Traditional IRAs & 401k Plans

• A traditional IRA or 401k plan is a retirement account that allows you to contribute money on a tax deductible or pretax basis. The money is then taxed at ordinary income tax rates when you retire. Employer sponsored plans, 401k plans, are held by your employer for your benefit. IRAs are Individual Retirement Accounts that are usually not held with your employer (but may be in the case of SIMPLE and SEP IRAs).
  
  

Roth IRA & 401k Plans

• Roth IRAs and Roth 401k plans accept only after-tax contributions. Because of this, none of the money you receive from either plan is taxed when you withdraw it during retirement. You must wait until you are age 59 1/2 to receive this tax benefit. Roth 401k plans, like traditional 401ks, are employer sponsored retirement plans. Roth IRAs are individual plans not sponsored by your employer.
  
  

Annuities

• An annuity is an insurance policy that guarantees you an income for the rest of your life or for a set period of time. You may defer this payment indefinitely however. When you are deferring your payment, the annuity is referred to as a "deferred annuity." Contributions to all types of annuities are made on an after-tax basis (unless the annuity is inside of a traditional IRA in which case the annuity follows traditional IRA rules for all contributions and withdrawals). Money grows tax-deferred inside of the annuity. When you withdraw money from the annuity or when you receive payments, the money is taxed at ordinary income tax rates. Withdrawals from deferred annuities are taxed as though you are removing interest gains before principal. When you are receiving guaranteed annuity payments, most of the payment is a return of principal with a small amount of interest, perhaps 2 to 4 percent added to the principal amount.
  
  

Pension Plans

• Pension plans are employer plans that are normally fully funded by your employer. These would include defined benefit plans. Defined benefit plans are plans that guarantee you a set benefit during retirement. These benefits are fully taxable as ordinary income, but they are tax deductible to the employer. You may defer the payment of this tax by taking your pension as a lump sum and rolling it over to an IRA. However, when you withdraw money from your IRA, you must pay tax on the distribution.