For retirement plans, consider your options

This was originally published on Monday, April 8, 2013, in the Pacific Daily News.  Click here to subscribe to the PDN.

Last week I had a reader ask for advice about choosing a retirement plan. Choosing a plan is not a cookie cutter process. It depends on the needs of the individual. One thing that is universal is that having a retirement plan in today’s uncertainty is almost essential.

There are many types of retirement plans. Here are a few that you may want to look into:


Individual Retirement Account (IRA) — An IRA is basically a savings account that is offered by banks, insurance companies, stockbrokers or other financial institutions with large tax breaks. There are several types of IRAs:

Traditional IRA — Is a tax deferred retirement account in which taxes are delayed until you make a withdrawal. The dividends, interest payments and capital gains that your money incurs each year are not taxed which allows your IRA to grow faster than a regular savings account that is taxed.

Roth IRA — Is like a traditional IRA account except the money that you put into your Roth IRA is taxed before going into your account. A traditional IRA is taxed after you withdraw. Your money will then grow tax-free. When it is time to withdraw you pay no taxes.

Simplified Employee Pension IRA (SEP IRA) — Is a traditional IRA for self-employed individuals or small business owners. Contributions are made only by the employer and are tax deferred. The IRA is placed in the employee’s name and is not taxable until the employee withdraws from the account.

Savings Incentive Match Plan for Employees (SIMPLE IRA) — Is like a SEP IRA but employees are allowed to make contributions and the employer is required to make a match to the employee’s contributions.


The 401(k) plan is the most common contribution retirement plan. A 401(k) is offered through your employer. Employees are allowed to contribute a percentage of their pre-tax wages into their accounts. Your contributions come directly out of your payroll. You employer hires another company such as a brokerage firm, a mutual fund company or an insurance company to administer the plan. But you are ultimately responsible for deciding how to invest your money among the options offered by your plan. These options are usually mutual funds that invest in various sectors of the financial markets. Some employers may offer stocks in their company as another investing option. Depending on your plan employers may contribute or match your contributions into your plan. Taxes are not paid until you withdraw from your plan.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and with financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at and read past columns at the Money Matters blog at


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