It is not an "entity" in and of itself.
By establishing an account and defining what type of account it will be... you are informing the IRS to classify or tag this account either as a retirement savings account or a non-retirement savings account.
Accounts that are classified as retirement accounts (qualified accounts) are treated differently... in regard to taxation... than accounts that are classified as non-retirement accounts (non-qualified accounts).
Anywhere that you can establish a non-retirement savings or investment account... you can also establish a retirement savings or investment account.
Bank savings accounts, CD's, money market accounts, mutual funds, stock investments, bond investments, etc., etc. Any and all of these types of investments can be tagged as either a retirement account or a non-retirement account.
So... whether an account is a retirement account or a non-retirement account is totally dependent upon how it is identified to the IRS.
It is not about what the account or investment is.
Most of us are in a position to be able to have several types of retirement savings accounts.
And yet... many people have just one type of retirement account.
Some have just one type of account because... that is all that they can fund.
Others may have only one type of retirement account because... they simply are not aware of their options.
Or perhaps... they don't understand the options.
And some may simply not be aware of... the magnitude of the retirement challenge. And therefore are oblivious to... the urgency of the matter.
Having multiple account types is one way to increase the total "contribution limit" for your retirement savings.
In addition... the use of multiple account types can expand your list of investment choices. Thereby providing for greater portfolio diversification and thus lower risk.
There are basically two categories.
They are... Employer Sponsored Retirement Plans and Individual Retirement Accounts (IRA's).
Employer Sponsored Retirement Plans
Just as the name implies... employer sponsored retirement plans are tax qualified plans sponsored by the employer.
In other words... your employer makes the plan available.
There are a number of different types of employer sponsored retirement plans.
Here are the more common ones...
Often used by small companies and the self employed.
Sometimes the employer will contribute to the plan for the benefit of the employee. Sometimes they don't.
Employer contributions can vary from company to company and from plan type to plan type.
Individual Retirement Accounts
Individual retirement accounts are tax qualified accounts that you as an individual set up on your own.
These accounts have no connection whatsoever to your employer.
There are basically two types of Individual Retirement Accounts.
Both Traditional IRA's and/or Roth IRA's are funded entirely by the individual.
Please be sure to click on the individual links for each type of account for a more detailed discussion on each.
Don't fall into the dangerous trap of thinking that... just because you have a 401k or... just because you have an IRA... that your
retirement is set and you can relax and not worry.
For most of us... utilizing all of the different types of retirement savings accounts that are available to us will not only better assure that we will reach our retirement goal but can also reduce the amount of risk we take in getting there.
"Because It Matters"... Jim
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