Individual Retirement Account (IRA)

 

Other Retirement Plans

Since savings for retirement is not your number one priority as a teen, I am just going to briefly mention a few other ways to put money aside that you might hear about.

  • 401K:  This is a plan where employees elect to contribute pre-tax dollars to a qualified tax-deferred retirement plan.  This is instead of collecting a part of your paycheck or bonus.  If for example you made $30,000 and decided to put $2,000 (this money is also called a “contribution”) in a 401K plan.  You would only pay taxes on $28,000.  And you are only taxed when you withdraw the money.  Some employers even match their employees’ contribution.
  • Keogh Plan:  This is a plan for people who are either self-employed or work for an unincorporated business.  Again your contributions are tax deferred until you withdraw them.  You can withdraw the funds starting at age 591/2, and no later than age 70 ½.
  • Annuity:  There are all sorts of forms of annuities (for example fixed and variable) sold by life-insurance companies.  This is another way to save.  You receive a fixed or variable payment after you retire for life.  However, commissions (the fee you pay to an insurance broker) must be paid, which means you have extra expenses.  Furthermore, you may want to check on the financial long-range health of the insurance company(s) you are investing in.