While retirement might seem like something in the far distant future, time passes quickly and -- before you know it -- retirement is rearing its head. Whether it is ugly or attractive depends on how much you have saved for it. Like a pension plan, a retirement accumulation account is typically an employer-sponsored retirement plan. Some financial institutions also offer these accounts, which are somewhat similar to individual retirement accounts.
Retirement Accumulation Account
RAAs offered by employers are managed by financial institutions or insurance companies. RAA funds are tax-deferred, meaning you don't pay taxes on them until you have retired or accessed them. When you retire, you receive RAA funds according to the conditions of the employer plan. You might be able to receive the amount in a lump sum or in a monthly annuity paid for the rest of your life. If your employer offers an RAA, make sure you understand all of the conditions and read the fine print. Ask someone in human resources or whoever is in charge of the plan at your company to explain aspects of the RAA if you have questions. You must be proactive about retirement planning, so it's important to understand all the plan benefits.
Employer-Sponsored RAA Contributions
An employer-sponsored RAA is not the same as an employer-sponsored 401(k), into which you contribute a certain percentage of your pay and into which your employer also contributes funds. Employer-sponsored RAAs are usually non-contributory, meaning only the employer -- not the employee -- places money in the account. Although plans vary by company, typically you will be enrolled automatically upon completion of a certain period of time as an employee.
Individual Retirement Accumulation Accounts
Like an IRA, an individual retirement accumulation account allows you to start saving for retirement in a tax-deferred account at banks, credit unions and savings and loans. If you can't afford the minimum amount required to contribute to the financial institution's IRA certificate, for example, an IRA accumulation account allows you to at least get started with tax-deferred savings as you work toward a savings goal. When you reach that goal, as Carolina Cooperative Credit Union notes, you may continue to maintain the funds in the accumulation account or use them to purchase an IRA certificate.
Individual Retirement Accumulation Account Funding
Banks, credit unions and savings and loans companies allow you to make contributions to your individual retirement accumulation account through regular payroll deductions, or you may arrange to have specified amounts taken out of your savings or checking accounts each month.