Retirement Products and Terms to Know
Planning for retirement doesn’t have to be difficult or confusing. Here's a list of retirement terms that can help clarify questions you may have:
Retirement savings plan funded by employee contributions and, often, by partially matching contributions from the employer. Most 401(k) contributions are made on a tax-deferred basis. Interest, dividends, and capital gains generally accumulate tax-free until you withdraw them.
Retirement savings plan generally offered by public schools, colleges, and universities, as well as charitable organizations that are tax-exempt under section 501(c)(3). Contributions are tax-deductible, growth is tax-deferred, and you can contribute more per year than you can with an IRA.
A contract between a consumer and an insurance company. The consumer invests money with the insurance company in return for a stream of retirement income.
Someone who benefits by receiving money from an insurance policy, will, or trust fund.
Allow people who are 50 years and older to save additional money in IRAs (individual retirement accounts) and 401(k)s.
Interest calculated not only on the original principal that was saved, but also on the interest earned and left in the account.
Individual retirement account (IRA):
A personal savings account that offers the potential for tax-advantaged growth of retirement savings. There are two types: Traditional and Roth. These IRAs have important differences with respect to income limits and tax benefits.
Money market account:
A type of savings account that pays a higher rate of return (dividends) than a regular savings account, in return for higher minimum balances and check-writing restrictions.
A government-approved employee retirement plan offered and funded by the employer.
An employer-sponsored investment savings account funded with after-tax money. The account grows tax-free, and the withdrawals of earnings taken in retirement aren't subject to income tax if you're at least 59½ years old and have held the account at least five years.
Retirement savings plan where you make contributions on an after-tax basis, and earnings grow free of federal taxes. This means you don't get a tax deduction now, but you won't need to pay taxes on the earnings later.
Share certificate/certificate of deposit (CD):
A credit union savings account that will earn dividends at a particular rate if held to maturity. If you withdraw any or all of the principal before maturity, you may have to pay a penalty of a percentage of the amount withdrawn.
Retirement savings plan where you may be able to deduct your contributions from your current taxes, and earnings grow tax-deferred until retirement.
To read more about these products and terms, check out the Retirement Plans webpage at irs.gov
or contact a Cornerstone Credit Union representative.