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There are several retirement accounts with tax implications. 401K accounts, Keogh accounts, Roth IRAs and standard IRAs are some of the most important and widely know retirement accounts.

What is an Individual Retirement Account (IRA)?

An Individual Retirement Account (IRA) is a retirement investment into which you put contributions on which you do not pay taxes until you withdraw the money from the account after you retire. Usually, your tax bracket will be lower after retirement and so you won’t have to pay as high a percentage of the money in taxes as you would have if the money had been taxed at the time it was originally earned. When you put money into an IRA, you get a tax deduction. When you take a “distribution” from that IRA later, it counts as taxable income. There are penalties for early withdrawal up to age 59 1/2.

You are required to start taking money out of your IRA no later than at age 70 1/2.

You should check with your accountant or the IRS to see how much you can contribute in the current tax year. How much of this money is tax deductible depends on your Adjusted Gross Income (AGI) and whether you are covered under an employer retirement plan.

There are other variations of the standard IRA, such as the “Simple IRA,” a relatively new but popular employer based plan allowing employer contributions and a higher contribution by the taxpayer.

What is a 401K Retirement Account?

A 401K plan is named after a section of the 1978 U.S. Tax code. It is a plan offered by employers which allows you to automatically save a portion of your income for retirement without paying taxes now on the money you are saving. As with the IRA, the idea behind it is you’ll be in a lower tax bracket after retirement and therefore will have less tax to pay on the saved money than you would pay now at your higher salaried income rate. You only pay taxes on the money when you withdraw it from the 401K account after retirement.

Usually, the 401K money is automatically deducted from your paycheck by the company’s payroll system in much the same way your taxes are withheld.

In its basic configuration, a 401K account is similar to a standard IRA, but in many employers’ plans, there is a matching contribution from the employer which provides the real power to the plan. Beware. Many companies invest the 401K plan money heavily in their own company stock. If the company has an unusually bad financial problem, you might find this money in jeopardy as well as your job. The best 401K plans allow you to control the investment vehicles for your money.

Typically, at the time of retirement, a 401K plan is “rolled over” into a standard IRA, from which the retiree then makes withdrawals over time to provide retirement income.

What is a Keogh Retirement Account?

A Keogh retirement account is a tax deferred retirement plan for self employed people. If you are self employed, with a sole proprietorship or a partnership, then this is the plan you may want to consider setting up. Any type of qualified retirement account can be set up to cover self employed individuals. You should also look into 401K plans, and standard and Roth IRAs.

There are advantages and disadvantages to each. One advantage to the Keogh plan is that contributions are deducted from the gross income. Contribution limits are more liberal than those allowed with some other retirement accounts. As with other retirement accounts, tax is deferred until money is withdrawn, usually after retirement. In some cases, lump sum withdrawals may be eligible for 10 year averaging which can provide a tax benefit.

Another IRA type used for self employed sole proprietors is a SEP IRA which has less complex filing administrative paperwork and allows higher contributions.

What is a Roth IRA?

The Roth IRA came into existence in 1998 and is named after the late Senator William V. Roth, Jr. The chief advantage of a Roth IRA is obvious. Although there is no deferral of taxes on the money originally invested in a Roth IRA, as in other IRAs, all income earned by the investments in a Roth account is tax free when it is withdrawn. Another benefit is that you are not required to take distributions beginning at age 70 1/2 as with other accounts, so if you don’t need the money to live on, it can continue growing and earning for you tax free. Also, a Roth IRA makes it easier in some cases to take early withdrawals without penalties compared to other retirement accounts.

For many people, the Roth IRA is a wonderful retirement investment account. Some employers offer Roth 401K plans.

There are, however, limitations on who may contribute and under what conditions. Individuals with higher incomes may not be able to use a Roth IRA. Check with your accountant or the IRS for current rules.

You need to plan early and do your homework thoroughly. Review your choices regularly since rules and types of accounts change over time. Don’t wait until you are 60 to start planning for your retirement or you’ll be sorry.

Most articles about 401(k) plans, traditional IRAs and Roth IRAs focus on rules and regulations. Contribution limitations and income tax issues usually take precedent.

Unfortunately, little attention is given to the matter of control. This refers to one’s ability to personally manage the asset on an active and ongoing basis.

For example, when you join a 401(k) plan you are restricted as to the investment choices. Your plan sponsor makes that decision as part of their fiduciary responsibility.

In the past, this was a big concern because plan participants (i.e. the employees who enroll in their company’s 401(k) plan) were often given terrible choices.

Sometimes, this was the result of ignorance on the part of the plan sponsor. However, with some publicly held companies it was the desire to encourage employees to invest in the stock of their own company.

Today, federal regulation mandates better investment choices. This means a plan participant is able to choose from a greater variety of investment styles, as well as a cash account that typically replicates a money market fund.

But, this is still insufficient. The ability to design the most appropriate investment plan continues to be severely limited in 401(k) plans when compared to the freedom of choice in IRAs.

