You may not be thinking about retirement while you are concentrating on advancing your career, but it’s certainly something you need to make time for. It should planned out early, so you can have a stress free retirement. Besides investing your time and dedication to success, you need to financially secure your life for when you become unable to work.
There are many options out there that can make the process seem complicated, though. Before the 1980’s, pension plans were the popular retirement choice. Since then 401(k) plans and Individual Retirement Arrangements (IRAS) have become the more common choices. To determine which one is the best choice, you must analyze your needs and set your goals accordingly.
The 401(k) plan was named after the the United States Tax Code 401(k) that enables individuals to invest in their retirement without having to concern themselves with paying taxes on the earned income. 401(k) plans are offered through an employer. Your employer may have a policy and regulations in place for how to gain access to the funds you have invested, but you have full control of how much to invest and how to manage the funds being invested. They may opt to match your contribution by an established percentage. Your funds will be taxed upon withdrawal when you retire, not while during the investment period. With a Roth 401 (k) plan you would have to pay taxes now and then withdraw your retirement funds tax free.
401(k) Change of Employment Options
Roll over the funds into an IRA – This normally comes with a variety of investment options: Certificate of Deposits (CD’s), Mutual funds, bonds, exchange-traded funds, stocks, real estate and annuities. There are even options to back your IRA with gold and other precious metals. Do your homework before choosing where you open the account though and possibly check gold ira reviews.
Roll over the funds to your new employer’s 401(k) plan – Make sure to compare plans and confirm that the rollover will benefit the investment you have already made. In many cases your former employer will charge extra fees to allow you to keep the money in your old account. In some cases, especially if there’s less than $5,000 in the account, they might not let you at all. So read the fine print and understand what options you have. Here’s some great information on the obstacles you might face trying to roll over 401k plans.
Withdraw the funds – This should be done only if an emergency arises, such as: medical, death, accident, etc. 20% of your funds will be withheld and the money disbursed will be taxed.
Don’t touch it – Some of these plans offer loans, which give you a method of accessing the funds temporarily without being taxed or suffering penalties. Keep in mind that any amount not paid on the loan will be considered a taxable distribution.
An IRA has two pro’s that stand out. It’s all yours. You set the rules. Similar to the 401(k) plan, the IRA was designed to provide individuals a tax break on their retirement savings. Your savings are tax deductible. With a Roth IRA you will have to pay taxes until you retire.
Maximum Contributions Limits for 2014 (Full details here)
IRA (Traditional and Roth) – $5,500 annually
Ages 50 and over – $6,500 annually
401(k) – $17,500 annually
Ages 50 and over – $23,000
The end decision should be based on your financial security needs and which ones you actually qualify for.
If your employer offers you a 401(k), you should consider this as a primary option.
You can have more than one retirement plan.
Read the fine prints.
Ask for clarity before committing to anything you are unsure of.
The goal is to secure your future.