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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

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retirement plans
Retirement Plans

401(k) Plans


is retirement something important to you right now
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
Pension Plan
  • A Pension Plan is a “Defined Benefit” (DB) Plan
    • LESS of these today

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.

  • A 401(k) Plan is a “Defined Contribution” (DC) Plan
    • MORE of these today

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.

401 k retirement plan
401(k) Retirement Plan

70% of people in the US who have the option of opening a 401(k) account at work ignore the option.

what is a 401 k plan
What is a 401(k) plan?
  • A “defined contribution”employee benefits plan offered by many employers.
  • “Defined contribution” means that employees contribute their own money to the plan, normally through payroll deduction.
  • Simple Definition: Money is automatically deducted from your paycheck that goes into a fund for your retirement.
benefits of a 401 k
Benefits of a 401(k)

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 of a 401 k7
Benefits of a 401(k)

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.

a 401 k retirement plan makes it possible to have more money in your paycheck
A 401(k) retirement plan makes it possible to have more money in your paycheck
  • This is because with 401k’s you can increase your take home pay and decrease your current taxable income. Take a look at the following example. . . .
tax deferment limits
Tax Deferment Limits

*These amounts adjust upward each year

take a look at barb e dahl s 401 k plan contribution example
Take a look at Barb E. Dahl’s 401(k) plan contribution example:
  • Barb contributes $50 per month (that’s less than $2 a day) to her 401(k) plan.
  • Barb contributes the $50 per month for 40 years ($24,000)
  • Barb retires in 40 years, and her 401(k) contributions earned 10%
  • At retirement, Barb’s 401(k) account balance would be $265,000
some employers match your contribution
Some Employers Match Your Contribution
  • A company match can help your investments grow.
  • Employers contribute to your plan up to a certain limit.

Employer Match ExampleMoney 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.

now take a look at barb e dahl s 401 k plan if her employer makes a 50 company match contribution
Now take a look at Barb E. Dahl’s 401(k) plan if her employer makes a 50% “company match” contribution
  • Barb contributes $50 per month and her employer matches $25, for a total of $75 per month.
  • Barb retires in 40 years, and her 401(k) plan contributions earned 10%
  • At retirement, Barb’s 401(k) account balance, including the employer match, would be $398,000.
401 k plans are easy as abc 123
401(k) plans are Easy As ABC - 123

1. Automatic Payroll Deductions

2. Brokers or portfolio managers manage your account – not your employer

3. Contribution can be accessed in case of emergencies

- Loans

- Withdrawals

simple as do re mi
Simple as Do Re Mi
  • Account Services Keep you informed.

- Phone, Internet, Monthly Publications, etc..

  • Your money can go with you from job to job.

- Rollover – moving your 401(k) money to a new account if you change jobs.

withdrawing your 401 k money
Withdrawing Your 401(k) Money:

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.

vesting in your 401 k plan
“Vesting” in your 401(k) plan

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.

excuses excuses for not investing in a retirement plan
Excuses, Excuses For Not Investing in a Retirement Plan
  • I can’t afford to save. . .

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.

more excuses for not investing a retirement plan
More Excuses for not investing a retirement plan
  • I don’t understand investing
  • I worry about losing money
  • I’ve waited too long
  • I wont be able to get my money
we want you to start saving
We Want You… To Start Saving
  • Provides funds to the financial markets.
  • Money can be transformed into new factories, plants, creation of new jobs.
  • In 2002, 40 Million workers had 401(k) accounts totaling over $1.8 million dollars in assets.
  • Less strain on government services if citizens have a source of income when they retire.
ira s as retirement plans individual retirement accounts
IRA’s as Retirement Plans“Individual Retirement Accounts”
  • Traditional IRA
  • Roth IRA
  • Others:

Spousal IRA

Educational IRA

Savings Incentive Match Plan for Employees (SIMPLE) IRA

Simplified Employee Pension (SEP) IRA

what is an ira
What is an 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