Retirement needs are often ignored. Some people ignore the issue until late in life. They scramble at the last minute to fund their retirement. In our last blog we talked about government poverty level and predicting your retirement needs. In this blog we will tell you about the different retirement plans available to you.
As we mentioned in our last blog, since the government wants you to save and prepare for your own retirement, tax laws offer a variety of tax incentives for retirement savings plans. This is true for wage earners and self-employed individuals and their employees. These plans include:
This plan allows up to $5,500 (or $6,500 for individuals age 50 and over) of tax-deductible contributions each year until reaching age 70½. Keep in mind, the amount that can be deducted phases out for higher-income taxpayers who also have retirement plans through their employer.
This plan also allows up to $5,500 (or $6,500 for individuals age 50 and over) of contributions each year. Like the Traditional IRA, the amount that can be contributed phases out for higher-income taxpayers. Unlike the Traditional IRA, these amounts phase out even for those who do not have an employer-related retirement plan.
This is a relatively new retirement vehicle. myRA is designed to be a starter retirement plan for individuals with limited financial resources and those whose employers do not offer a retirement plan. The minimum amount required to establish one of these government-administered plans is $25. You can make monthly contributions as little as $2. Once the total value of the account reaches $15,000 or after 30 years, the account must be converted to a commercial Roth IRA account.
Employer 401(k) Plans
An employer 401(k) plan generally enables employees to contribute up to $18,000 per year, before taxes. In addition, taxpayers who are age 50 and over can contribute an extra $6,000 annually, for a total of $24,000. Many employers also match a percentage of the employee’s contribution. This can amount to a significant sum for those who stay in the plan for many years.
Health Savings Accounts
Although established to help individuals with high-deductible health insurance plans to pay medical expenses, these accounts can also be used as supplemental retirement plans. This is if an individual has already maxed out his or her contributions to other types of plans. Annual contributions for these plans can be as much as $3,350 for individuals and $6,750 for families.
Tax Sheltered Annuities
These retirement accounts are for employees of public schools and certain tax-exempt organizations. Tax Sheltered Annuities enable employees to make annual tax-deferred contributions of up to $18,000 (or $24,000 for those age 50 and over).
Self-Employed Retirement Plans
These plans, also referred to as Keogh plans, allow self-employed individuals to contribute 25% of their net business profits to their retirement plans. The contributions are pre-tax (which means that they reduce the individual’s taxable net profits), so the actual amount that can be contributed is 20% of the net profits.
Simplified Employee Pension (SEP)
This type of plan allows contributions in the same amounts as allowed for self-employed retirement plans. The exception is the retirement contributions are held in an IRA account under the control of the employee or self-employed individual. These accounts can be established after the end of the year, and contributions can be made for the prior year.
What determines my retirement needs?
Each individual’s financial resources, family obligations, health, life expectancy, and retirement expectations will vary greatly. There is no one-size-fits-all retirement savings strategy for everyone. Purchasing a home and putting children through college are examples of events that can limit an individual’s or family’s ability to make retirement contributions; these events must be accounted for in any retirement planning.
Do you have questions regarding your retirement needs?
If you have questions about any of the retirement vehicles available to you, we invite you to call Alex Franch, BS EA at 781.849.7200. Alex is an enrolled agent with the IRS and he has the knowledge to help you work through these difficult to predict situations. You may also visit our One Source Financial Center or our Integrated Financial Services page to learn more about our multi-disciplined approach and the difference it can make in your financial life.
Our Financial Center offerings include:
- Wealth Accumulation Programs
- Education & Retirement Planning
- Life, Disability, & Long-Term Care Insurance
- Employee & Executive Benefits
- Exit & Succession Planning
- Ignoring Your Retirement Needs? Part 1
- Are Social Security Benefits Taxable?
- Do Not Forget Your Retirement
- Retirement Savings, The Earlier, The Better!
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- Only One IRA Rollover Every 12 Months – Period!