Have you ever wondered where “401(k)” or “IRA” comes from? Very simple: 401(k) and IRA are just a few codes that come from something called the “Internal Revenue Code” book that represents tax codes linked to different interest accumulating vehicles that can be used today for retirement and tax-deferral savings or retirement contributions. Below, we would like to simplify these terminologies for everyone to be able to relate to.
What are 401k’s and IRAs?
A 401k is an employer sponsored retirement vehicle that allows employees of profitable organizations to contribute funds to for their retirement. Now, the funds going into a 401k are funds contributed as pre-income tax money, from our gross income not from our net income. This allows us to defer income taxes for the time of withdrawal.
An IRA works the same way as a 401k; however, IRA is an “Individual Retirement Account” where you are able to obtain on your own rather than having to go through your employer.
What is a Rollover
A rollover is when you are able to move money that is for retirement that which you may have been contributing towards from a previous employer into an IRA Annuity. Since both vehicles are qualified plans, they are considered a “like account.” When you go from “like account” to “like account,” you can consider yourself in the safe zone where it allows you to keep deferring any taxes you have been deferring while being in a tax deferred savings vehicle without suffering any immediate tax consequences.
Why should you rollover your funds?
There are major benefits when you rollover your 401k or IRA into an Annuity. You get the ability to continue deferring taxes to a later time, be able to participate with a wide range of index options that give you the ability to eliminate market risk while guaranteeing your principle, and both living and death benefits that can provide you income for life to never outlive your retirement money.