It is important to review briefly what has happened over the last 20 years with retirement plans.

Not long ago, it was common for a company to provide employees with a defined benefit plan. This type of plan design guaranteed a stream of income based on length of service and average wages. The income began at what was then considered the normal retirement age of 65.

For many workers, the defined benefit plan, together with social security, ensured a sense of security for their future lifestyle. Obviously, times have changed considerably.

Today very few companies will assume the defined benefit plan liability. In fact, companies have shifted the responsibility for retirement savings to the employee by adopting 401(k) plans.

Some companies will match a portion of the employee’s 401(k) contribution up to a maximum amount or percentage. But this doesn’t come close to replenishing the void caused by the terminated defined benefit provision.

What is more, the investment opportunities in typical 401(k) plans are expensive due to excessive management fees and brokerage commissions. Even the so-called no load separate accounts have administrative costs that significantly reduce the net return for the average investor.

Most plan participants are oblivious to the costs associated with the administration of their plan. Also, they do not pay enough attention to the allocation of their investment.

A self-directed IRA hosted by a low cost online brokerage firm provides an opportunity to reduce substantially the ongoing costs related to retirement planning.

In addition, the IRA owner can invest in a wide variety of individual stocks, bonds and commodities to create a highly diversified portfolio. The 401(k) participant must take the total package of a bundled investment to include issues that can jeopardize the total return.

This is not to say 401(k) participation should be avoided. Not at all. But it should be coordinated closely with a IRA to enhance the overall strategy for long-term growth.

It’s apparent that Congress must continue to provide expanded retirement planning opportunities for the individual employee. The rules will constantly change, but the writing is very much on the wall.

Companies will no longer provide guaranteed future benefits. Factors which contribute to this include the pressure of worldwide competition, the deterioration of union power, the ever increasing cost of health insurance and the peripatetic nature of the workforce.

Therefore, the individual employee needs to understand how to create a balance between the restrictions found in the 401(k) plan and the significant freedom of choice of the IRA.

Both instruments permit the postponement of income tax. Whether the investment principal is pre-tax 401(k) or tax deductible IRA is irrelevant. At some point the tax piper must be paid.

The strength of both systems is in the tax deferment because, in most instances, this will be a long period of time. In fact, many people choose not to withdraw any money at all from retirement accounts until they are forced to by federal regulation.

As stated earlier, rules change frequently. Therefore, it is important to know what restrictions are in place before making any investment choice. But the basic premise doesn’t change.

Analyze both the 401(k) plan together with your ability to open a IRA. If your employer offers a matching provision, commit a portion of your pretax dollars to guarantee no less than the matching amount.

Anything over and above this figure should be allocated to a self-directed low cost brokerage IRA. This gives you the opportunity to enhance your total retirement investment.

If your income exceeds the limitation for deducting the cost of your IRA, do not let this to be the sole reason not to open the IRA. Your freedom of choice and long-term tax deferment can far outweigh your lack of deductibility.

In the final analysis, most people make financial decisions based on their level of comfort. Indeed, this frequently leads to less than desirable results.

It would seem that the computer is becoming a bigger and bigger part of our lives each and every day. There’s good reason for that perception… it’s true. One specific area that is becoming incredibly popular is online banking. Customers love it because it is very convenient and a great time saver. The banks love it because it automates a great many functions for them and cuts down on their overhead.

The number one concern of anyone that deals with online banking should be security. Putting your personal information over the Internet can be risky, there is no denying that. Fraud and identity theft have become huge problems in the modern age. There are any number of hackers and thieves out there in cyberspace just waiting to prey on innocent people.

Fortunately for us, the financial institutions of the world are very aware of this problem and are working aggressively to combat it. There was a time when a bank’s chief security concern was whether they would be robbed or not. I think we’ve all seen the old movies about Bonnie & Clyde, John Dillinger and the like… to say nothing of the daring train robberies of the wild west. Now banks face a new and much deadlier challenge than ever before, and instead of wearing a mask and using a gun, the bad guys are now invisible and use keyboards.

Identity theft has now become so prevalent that thieves are rifling through garbage to attain any information that they can use to steal from their unsuspecting victims. With this said, there are some simple, common sense approaches that will go along way to securing personal bank information.

1. Do not share your passwords with anyone.

2. Keep important documents locked in a safe or safety deposit box.

3. Shred documents that you no longer need.

4. If you bank online, make sure your bank is using a secure, encrypted site (It’s OK to ask what security features they employ).

5. When using an ATM make sure no one can see the codes you enter.

These are a just a few of the things that can be done to keep banking information secure and to avoid possible crimes against you. While many of these suggestions seem to be glaringly obvious, all to many times they are taken for granted or just plain ignored. It is at these times when the criminals are at their best. Individuals that grow careless and complacent are exactly what criminals look for. Don’t be counted as one of the careless!