 A mutual fund is a business that pools money from many people to invest in various ways.  A mutual fund’s investors, in effect, own a portion of the portfolio. A portfolio is a selection of stocks or bonds that the fund purchases. The value of their investment changes with the value of the fund’s portfolio.  Mutual funds benefit smaller investors who want to diversify and who don’t want to “follow the market.”

 One of the main benefits of many retirement plans is that they are tax-deferred, meaning you can postpone paying tax on the income you invest in these plans until you retire.

 401(k)’s- a tax-deferred retirement plan that many employers offer their employees. Only the company employees may participate in it’s 401K.  Here’s how it works:  Your employer automatically withholds it and invests it in stocks, mutual funds or other options.  Some employers match employee’s 401(k) savings as much as $.50 on the dollar. For example, if you put $100 into your 401(k) each paycheck, the company will add $50 to it.  Because the money is tax-deferred, you can save a significant amount of money on income taxes during your working year, and when you retire your income may be taxed at a lower rate.  Usually can’t be withdrawn without penalty until you are at least 59.5 years old.

 Most people can set up an individual retirement account (IRA)- this is a savings plan with deferred tax benefits.  Traditional IRA- savings is tax-deferred. Investors are allowed to subtract the amount they invest from their income before calculating their state & federal income taxes. When they withdraw their funds after they retire, the entire amount they withdraw is taxed.  Roth IRA- not tax-deferred, individuals invest after tax dollars, but when they withdraw their money at retirement they pay no income tax on it. The tax benefit is not paying tax on the amount earned on your investment.  Limits are placed on investment amounts: under 50=$5, or older= $6,000

 403(b)’s – set up for teachers, hospital workers, ministers and some other public employees.  Tax-deferred retirement plan, similar to 401(k)’s but no matching program.  Advantage is investors are allowed to contribute up to $15,500.  Just like others must be 59.5 to withdraw money without penalty.