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Question:
Can
we place our CODA account with BUYandHOLD? We've just
been offered one but the material that came with it
is not very clear.
C.T.
Thornberry
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Answer:
Dear C.T.,
BUYandHOLD
cannot handle your CODA - the company that you work
for takes care of this. However, you certainly can
have your IRA with BUYandHOLD. Having a CODA does
not wipe out your ability to have an IRA and in fact,
I encourage you to have both. For details on opening
an IRA with BUYandHOLD, click here.
About
CODAs
CODA
stands for Cash or Deferred Arrangement. This
type of salary reduction retirement plan allows employees
to contribute a certain amount of their salary (on
a pretax basis) to their qualified retirement plan.
One of the advantages of doing so, in addition to
building up a retirement nest egg is that it reduces
the employees' current income tax liability. In other
words, because contributions are tax-deferred, earnings
are not subject to state or federal income tax until
the employee takes a distribution from the retirement
plan.
The
reason it's called a "cash or deferred arrangement"
is because employees have a choice: they may receive
their current salary in "cash" (via their payroll
check) or they may elect to make a deferral contribution
of their salary into the plan.
The
Basic Types
There
are two basic types of CODA plans. They are named
after the section of the IRS code that established
them and that oversees the rules pertaining to them.
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The 401(k) plan is designed for employees of for-profit
companies.
- The
403(b) plan is for employees of not-for-profit organizations.
A
Favorite with Employers
Employers
like 401(k) plans because the employee is the one
making the dollar contributions. The employer is not
required to make contributions although many match
their employees' contributions - up to a certain amount.
In
most cases, to have a 401(k) or 403(b) an employee
must be 21 or older and have worked for one year with
the company or non-profit. (One year is defined as
1,000 hours within a twelve month period.)
Good
luck!
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