accumulations and taxable distributions. Non ERISA non-qualified plans have no tax deductibility, but have tax deferred accumulations. The distributions depend on the product line. Annuities gains are taxed as ordinary income and TAMRA compliant permanent life insurance can generate tax free income providing the contract is just in force for the life of the inured.
Agent Owner, Gilmore Insurance Services, Marysville, Washington State
How does a retirement plan work? A retirement plan is something where you systematically contribute towards your future needs in hopefully a tax favorable manner. A retirement plan can be what ever you choose it to be, if your idea is saving for retirement. That said, a person should look at the many tax advantaged options that are out there for their benefit. The big thing however, it doesn't matter what you choose if you fail to fund it. The best retirement plans are the ones funded by the participants and/or employers. A passbook savings account with money in it is far better than a 401(k) that was never participated in.
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The "old fashioned" defined benefit (AKA final benefit) plans mostly only exist in the public domain and unions. Some small professional business entities will use defined benefit.
Most retirement plans today are money purchase 401(k) and similar plans that accumulate cash balances to be paid when you reach retirement age.