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Why save money for your retirement?<br><br>Today, less than 50% of Americans have not started saving money or calculating how much money they need to save for their retirement.<br>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)*.<br>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.<br>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.<br><br>Available Retirement Plans for Business Owners<br>The most common types of plans are:<br>Individual Retirement Plans<br>Employer-Sponsored Retirement Plans<br>Retirement Plans for the Self-Employed and Small-Business Owners<br>The Individual Retirement Plan is a mix of the following:<br>Traditional IRA<br>Roth IRA<br>Spousal IRA<br>MyRa<br>Rollover IRA<br>The Employer-Sponsored Retirement Plans (also known as defined contribution plans) includes:<br>Traditional 401K<br>Roth 401K<br>403B or Tax-Sheltered Annuity (TSA)<br>457B<br>Thrift Savings Plans (TSP)<br>The Retirement Plans for the Self-Employed and Small-Business Owners includes:<br>SEP IRAs – (Simplified Employee Pension)<br>Solo 401K/Solo Roth 401K<br>SIMPLE IRA – (Savings Incentive Match Plan for Employees)<br>Payroll Deduction IRA<br>Profit Sharing.<br> How These Plans Work: <br> <br>Individual Retirement Plans<br><br>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.<br>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.<br>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.<br>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.<br>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.<br>The Employer-Sponsored Retirement Plan<br><br><br>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.<br>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.<br>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.<br>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.<br>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.<br> <br>Retirement Plans for the Self-Employed and Small-Business Owners<br><br>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.<br>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.<br>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.<br>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.<br>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.<br>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.<br>Conclusion<br>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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Retirement plans: What are your options? • Issues in RetirementPlanning • Types of RetirementPlans • By: Storick Group
Higher Health Costs: • Higher-income individuals are often in better health at retirement and will face higher lifetime health costs as they live longer. Planning for these higher costs will be challenging, but veryimportant. • Longer LifeExpectancy: • A 65-year-old married couple retiring today will likely see at leastone spouse live longer than the 30years. • Balancing Risk andReturn: • Developing a proper asset allocation in a portfolio requires balancing many factors including risk tolerance, cash flow needs, time horizon and return requirements. Planners want to reduce risk as much as possible in the portfolio while still achieving a sufficient return to achieve the client’s financialgoals. • EnjoyingRetirement • While it is important to come up with a retirement withdrawal rate that is sustainable, it should also allow clients to enjoy theirretirement. ISSUES IN RETIREMENTPLANNING:
WithdrawalStrategy • It can be very difficult to move from a lifetime of spending what comes in to drawing down on a portfolio. Coming up with an amount to keep in cash reserve and maintaining it iscritical. • MonitoringExpenses • Expenses are often much different in retirement than they are during working years, but they are still incredibly important to the overall plan. Often, clients will spend more in the early years of retirement, see expenses dip in the middle, then rise as the near the end of their lives and medical expensesclimb. • Social Security Uncertainty • The role of Social Security in the retirement planning process is changing as concerns grow over the availability of benefits for future generations.
Long-Term CareNeeds • Long-term care costs are increasing -- as is the percentage of the population that will need this kind of care at some point in their lives. Looking broadly at how to fund these costs is important, whether that means self-insuring if you have enough assets or buying some form of LTCinsurance.
Individual Retirement Account(IRA): • An IRA is a tax-favored retirement account that lets you contribute a certain amount each year and invest your contributions tax deferred. That means you pay no taxes on annual investment gains (which helps them to grow more quickly). With a regular IRA, you pay income taxes on the money when it's withdrawn atretirement. • An IRA is an investment account. Once the money is placed within, you can invest in stocks, bonds, mutual funds, ETFs, and other types of investments. You can buy and sell investments within the IRA, but if you try to cash you entirely before retirement age at 59 ½ (known as a premature distribution), you will most likely pay a 10 percent penalty fee and may be subject to federal, state and local income taxes. TYPES OF RETIREMENTPLANS:
RothIRA: • Unlike a regular IRA, Roth IRA contributions are made after tax, but any money generated within the Roth is never taxed again. The best part: you can take withdraw contributions you've made to a Roth IRA before retirement age without penalties. If you are just starting out and think your income will grow, putting money in a Roth is a great place to invest extra cash while giving your future self an amazing taxbreak. • 401(k)Account: • A 401(k) is a workplace retirement account, offered as an employee benefit. This account allows you to contribute a portion of your pre-tax paycheck in a tax-deferred investment account. One of the benefits of contributing pre-tax money is it lowers the amount of income your taxes are based on (If you earn $75,000 and contribute $10,000, you are taxed on a $65,000 income). Plus, as with an IRA, investment gains grow tax deferred until retirement. If you withdraw funds from the plan before retirement age, you will pay a 10 percent penalty and could be subject to federal, state and local income taxes. However, some employers do offer 401(k)loans.
