Turning 30 has always been every individual’s worry. But when you turn 50 and ponder over all the retirement savings, the planning, the initiation & the accomplishment phase it’s a hilarious migraine for everyone. There had been days when employees could only rely on a pension plan or social security to meet their expenses during the retirement time. The case stays slightly different in the 21st century. Pensions have become uncommon since we have a larger population aging and fewer employees contributing to the system
The retirement investment plans have been a substitute for most types of financial instabilities in the coming years. It can be designed by employers themselves, the different insurance policies, trade unions, financial institutions and the government as well. The Internal Revenue Code (IRC) has laid a foundation for the retirement investment plans in the United States. These plans are formulated mostly by Department of Labor based on the Employee Retirement Income Security Act (ERISA).
Saving for retirement investment plan doesn’t have to be a hassle. Every month try saving a little extra from your pocket into your retirement investment plan piggy bank. Every hike in your yearly appraisal can go into the retirement savings plan because a portion of it can only increase the economies of scale if you are in dire need to utilize the amount you receive every month. If you are lucky enough to win a lottery, or party presents, cash vouchers with unlimited validity or other flow of money stop you from using it. Make this habitual to set aside a few portion of such amount to the retirement investment plans. Retire investment plans are of three types:
- Individual retirement plans (IRA)
- Employee contribution retirement plans
- Self-employed or entrepreneurship
They are a source of tax evasion down the lane. Always making it easier to handle your expenses and cut the unwanted costs. You can be your own financial planner/advisor to handle the savings as a retirement investment plan. This has always been done in the United States to assist the taxpayers or their beneficiaries. As on 2017 March, individuals can pitch in up to $5500 per year to the retirement account. Employees aged 50 or above can contribute up to $6500. There are different IRA’s as below:
- Traditional IRA No tax during the IRA tenure, but withdrawals after the tenure is taxable as income.
- Roth IRA No tax during the IRA tenure and even the withdrawals are tax-free.
- SEP IRA Entrepreneurs and small business owners can contribute to their retirement planning which is noted on the employee’s name and not on the pension scheme of the company. Almost as similar to the 401k where an amount is reduced from employee’s paycheck well calculated before taxation.
- Rollover IRA Funds are provided by a plan in the company itself instead of cash retrieved from the employee.
- Conduit IRA You can transfer one asset to another without interfering any of the other assets.
- Spousal IRA Gives a couple the ability to apply for tax evaded retirement savings plan even though one of the members might be non-working. An account can be started only in the non-working member’s name.
Employee Contribution Retirement Plans
IRC defines this plan as an employee contributed/sponsored with a separate account for every participant. The benefit of such a plan is the contribution made into the account plan based on the stocks or funds reducing the accrued expenses. The ROI received from the contributed stock investments are credited from individual’s amount. While retirement individual can ask for retirement benefits from the participant’s account. This is predominant in the retirement savings plan all over United Status only because certain other benefit schemes have been declining and employees see funding as a freeze to the plan.
Self – Employed Plan
A self-employed plan can benefit employees who are small business owners or self-employed such as consultants or freelancers. This can as well benefit an individual who attributes to way higher contribution limits. The employer can contribute to any limit; it can be solely funded by you. As of 2017 limit can be $54,000 or lesser and can be a 25% of employee’s earnings with a $270,000 limit on compensation. If you look at the simple IRA, it is designed for deals up to 100 employees. This is contributed to salary deferral. For people age 50 or above limit is $3000, if you are contributing voluntarily the amount cap is $12,500. Last but not the least is the profit sharing plan for the self-employed having not less than three workers to share your financial plan. Varying from the salary deferral plan here it’s based on the job level and salary hence the limit is lowered up to 25% or $54000 per annum.