Retirement plans: What are your options?
Why save money for your retirement? Today, less than 50% of Americans have not started saving money or calculating how much money they need to save for their retirement. Financial advisers offer a variety of options that are easy to enroll and manage. You can choose a pension plan*, start investments, or have a retirement plan such as a 401K or Individual Retirement Account (IRA)*. Many people don’t know when is the best time to start saving for retirement. The answer is as quickly as possible, since the sooner you begin, the faster your money savings can grow. Retirement money is beneficial from different perspectives. It can guarantee a lifestyle you expect after retiring and help sustain a life that you can afford by your own, in which there is no need to depend on the welfare system or someone else taking care of you. Available Retirement Plans for Business Owners The most common types of plans are: Individual Retirement Plans Employer-Sponsored Retirement Plans Retirement Plans for the Self-Employed and Small-Business Owners The Individual Retirement Plan is a mix of the following: Traditional IRA Roth IRA Spousal IRA MyRa Rollover IRA The Employer-Sponsored Retirement Plans (also known as defined contribution plans) includes: Traditional 401K Roth 401K 403B or Tax-Sheltered Annuity (TSA) 457B Thrift Savings Plans (TSP) The Retirement Plans for the Self-Employed and Small-Business Owners includes: SEP IRAs – (Simplified Employee Pension) Solo 401K/Solo Roth 401K SIMPLE IRA – (Savings Incentive Match Plan for Employees) Payroll Deduction IRA Profit Sharing. How These Plans Work: Individual Retirement Plans Traditional IRA: saving account in which contributions might be tax deductible and earnings can grow tax-free. Taxes on the account are only paid until a withdrawal is made at an age of 59 and a half. It is a good option for people that start doing late savings of money for retirement. Roth IRA: in this saving account contributions aren’t deductible from taxes. You pay taxes on contributions going into your account. The withdrawal age is 59 and a half, and funds are can be acquired tax-free. Spousal IRA: this plan allows a current working spouse to contribute to his/her nonworking spouse’s retirement savings. It follows the same rules as a Traditional or Roth IRAs, but couples must file a joint tax return. MyRA: this plan is available for people that don’t have the opportunity to be in an employer-sponsored retirement plan and have complications obtaining one by their own. Participants from this plan only contribute a small monthly amount to their plan. This encourages lower-income workers to take the opportunity to start a retirement saving plan. Contributions get to be tax-free and distributions are not taxable. If a MyRA reaches the limit of $15,000, then a rollover to a Roth IRA must happen. Furthermore, the rollover to the plan provides more benefits for the participant. Rollover IRA: this plan consists in a change of an individual’s Traditional IRA, in case of moving or retiring from their current job. All funds are transferred and can either be by a direct transfer or by check. The Employer-Sponsored Retirement Plan Traditional 401K: is a type of retirement plan in which employees invest a certain amount of money from their paycheck into the company’s plan. As a result, taxes are paid later on at withdrawal. Roth 401K: is a combination of Roth IRA and the Traditional 401K. Taxes are paid during contributions, so at the time of withdrawing it becomes tax-free. 403B (or TSA): this retirement plan is available for public education organizations, employees of tax-exempt organizations, cooperative hospitals, church, and some ministers. Participants can contribute some of their salaries into their accounts as in a 401K and an employer may contribute, without being subject to federal or income tax until funds are withdrawn. 457B: Plan designed by employers from governmental and certain non-governmental institutions. It is classified as a nonqualified plan, in which employees’ contributions and earnings on retirement money are tax-deferred. The withdrawal age is 55 years and there is no 10% penalty in case of withdrawing before the retirement age required. Thrift Saving Plan (TSP): a tax-deferred plan created for Federal employees’ retirement, as a defined contribution plan. Under this plan, employees can obtain the same benefits that many private corporations have on their 401K plans. Participants can separate or retire at the age of 55 and claim for their funds without having a 10% penalty. Retirement Plans for the Self-Employed and Small-Business Owners SEP IRA: plan in which employers contribute to their employees’ Traditional IRAs or SEP IRAs. A self-employed individual can also get to establish this plan, excluding the necessity of having high administration costs. An employer obtains tax deductions from contributing, benefiting themselves and employees participating. Solo 401K: this plan was is for business owners that have no full-time employees. It brings full coverage on both the owner and spouse, making it unique in its kind. This plan brings equal tax benefits as a Traditional 401K, making it one of the most popular plans for self-employed individuals. Roth Solo 401K: a combination between a Traditional 401K and a Roth Ira. It grows tax-free, takes the Solo 401K advantages, and contributions are with after-tax dollars. SIMPLE IRA: a plan designed for employers and self-employed individual’s companies. Contributions can either be by elective-deferrals or salary- reductions, benefiting with tax deductions. The SIMPLE IRA has a low starting and maintenance cost in comparison with other qualified plans since both employees and the employer have control over it. This plan follows everything from a Traditional IRA. Payroll Deduction IRA: this plan allows employees to set up the amount of contribution the participant wants the employer to deduct from their paycheck on a Traditional or Roth IRA. Additionally, this plan has no administrative costs and is easy to establish and maintain. Profit Sharing: known as deferred profit-sharing plan. This plan provides financial security in retirement by allowing employees to choose how much contribution they want to make on their plan. It also allows the employee to have a certain part of direct shares of profit from the company, which depends from on the percentage of compensations the employee is gaining. Conclusion Saving for your future should be one of your priorities. It can be beneficial in many aspects in either the present or future. The variety of plans available today help you adapt and get the most comfortable one for you. Each one has its one rules, but. Life contains many up and downs, so why not prepare for it and save some money.
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