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How the Retirement System Works |
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In the U.S., employers decide whether their workers will have a retirement plan and, if so, what type of plan it will be. Workers who don't have an employer plan can save for retirement through an IRA. The tax code offers incentives to employers to sponsor plans but does not require them to do so. Whether through an employer plan or an IRA, savings for retirement get special tax-deferred treatment. Contributions are not taxed when they are made to a plan or as they grow over time. They are only taxed when distributed as retirement income.
The U.S. pension system has evolved into a very complicated structure. Here's the CBO's guide to the basic rules and plans now available and the DOL's thoughts on what you should know about your retirement plan.
The U.S. pension system is also an important component of our financial system. Financial assets held for retirement were valued at over $12 trillion in 2003 (pdf).
Because retirement plans are given preferential tax treatment, they represent income not taxed every year and as such are called "tax expenditures" in the federal budget. Pensions are the largest single tax expenditure and will account for about 17% (over $120 billion) of all tax expenditures in 2005. It is important to note that, although contributions to and assets in pension and savings plans are not taxed every year, they will eventually be taxed when they are distributed to workers as retirement income.
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http://zfacts.com/p/763.html | 01/18/12 07:23 GMT
Modified: Sun, 16 Apr 2006 22:51:52 GMT
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