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The Essence of Individual Retirement Account


Individual Retirement Account was originally invented to improve the pension plans, which are still widely used. The fact is that, the pension plans were also improved, and nowadays, these are two different approaches towards paying retirement financial compensation. This paper aims to compare these two approaches, and give the evaluation arguments on the matters of IRA and pension plans.

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The fact, that employees are free to choose the compensation strategy which will be more suitable for them. Some prefer resorting to IRA, the others like pension plans more. There is strong necessity to mention that the traditional pension plan is simple for understanding, and equal for everyone. In comparison with IRA it is not flexible enough, nevertheless, it enables employees to get various benefits. In accordance with Martocchio (2008, p. 260)

Flexible benefit plans were created due to the increase of diversity in the work force. The traditional benefits plan was just not attracting or retaining the great employees. Employees who have choices in what benefits they receive will be happier than receiving a cookie-cutter benefit plan. A secondary reason employers switched to flexible plans was because the IRS created Section 125 of the IRC that gave tax benefits to participating employers.

In the light of this fact, it should be emphasized that the matters of executive retirement, as well as retirement plans in the context of financial compensation practices, is regarded to be the touchy subject, closely associated with the financial position of any company, and the wellbeing of the retired workers. Considering the fact, that the matters of retirement compensation are among the most difficult tasks for the HR managers, it should be emphasised that the executives, who are engaged in this activity are subjected to a huge responsibility, thus, much depends on the practices and approaches, accepted within every particular company. As it is stated in Slott (2003) all the funded programs and compensation plans, associated with the retirement are based on either money or property and are protected against financial issues

Originally, there is strong necessity to emphasize that the Individual Retirement Accounts are considered to be more comfortable in the context of the compensation accounting and the provisions of flexibility, which are offered for the retirees. In the light of the fact that there are several types of IRA, which presuppose various regimes of compensation. These are:

  • Roth IRA
  • Traditional IRA
  • Self-Directed IRA

The main difference within these regimes are the sums, which may be withdrawn from the accounts, and the conditions, in accordance to which the reserves are processed. Originally, the main advantage, which makes IRA beneficial in comparison with pension plans approach is the possibility of investment, thus, increasing the compensation opportunities.

Sometimes, as its is emphasized in Entrepreneur (2000), the retirement plans may be subjected to the IRAs, as IRA provides wider opportunities and maybe also used for the control of retirement compensation approach.

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Finally, it should be emphasized that the IRA and pension plans are used for the same aim; nevertheless they reach it using different ways. Retirement plan is simpler, while IRA is more flexible, consequently, each company makes its own choice.


Entrepreneur. (2000) “Moving from appraisals to employment enhancement: evaluation Of appraisals and work environment” Entrepreneur. Vol. 12. No 145.

Martocchio, J. J. (2008) “Employee Benefits: Primer for Human Resources Professionals”, 3rd Edition. McGraw-Hill.

Slott, E. (2003) “The Retirement Savings Time Bomb, and How to Defuse It” Penguin publishing.

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