Quick Guide to Different Types of Retirement Plans

When you’re saving for retirement, it can often feel overwhelming to have to learn the lingo that’s required to define the different terms that you may hear your friends, family and even the news media throwing around. As you plan for the future, it’s important to understand which retirement plan you have and how it works compared to others you may hear mentioned. Here is what you need to know about four common retirement savings plans that may be offered through an employer and those that you can enroll in on your own as an individual:

401(k): A 401(k) is an employer-sponsored retirement savings plan that allows an employee to contribute part of their salary to a retirement account. These employee contributions are excluded from the employee’s taxable income (except for designated Roth deferrals). How does it work? 401(k) participants set a predetermined amount of money that is taken out of each paycheck and then put into a 401(k) retirement savings account. In 2021, 401(k) accounts generally have an annual maximum contribution limit of $19,500. If you’re 50 or older, you can contribute an additional $6,500 in catch-up contributions.

403(b): A 403(b) is also an employer-sponsored retirement savings plan, but it is only offered for employees of public schools, and certain tax-exempt organizations, such as churches and nonprofit organizations. How does it work? A 403(b) plan generally works the same way as a 401(k) plan in that participants set a predetermined contribution amount that is deducted from each paycheck and retains the same annual contribution limits.

Traditional IRA: An IRA is an individual retirement account or individual retirement annuity, which can be opened by anyone with earned income. Mutual of America offers an Individual Retirement Annuity, which is a variable annuity contract. Depending on your income level, and whether you or your spouse contribute to a workplace retirement plan, contributions can be tax-deductible. Earnings on those contributions grow tax-deferred until you start withdrawing from the IRA during retirement. Withdrawals are subject to income tax at your ordinary income tax rate at the time of withdrawal, and if made prior to age 59½, a 10% federal tax penalty. How does it work? You can contribute up to $6,000 a year to a Traditional IRA, and this amount is in addition to the $19,500 annual contribution limit for employer-sponsored retirement plans, providing an added boost to your overall annual retirement savings.

Roth IRA: Roth IRA contributions are made after taxes, and if distributed according to specified tax regulations, will be tax-free. How does it work? You can only contribute to a Roth IRA if your income is below $140,000 ($208,000, if married) per year. Contributions to a Roth IRA count toward the same annual contribution limit as a Traditional IRA. If contributions are held in the Roth IRA for five years, and until after you reach age 59½, distributions will be completely tax-free. However, withdrawals made prior to age 59½ may be subject to a 10% early withdrawal penalty and income taxes on any investment earnings.

If you have questions about your specific retirement plan and the options that are available to you, or to learn more about an account that is not discussed above, please contact your local Mutual of America representative.

Mutual of America’s group and individual retirement products that are variable annuity contracts are suitable for long-term investing, particularly for retirement savings. The value of a variable annuity contract will fluctuate depending on the performance of the Separate Account investment options you choose. Upon redemption, you could receive more or less than the principal amount invested. A variable annuity contract provides no additional tax-deferred treatment of benefits beyond the treatment provided to any qualified retirement plan or IRA by applicable tax law. You should consider a variable annuity contract’s other features before making a decision.

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You should consider the investment objectives, risks, and charges and expenses of the investment funds and, if applicable, the variable annuity contract, carefully before investing. This and other information is contained in the funds’ prospectuses and summary prospectuses and the contract prospectus or brochure, if applicable, which can be obtained by calling 800.468.3785 or visiting mutualofamerica.com. Read them carefully before investing.


The articles and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual. Consult your attorney, accountant or financial or tax adviser with regard to your individual situation.