How retirement plans work in USA | 401(k) | 403(b) | 457(b) | IRA

A retirement plan is a financial arrangement designed to replace employment income upon retirement. These plans may be set up by employers, insurance companies, trade unions, the government, or other institutions. Congress has expressed a desire to encourage responsible retirement planning by granting favorable tax treatment to a wide variety of plans. Federal tax aspects of retirement plans in the United States are based on provisions of the Internal Revenue Code and the plans are regulated by the Department of Labor under the provisions of the Employee Retirement Income Security Act (ERISA).
There are mainly two types- Roth and Traditional plans.

Retirement plans are classified as either defined benefit plans or defined contribution plans, depending on how benefits are determined.

The basic difference between a traditional 401(k)/403(b)/357(b) and a Roth 401(k)/403(b)/457(b) is when you pay the taxes. With a traditional 401(k), you make contributions with pre-tax dollars, so you get a tax break up front, helping to lower your current income tax bill. Your money—both contributions and earnings—grows tax-deferred until you withdraw it. At that time, withdrawals are considered to be ordinary income and you have to pay Uncle Sam his due at your current tax rate; there may be state taxes as well. (With certain exceptions, you'll also pay a 10 percent penalty if you're under 59½.)

With a Roth 401(k), it's basically the reverse. You make your contributions with after-tax dollars, meaning there's no upfront tax deduction. However, withdrawals of both contributions and earnings are tax-free at age 59½, as long as you've held the account for five years.

Plans for individuals
Traditional IRA
Roth IRA
Self Directed IRA

Plans for Self-Employed and Small Business Owners
SEP IRA
SIMPLE IRA
Solo 401(k)

Plans for Private Sector
Traditional 401(k)
Roth 401(k)

Plans for Public Sector
Traditional 457(b)
Roth 457(b)

Plans for Non-Profit
Traditional 403(b)
Roth 403(b)

Salary Deferrals - The portion of salary that is set aside towards Retirement plans.
Annual Contribution Limit - The maximum contribution that an employee and/or employer can make towards retirement plans. The 2021 limit is 19500 (Employee Only) plus 6500 if age is 50 or older. The combined limit (employee and employer) is 58000 plus 6500 if age is 50 or older.
Employer Matching Contribution - The degree by which employer matches the employee contribution.
Catch-up contribution - The additional contribution that employee opts once they reach the age 50.
Employer Matches the catch-up contribution - The degree by which employer matches the employee's catch-up contribution.

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[sanikura]

I'm 54 and my wife and I are VERY worried about our future, gas and food prices rising daily. We have had our savings dwindle with the cost of living into the stratosphere, and we are finding it impossible to replace them. We can get by, but can't seem to get ahead. My condolences to anyone retiring in this crisis, 30 years nonstop just for a crooked system to take all you worked for.

[varunyadav]

Well explained I relate my job role it will help for better understanding

[adelineChulack]

I will be forever grateful to you, you changed my entire life and I will continue to preach on your behalf for the whole world to hear you saved me from huge financial debt with just a small investment, thank you Abigail Ann Ryan

[roebheyreyes]

Thanks for creating this video. The part for the second type of percentage where the the employer beats the remaining contribution is quite unclear.

[vidyasagargupta]

Hi, thanks for sharing the information for us. Bit clarity required on Percent_1 video time at 19:46. Once again Thanks a ton 🙏

[sagarbhale]

Can you please make more video on 401k retirement plans.? Thank you for this video understand and clear.

[StockTokIndia]

Can employer decide not to match the amount nothing any pay to the employee

[SALMANKHAN-fiwq]

This will help me a lot to join new company.... Thank you

[Candy-wjwu]

Hi sir can you please tell all of the limits of 2024?

[Curiousvr]

Good information.Explained very nicely 👏

[FlorentGulliver]

I'm 54 and my wife and I are VERY worried about our future, gas and food prices rising daily. We have had our savings dwindle with the cost of living into the stratosphere, and we are finding it impossible to replace them. We can get by, but can't seem to get ahead. My condolences to anyone retiring in this crisis, 30 years nonstop just for a crooked system to take all you worked for.