Broker Check


Q: What are 401(k) plans?

A: 401(k)s are the most well-known and popular qualified retirement plan. 401(k)s derive their name from the relevant tax code (section 401, subsection k), and were designed to encourage people to save for their retirements.
401(k)s are popular with employers because the majority (or all) of the contribution comes from the employee. Traditional retirement plans are extremely expensive, so using a 401(k) allows an employer to still provide employers with a retirement with far less cost. "Matched" 401(k)s are retirement accounts where an employer agrees to match the employee contribution up to a set amount (e.g., if the employee contributes $1,000, then the employer also contributes $1,000).
Employees like 401(k)s because the contribution they make from their salary is usually income tax free. Assuming an employee makes $50,000, if he makes $5,000 worth of contributions in a tax year to his 401(k), his actual income for income tax purposes will only be $45,000. The more an employee contributes, the lower his tax bracket can be.
For more information on 401(k)s, please visit the IRS’s 401(k) Resource Guide.

Q: What distribution options are available from a 401(k) at retirement?

A. Your plan will allow one, two or all three of the following options:

  • Lump Sum/Rollover
  • Installment Payments (usually monthly)
  • An Annuity (Remember to consult your tax advisor.)

Q: What are some other typical retirement accounts?

A: Other common retirement accounts include:

  • 403(b) plans, which generally are used in the education sector.
  • SEP and Simple IRAs, which are for business entities.
  • 457 plans, which are generally used by state and local governments as well as certain tax-exempt organizations.

Q: What are the benefits of opening a Traditional IRA?

A: The most often mentioned benefit of a Traditional IRA is tax-deferral: your contributions and the earnings on those contributions grow tax-deferred over the life of the account. Also, depending on your income you may be able to take a tax deduction for the contribution.

Q: How much can I contribute to my Traditional IRA?

A: With the passage of the Economic Growth & Tax Relief Reconciliation Act of 2001, the amount that you can contribute to your Traditional IRA has changed.

  • You can now contribute $5,000 or 100% of earned income per year- whichever is less.
  • If you are age 50 or older, you can contribute an additional $1,000 as a catch-up contribution.

Q: Can I make a contribution to both a Traditional IRA and a Roth IRA?

A: If you meet the eligibility requirements for both Traditional and Roth IRAs and you want to open both, you may. However, your total contribution between both accounts can only be $5,000, unless you are age 50 or older, and you can contribute $6,000.

Q: Can anyone open a Roth IRA?

A: No. There are some income restrictions for Roth IRAs. Generally, you can contribute to a Roth IRA if you have taxable compensation and your modified AGI is less than:

  • $177,000 for married filing jointly or qualifying widow(er),
  • $120,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year, and
  • $10,000 for married filing separately and you lived with your spouse at any time during the year.

You can find answers to more specific questions on all types of IRAs here on the IRS website.