Can I Have an IRA and a Pension at the Same Time?
When planning for your retirement, it is generally a good idea to set aside as much money as you can comfortably afford. You want to make sure that you have plenty of money to live on once you stop working. It is possible to have a pension and an individual retirement account, or IRA, at the same time, and it can help you accomplish this goal.
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Pension
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A pension is a type of retirement account that is provided by your employer. This type of retirement account is also sometimes referred to as a defined-benefit plan, because it spells out the retirement benefit in advance. You know that after a certain number of years of service, you will have a specific amount of retirement waiting for you. These plans can also be insured by the Pension Benefit Guaranty Corporation.
IRA
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The traditional IRA is a type of account that you set up on your own. This type of retirement account is not funded by your employer, but it is funded fully by you. You set aside money out of your paycheck on a pretax basis. You can then invest the money into securities like bonds or mutual funds. The earnings that you receive from these investments are not taxed when they are earned. You pay taxes on the money once you withdraw it during retirement.
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Control
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One of the differences between these two types of retirement accounts is the level of control that you have over them. With a pension, you have no control over the money in your account. All of the money in the pension is managed by a pension manager. With the IRA, you get to choose the investments that your money goes into. If you are the type of person that likes control, the IRA provides it for you.
Contributions
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One of the benefits of having both a pension and an IRA is that you do not have to contribute to both. The pension plan is fully funded by your employer as a benefit to you. With the pension, you simply exchange your work for a certain number of years for a retirement benefit. With the IRA, you have to fund it and you can only deposit up to the annual maximum each year as designated by the IRS.
Risk
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Another reason that you may want to have both types of accounts is because of the risk involved. With the pension, you have virtually no risk because your benefit is guaranteed by the company. If the company goes out of business, you can get your benefit paid by the Pension Benefit Guaranty Corporation. With the IRA, you do not have any guarantees, but you can achieve superior returns if you choose the right investments.
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