A 403(b) plan is a retirement plan for certain public school employees, employees of tax-exempt organizations and ministers. Individual 403(b) accounts are established and maintained by eligible employee. • Accounts under a 403(b) plan can be one of the threefollowing • types: • An annuity contract provided through an insurance company; these 403(b) annuity plans are also known as tax-sheltered annuities (TSAs) and tax-deferred annuities(TDAs). • A custodial account provided through a retirement account custodian; investments are limited to regulated investment companies, such as mutualfunds. • A retirement income account, for which investments options are either annuities or mutualfunds. 403(B)PLAN:
Employer-sponsored Plans: The two types of employer- sponsored retirement plans are qualified and non-qualified retirementplans. • Qualified retirement plans meet the Internal Revenue Code requirements and the Employee Retirement Income Security Act of 1974 (ERISA) requirements. These plans offer several tax benefits: they allow employers to deduct annual allowable contributions for each participant; contributions and earnings on those contributions are tax- deferred until withdrawn for each participant; and some of the taxes can be deferred even further through a transfer into a different type ofIRA. • Non-qualified retirement plans are those plans that either do not meet the IRS Code requirements or the ERISArequirements.
Profit sharing Plan: An employer alone makes contributions • based on an employee's current-yearcompensation. • Contributions: Employers can decide what amount and whether to contribute to the plan each year. The maximum that the employer can contribute is 15% whichever is less. In addition, contributions can only be made on the first$170,000. • Eligibility: Employees can be eligible to participate in the plan immediately or after one or two years of employment; the vesting schedule is up to sixyears. • Stock bonus plan: A type of profit sharing plan, where contributions are made in the form of companystock. • Money purchase pension plan: A retirement plan with fixed- percentage compensations by the employers. Unlike profit sharing plans, these contributions are mandatory every year, regardless ofprofits.
Combination plans: The profit sharing and money purchase plans are often combined by companies that have varied earnings from one year to the next. Through the establishment of proper contribution percentage rates in both plans, the employer can make the maximum contribution in good years and not during more difficult years. • Contributions: The total percentage for contributions in a • of be combined plan cannot be more than the lesser of 100% compensation or $40,000, and no more than 25% can contributed to the profit sharingplan. • Eligibility: Employees can be eligible to participate in the • combination plan immediately, or after one or two years of employment; if employees are not allowed to enroll immediately, those participants must be 100% vested at alltimes. • Savings plan: Contributions are made by both the employer and the employee where the employer can match all or a percentage of the employee'scontributions. • Employee stock ownership plan (ESOP): The employer contributes shares of the company's stock to employees in return for special tax benefits . The shares of the company stock have to vest before a participant receives them. As an example, he vesting period can be 20% a year for 5 years. Employees are eligible to participate in this plan if they work at least 1000 hours in ayear.
Deferred-Compensation-Plans 457 plans are aimed at state and local government employees of tax-exempt organizations. In 2013, participants can defer up to $17,500 of their annual income, and contributions and earnings are tax-deferred until withdrawal. Distributions start at retirement age but participants can also take distributions if they change jobs or if they have an emergency, including death. Participants can choose to take distributions as a lump sum, annual installments or as an annuity. Distributions are subject to ordinary income taxes and the amounts cannot be transferred into anIRA. 457PLAN:
Simple IRA: • Savings Incentive Match Plan for Employees (SIMPLE)IRA A SIMPLE IRA is a retirement plan that may be established by employers, including self-employed individuals (sole proprietorships and partnerships). The SIMPLE IRA allows eligible employees to contribute part of their pretax compensation to the plan. This means the tax on the money is deferred until it is distributed. This contribution is called an elective-deferral or salary-reductioncontribution. • If a participant under the age of 59.5 wishes to take a distribution and it has been less than two years since their first contribution into the plan, they could be penalized up to 25% (10% if more than two years) by the Internal Revenue Service. This two-year rule applies to all distributions, including rollovers from the SIMPLE IRA. Any amount withdrawn andnot rolled over, regardless of age, is also be subject to ordinary income tax for the year in which the distribution ismade.
If you are self-employed and have no one working for you, a SEP IRA will allow you to contribute a portion of your income to your own retirement account, and fully deduct them from your income taxes. The maximum annual contribution limits are higher than most other tax-favored retirementaccounts. SEPIRA:
