Everyone looks forward to retirement, but not everyone looks forward to planning for it, so 401(k) and retirement plans are necessary. A strong financial plan can take the hassle out of this process and secure a balance of investment products that may yield the retirement lifestyle many people dream of. While most working Americans will receive Social Security benefits, in most cases, these will not be sufficient to provide a comfortable retirement income. Depending on personal circumstances, either a 401(k) retirement plan or an Individual Retirement Plan can help in working towards accumulating a sizeable retirement account. You probably have heard of both of these types of plans, but what do they actually entail?
A 401(k) is an employer-sponsored retirement plan. It is commonly offered to employees at large, small, or
mid-size companies. 401(k) plans offer several benefits, including potential employer contributions. Tax savings are achieved by setting aside a portion of pre-tax salary in a tax-deferred investment account, which can also
generate compound interest and capital appreciation. Depending on the type of plan selected, 401(k) plans can
also offer yields from a variety of investment options. When you work with us, we can help you decide the
amount and frequency of 401(k) contributions that fit with your current lifestyle and your future. We are
dedicated to determining what works best for you and your goals.
Some advantages include:
Another option for retirement planning is to contribute to an Individual Retirement Plan (IRA). IRAs allow a
variety of investment options, including variable annuities, stocks, and government securities. There are
several types of IRAs, including the Traditional IRA or Roth IRA. A traditional IRA is funded through
after-tax dollars and can be contributed to even if a client holds another retirement plan, such as a 401(k).
A traditional IRA has several tax advantages: all income tax is deferred until money is withdrawn, and the
growth of contributions and earnings is generally tax-deferred.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
Roth IRA contributions are after-tax contributions. So although no tax deduction is realized when you contribute. The money withdrawn is distributed tax-free if they are considered qualified distributions. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for five years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws may change at any time and may impact the benefits of Roth IRAs and tax treatment may change. Generally, early withdrawal from an Individual Retirement Account (IRA) prior to age 59½ is subject to being included in gross income plus a 10 percent additional tax penalty. There are exceptions to the 10 percent penalty, such as using IRA funds to pay your medical insurance premium after a job loss.
Solo 401(k) is a qualified retirement plan you may not have heard of before. It is also known as a Self-Employed 401(k) and is only available for business owners that have no full-time employees other than themselves and their spouse. Business owners can enjoy the same tax benefits as a traditional 401(k) so they can save for their retirement. A unique aspect of this type of 401(k) is that while the business owner must work full-time, he/she does not have to work full-time for their own business.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.