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What is an IRA, 401(k) and 403(b)?More than 10,000 baby boomers retire each day, and most have retirement savings in an IRA, 401(k) and/or 403(b) and have questions. As a 7-year member of Ed Slott’s Master Elite IRA Advisor Group?, I have access to information that can provide those answers.As our first “Ask the Expert” question, I thought we would cover the best ways to set aside tax deductible dollars for retirement. IRA, 401(k), and 403(b) are retirement plans with tax benefits designed to help save money for retirement. A short review of each follows.What is an IRA?An IRA – or Individual Retirement Arrangement – is a way to save for retirement that allows you to make tax-deductible contributions and accumulate the money on a tax-deferred basis. Income tax must be paid upon withdrawal.The IRA not only gives employees of companies without a pension plan a tax-advantaged retirement savings plan, it also offers a way to preserve the tax-deferred status of qualified plan assets when employment terminates, through rollovers.For pre-retirees focused on building retirement savings, the primary advantage of an IRA is the ability to defer paying taxes on the earnings and the tax-deferred growth of your savings until you take a distribution (withdraw money). A disadvantage is the tax penalty imposed on funds withdrawn before you reach age 59.5 years.Not everyone is eligible to open an IRA account due to eligibility restrictions based on income or employment status.A Roth IRA also allows your money to grow tax-free, but it is funded with after-tax dollars. Although contributions are not tax-deductible, these accounts can provide greater flexibility than traditional IRA accounts. There are other types of IRAs that can be opened by small business owners or by those who are self-employed.What is a 401(k)?A 401(k) plan is only available through an employer-sponsored plan. It is a retirement savings plan offered by an employer that “allows eligible employees to make pre-tax elective deferrals through payroll deductions.” A particularly attractive added benefit in a traditional 401(k) is that “employers have the option of making contributions on behalf of participants” and can choose to match some or all of your contributions. (IRS.gov)You determine the amount or percentage of your salary you want to contribute each pay period. Through payroll deduction, these pretax earnings are sent directly to the company managing the plan for deposit into your account on your behalf. The plan administrator could be a mutual fund company, a brokerage firm or insurance company.You are responsible for deciding how to invest your money among the options offered by your plan.What is a 403(b)?Like a 401(k), a 403(b) plan is a type of defined contribution retirement savings plan. A 403(b) may be offered by certain non-profit and public education organizations, such as schools, churches, and hospitals. Eligible employees can defer pre-tax earnings to their 403(b) through payroll deduction and grow tax-deferred until the money is withdrawn from the plan. Distributions are taxed as income. (IRS.gov)Rollovers into an IRAFor most participants in 401(k) and 403(b) plans, a rollover into an IRA may be the best decision because of advantages offered by IRAs. This will be covered in our next “Ask the Expert” column.For our free chart showing IRA, 401(k), 403(b) “Retirement Plan Limits,” call 978-777-5000, ext. 146 or email [email protected]. Contact us with IRA, 401(k), 403(b) questions. Please visit our website www.RetirementCtr.com. Thomas T. Riquier, a CERTIFIED FINANCIAL PLANNER? professional and president of The Retirement Financial Center, has been in business on the North Shore for more than 44 years. Tom offers Securities and Advisory Services through United Planners Financial Services.