We all know we should have “a bundle socked away” when our working days end.
You maybe using a company program. If you own the company or self -employeed,
we may want to take a different approach to accumulate retirment funds.
There are a number of plans an individual can use to build their fund. These plans defer
taxes on income and the earnings gained while the dollars are invested. The IRS
recognizes the following retirement plans for groups and individuals.
401k - There are two 401k programs. The first is the traditional 401k that invests
dollars that have not been taxed. Income taxes are paid when the dollars are
withdrawn. The second is a Roth 401k. The Roth 401k uses dollars that have been
taxed. When these dollars are withdrawn there are no income taxes. Also, these
programs have additional benefits that an employee can use.
403b - A plan for employees of churches, public schools, public hospitals, colleges and
universities similar to a 401k.
457 - A plan for State and local government employees. This plan is similar to a 401k
but there are differences in withdrawing funds.
412e - A plan designed for the self-employed and small business owners. The
investments in the plan are limited to life insurance and fixed annuities. This plan is
valuable because an individual can deposit over $250,000 a year.
Simple IRA- The Simple IRA is an excellent program for a small business. An Employee may contribute a maximum of $12,500 (2018). The Employer match can be up to 3% for Qualified Employees or 2% for all Employees. The Employee Maximum is $100.
SEP- The Simplified Employee Pension Program can have a Maximum of 100 Employees. The Annual Maximum Contribution by Employees is 25% of their Salary or $55,000 (2018). The Employer may match up to 3% or 2% for all Employees with a Profit Sharing Plan. The plan benefits Employers because of low administrative costs and the Employer can make flexible contributions.
IRA - A plan that uses non-taxed dollars to create a retirement fund. Income taxes are
paid after dollars are withdrawn after age 59 1/2. Early withdrawals have a 10%
penalty. Remember there are deposit and earning maximums.
Roth IRA - This plan uses earnings that HAVE been taxed. Since you already paid
income taxes on the deposits, there are no income taxes paid when dollars are
withdrawn. If there are withdrawals during the first five years or before the age of
59 1/2, a ten percent penalty is applied. The deposit maximums are the same as the
Everyone’s financial position is different so “we need to talk”. The worst thing you can
do is doing NOTHING.