Have You Set Up Your Retirement Plan Yet?


Filed under Planning & Money

Do you have your retirement funds tied up in your company’s plan? Are those investments working for you? Or are you an individual interested in retirement planning but have yet to decide on which plan to choose? Do you know what time of investments yield a higher rate of return? If you want more information about how 401k, IRA, Roth Ira plans work and which investment choice provide the best return this article is for you.

First let’s take a look at 401K plans. 401K retirement plan accounts are established by your employer and are offered as part of your benefit package. Generally, you invest a certain percentage of your income and your employer may or may not match your contribution. You are provided with a list of possible investment choices that are usually made up of stocks, bonds and municipal funds.

Your investment grows when the companies that you are invested in realize a profit and your investment decreases if the companies realize a loss. In most years, and with wise investment decisions, you may realize approximately an 8% growth. The money put into these accounts is tax-deferred until you withdraw them.

There are several advantages to opting for a company sponsored retirement plan. The money contributed is both tax deductible and tax-deferred. You are able to borrow against these funds if a hardship occurs or you are paying for your kids college or purchasing new home. However, there are some disadvantages to this type of retirement planning as well. First, if you withdraw the money before you are 59 1/2 you may have to pay an additional 10% penalty on the money. Second, you must start withdrawing the money at a government mandated minimum when you reach 70 1/2.

If you have decided that you need additional retirement savings, or are not covered by your company; you can opt to set up your own retirement plan. There are a few choices here. However, most people choose either a traditional IRA or a Roth IRA account.

A traditional IRA works much the same way as a 401K. The money you put into this type of account is tax-deferred so you won’t have to pay taxes on it until you start taking it out. It also has the same penalty clause and you still are required to take the money out when you reach 70 1/2

The difference between a Roth IRA and a traditional IRA is that with a Roth you pay the taxes on the money as it goes in to the account but do not pay again when you withdraw. Also, because you have already paid your taxes, you do not have to withdraw the funds before you are ready.

With a company sponsored 401K plan, you do not have much of a choice in how your money is invested. However, with a Roth IRA you make those decisions for yourself. A financial advisor must be consulted to insure your decisions are within federal guidelines and to the do the paperwork, but you are in charge.

People do their retirement planning through a Roth IRA account often find that choosing to invest in real estate is their best option. This is for two reasons: investing in real estate is usually safer than investing in traditional financial instruments, and; the rate of income earned by these investments can be almost double that of those other investments. It is something to consider.

Having a retirement plan in place is essential to your future financial well-being. Choosing the right retirement plant and the right investment choices will insure your retirement will be all that you hope it will be.

Rich Eng

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