Retirement Plans. 401(k) Plans IRA’s. Is retirement something important to you right now?. Maybe not now. But retirement planning is essential NOW to attaining “financial security” and “accumulating wealth” when you’re old. Pension Plan. A Pension Plan is a “Defined Benefit” (DB) Plan
Maybe not now.
But retirement planning is essential NOW to attaining “financial security” and “accumulating wealth” when you’re old.
The employer promises to pay a defined amount to retirees who meet certain eligibility criteria. In other words, the plan defines the benefit to be received. A DB plan pays a lifetime monthly benefit to retirees who fulfill specific age and service requirements.
The plan defines the contributions that an employer and employee can make, not the benefit that will be received at retirement. Since the benefit is not defined in a DC plan, the retirement amounts are not known in advance.
70% of people in the US who have the option of opening a 401(k) account at work ignore the option.
Benefits For the Employer:
- It attracts and retains employees
- Helps their employees plan for retirement
- Gives their employees a choice in their financial future
-Tax benefits for employers
Benefits For the Employee:
- Simplifies investment decisions
-Immediate investment return
-Withheld from your paycheck so you never see it or have a chance to spend it.
-Both you and your spouse can each have a 401(k) account.
Benefits For the Employee (continued):
Tax Deferred – you do not pay income taxes on the money when you contribute it but instead you pay taxes when you withdraw it at retirement.
Since you don’t pay taxes on the money when it is withheld, it lowers your net income tax bill.
Benefits For the Employee (continued):
The money in your 401(k) account can be invested in a number of mutual funds – helping the money grow faster.
The interest you earn on the money is also tax deferred until you withdraw it.
*These amounts adjust upward each year
Employer Match Example example:Money match amounts vary from plan to plan.Let’s say your employer agrees to match $1 dollar to every $2 dollars you contribute monthly. NOTE: A money match is NOT mandatory.
*There are maximum limits to your contribution monthly – generally 15% of your monthly salary -- up to $16,500 total for 2009.
1. Automatic Payroll Deductions
2. Brokers or portfolio managers manage your account – not your employer
3. Contribution can be accessed in case of emergencies
- Phone, Internet, Monthly Publications, etc..
- Rollover – moving your 401(k) money to a new account if you change jobs.
At age 59 ½ you can withdraw all or part
Income tax costs begin with withdrawal
A penalty for early withdrawal prior to age 59 ½
Most plans let you borrow from your 401(k) plan – but you must repay it to avoid penalties.
What is 401(k) Vesting and How Does it Work?
Vesting is a type of security feature for companies to retain talented and hardworking employees for the longer term.
401(k) vesting is the amount of time you MUST work for a company to fully accrue or “own” your 401(k) savings and not forfeit them (if you quit your job early).
Thus, when you are "fully vested", this means you have accrued or own your 401(k) retirement savings fully and can rollover the savings if you quit working for the company.
If you are the only one making contributions towards a 401(k) plan (with no employer match), then you have full 100% vesting.
However if your employer matches your 401(k) contributions by say 50% (meaning if you contribute $10000 a year into your 401(k), your employer would therefore contribute 50% of $10,000 = $5000), then you might be required to perform a minimum certain # of years of work for your employer before you have 100% vesting of all your 401(k) retirement funds.
What about that $3.50 Double Decaf Mocha Frappachino Iced Latte Grande with Whip Cream Caramel, low fat milk….
Lets do some math..
$3.50 x 7 days a week x 52 weeks = $ 1,274
Good Gosh that’s a lot that could be invested in your retirement plan.
Savings Incentive Match Plan for Employees (SIMPLE) IRA
Simplified Employee Pension (SEP) IRA
Individual Retirement Account
Tax-Deferred savings plan originally set up in 1974 for employees not provided with a pension or retirement plan.
Since then employees with pension and retirement plans have also been allowed to open IRA’s