In the past when you worked for one or two companies most of your life, your employer provided a pension plan.  This plan is called a defined benefit plan. When you retired, your employer would pay you a monthly pension payment, a benefit you had earned by long service.

Today people work for multiple companies over their career.  So, it was advantageous to create pension plans that were more portable and could be rolled over to your new employer.  This type of pension plan is called a defined contribution plan.

The bad news is that you are YOYO – you’re on your own.  You must take the initiative to contribute to an employer sponsored plan.

Employer sponsored plans, 401k, 403b and 457 are named for the section of the Federal tax code.  401k is the plan for the corporate world.  403b is the plan for non- profits, primarily hospitals and educators.   457 is the plan for local and state government workers.

You cannot withdraw money from these accounts unless your situation is judged a severe hardship, but you can borrow your funds.

In reality, it is not always easy to roll over your funds to your new employer’s sponsored plan and many people end up with plans at several companies.  Do you have multiple 401k/403b/457 plans from different employers?  You may want to roll those previous plans into a traditional IRA to better track these investments.

There are two general types of IRAs, a traditional IRA and a Roth IRA.  You contribute pre-tax dollars into a traditional IRA, which means when you retire withdrawals will be taxed.  You contribute after-tax dollars into a Roth IRA, so when you retire withdrawals will not be taxed.   Both IRAs allow you to withdraw money for any reason, but there is a stiff penalty for withdrawals from a traditional IRA.  More information available at this website and others: RothIRA.com

There are also plans for small business and sole proprietorships called SEPs.

Remember MoneyYOYO – you alone have to make this happen.

Kowalczyk reminder:  You need to abide by contribution rules and other rules.  Consult  IRS Retirement Plans

Kowalczyk suggestion:  Parents and grandparents can contribute to your IRA.

Kowalczyk suggestion: A nonworking spouse can open a Roth IRA