While putting together a retirement plan is something everyone should do it can be difficult to set aside funds for the future. Numerous individuals lost much of their life savings due to economic hardships. Many people who had plans in place have to start over from scratch to rebuild their nest egg.
Those who haven’t begun creating their retirement plan often find the process so confusing they end up doing nothing. Although the process can seem insurmountable there are numerous resources which can be used to develop achievable goals.
The best approach is to become educated about the different types of investment products and begin setting aside funds at an early age. Unfortunately, a lot of people don’t give much consideration to retirement until they reach middle age. However, setting up an IRA at a later age typically makes it harder to reach financial goals.
Regardless of a person’s age when they start it’s always beneficial to consult with a financial planner. Experts can offer guidance about investment products and the anticipated return. They can help individuals decide which types of investments will help them reach their goals, as well as establish strategies to minimize capital gains tax.
It’s important to learn about the pros and cons of different types of retirement plans. Many people prefer Individual Retirement Accounts (IRA) and 401(k) plans, but there are others worth exploring. These include profit-sharing plans, 403(b) plans, Roth IRA, and Simplified Employee Pension (SEP).
A few other options include governmental plans, money purchase plans, 409 A non-qualified deferred compensation plans, 457 plans, and employee stock ownership plans (ESOP).
Offering retirement plans to employees is an excellent strategy for attracting and retaining quality employees. Depending on the type of plan, employee contributions might qualify for tax deductions or credits.
Bundling individual retirement accounts with other incentives can be very beneficial to business owners. Not only can employers provide financial security to their staff members, they also receive tax benefits until account funds are distributed.
Small business owners can also take advantage of providing individual retirement accounts, even if they only have one employee. For the most part, contributions are made via payroll deduction. The three most popular plans include Safe Harbor 401(k), Simple IRA Plan, SEP, and IRA.
Many employers are turning to defined benefit (DB) plans because they offer a guaranteed benefit. The amount distributed at retirement is calculated based upon a predetermined percentage of wages and years of service. As an example, the plan could provide 5 percent of wages earned over 10 years.
Last, but not least, employers can arrange defined contribution (DC) plans. The drawback to these plans is they don’t guarantee a specific amount of benefits. Instead, employers and employees contribute to DC plans over time. Funds are invested which allow employees to grow their wealth. On the other hand, if investments result in a loss the amount is deducted from distributions.
Every type of employee retirement plan has pros and cons so it is advisable to get help from a business law attorney. Careful consideration should be given to maximum contributions; minimum employee coverage; contributor’s options; payments and withdrawals; and vesting.
Regardless if you are an employer who wants to offer incentives or an individual who wants to ensure you’re financially set, now is the time to establish a retirement plan. It’s also wise to protect retirement plans with adequate estate planning so proceeds can be handed down to heirs.