Sound Advice Financial Planning
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Goodyear, Arizona 85338
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What Are My Retirement Planning Options?
There are a variety of retirement planning options that can meet your needs.
Your employer funds some; you fund some. Bear in mind that in most cases,
withdrawals made before age
591/2 are subject
to a 10 percent penalty, and withdrawals usually must begin by April 1 of the
year after you turn age 701/2.
Income taxes are also due upon withdrawal in most cases. This list describes 10
of the most common options.
|A defined benefit pension
normally provides a specific monthly benefit from the time you retire
until you die. This monthly benefit is usually a percentage of your final
salary multiplied by the number of years youve been with the company.
Defined benefit pensions are usually funded completely by your employer.
|A money purchase pension
provides either a lump-sum payment or a series of monthly payments. The
size of this benefit depends on the size of the contributions to the plan.
Your employer normally funds money purchase pension plans, although some
will allow employee contributions.
|Your employer funds a
profit-sharing plan; employee contributions are usually optional. Upon
your retirement, you will normally receive your benefit as a lump sum. The
companys contributions and thus your retirement benefit may depend on
the companys profits. If a profit-sharing plan is set up as a 401(k) plan,
employee contributions may be tax deductible.
|A savings plan
provides a lump-sum payment upon your retirement. The employee funds savings
plans, although employers may also contribute. Employees may be permitted to
borrow a portion of vested benefits. If a savings plan is set up as a 401(k)
plan, employee contributions may be tax deductible.
|Under an employee stock
ownership plan (ESOP), an employer periodically contributes company
stock toward an employees retirement plan. Upon retirement, employee stock
ownership plans may provide a single payment of stock shares. Upon reaching
age 55, with 10 or more years of plan participation, you must be given the
option of diversifying your ESOP account up to 25 percent of the value. This
option continues until age 60, at which time you have a one-time option to
diversify up to 50 percent of the account.
or 403(b) plans are offered by tax-exempt and educational
organizations for the benefit of their employees. Upon retirement, employees
have a choice of a lump sum or a series of monthly payments. These plans are
funded by employee contributions, and these contributions are tax
accounts are available to virtually any wage earner at any salary. They
are funded completely by individual contributions. IRAs are usually held in
an account with a bank, brokerage firm, insurance company, mutual fund
company, credit union, or savings association. They provide either a
lump-sum payment or periodic withdrawals upon retirement. There are two
basic types of IRAs: traditional and Roth. Contributions to traditional IRAs
may be tax deductible and are taxed upon withdrawal, whereas contributions
to Roth IRAs are not tax deductible but qualified withdrawals are tax-free.
|Keogh plans were
specifically designed for self-employed people. They are funded completely
by wage-earner contributions and provide either a lump-sum payment or
periodic withdrawals upon retirement. Keogh plans have the same investment
opportunities as IRAs. Contributions to Keogh plans are tax deductible
within certain generous limitations.
pensions, or SEPs, were designed for small businesses. Like IRAs, they
can provide either a lump-sum payment or periodic withdrawals upon
retirement. Unlike an IRA, the employer primarily funds them, although some
simplified employee pensions do allow employee contributions. SEPs are
usually held in the same types of accounts that hold IRAs. Employee
contributions in those SEPs that allow them may be tax deductible.
Savings Incentive Match Plans for Employees, or
SIMPLE plans, were designed for small businesses. They can be set up either
as IRAs or as deferred arrangements 401(k)s. The employee funds them on a
pre-tax basis, and employers are required to make matching contributions.
Principal and interest grow tax deferred.
Strictly speaking, annuity
contracts are not qualified retirement plans. But they do provide
tax-deferred growth like qualified retirement plans. They are also subject
to withdrawal conditions very similar to qualified retirement plans, but
there are no contribution limits. They can be used very effectively to
supplement your employer-provided retirement plan.
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