employer's retirement plan
Transcript, 2 minutes 50 seconds, for use during week of Jan.
Description: Penny and Susan talk about investing
for retirement through your place of employment
Announcer: Invest Wisely comes to you from Iowa State University
Extension through a grant from the Investor Protection trust,
providing investor education on the web at: investorprotection.org.
Susan: Penny, I have some questions for you about saving
for retirement and about the retirement plans my employer offers.
Excellent. Taking advantage of retirement options
at work can be a good way to save for retirement.
Susan: We have
a 401(k) and I put money into this plan. I’ve
heard other people talk about 403(b) and 457 plans. Could
you talk a little about how these plans work?
Penny: 401(k), 403(b),
and 457 plans are all defined contribution plans. You may
also hear them referred to as salary reduction or tax deferral
plans. Your contributions to the plan are
Susan: So, that means I don’t pay
taxes on the money I invest in my 401(k) plan?
Penny: Yes. With a defined contribution plan, you’re
saving on your tax bill and investing for retirement at the same
time. Earnings under these plans aren’t taxed until
you withdraw the money during your retirement.
the difference between a 401(k), a 403(b) and a 457 plan?
Well, they’re all defined contribution plans. 401(k)
plans are available to employees of many private companies, like
the one you work for. 403(b) plans are available to public
school teachers and employees at non-profits. 457 plans
are for state and municipal workers. The plan names come
from the sections of the Internal Revenue Code that authorize
Susan: How are defined compensation plans different from
ordinary pension plans?
Penny: Traditionally, company pension
plans have been what are called defined benefit plans, where
the employer promises a specific benefit, which takes into consideration
an employee’s years
of service and salary. Defined contribution plans define
the contributions that you and your employer make; the amount
available at retirement – in other words your “retirement
check” -- depends on how that money is invested.
Thank you, Penny. As always your information is
Penny: You’re welcome. And remember,
for more information visit the ISU Extension website at extension.iastate.edu
and look for ‘Invest Wisely.’