What Are the Different Principal Retirement Plans?

What Are the Different Principal Retirement Plans?

Principal Financial Group offers three retirement plans: a 401(k) plan, a 403(b) plan and a nonqualified deferred compensation plan, according to Principal's website. The 401(k) and 403(b) plans are employer sponsored and managed by Prudential.

A 401(k) is an employer-sponsored retirement plan, in which a portion of an employee's wages is taken out before taxes via payroll deduction and invested. Taxes are not paid on 401(k) funds until the money is withdrawn. The employer is the plan sponsor, but another company is hired to oversee the plan and its investments, according to CNN Money.

There are some restrictions that apply to 401(k) plans, states CNN Money. One such restriction is that an employee is not allowed access to 401(k) funds until the age of 59 1/2 years. Employees who withdraw money before that age are subject to a 10 percent penalty and are also required to pay tax on the withdrawn funds. In certain situations, the Internal Revenue Service does not assess a penalty for early withdrawal.

A 403(b) plan is a retirement plan specifically available to certain employees of select tax-exempt organizations, certain employees of public school systems and select ministers. These 403(b) plan accounts fall into one of three categories: annuity contracts, custodial accounts or retirement income accounts, says the Internal Revenue Service. Under a 403(b) plan, allowable contributions are not taxable until the plan holder withdraws funds.

A nonqualified deferred compensation plan allows an employee to save additional funds for retirement, beyond the amount permissible with an employer-sponsored plan. A nonqualified deferred compensation plan allows an employee to accumulate a larger amount of tax-deferred earnings, while also reducing tax liability, explains Principal Financial Group. This deferred compensation plan also allows an individual to withdraw funds prior to age 59 1/2 without being subject to a penalty.