Retirement Planning

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Retirement Planning Basics

You know all about the advantages of a company-sponsored retirement plan -- for both you and your employees. But it's important to understand that participating in a retirement plan is just one of the steps we all need to take to prepare for a secure retirement. Your Newbridge Financial Consultant can provide both you and your employees with basic information on how to put together a solid financial plan. For both employers and employees, an employer-sponsored retirement plan should be the cornerstone of your retirement savings strategy.

If you have access to a retirement plan and your plan allows you to contribute to your account, you will probably want to take advantage of that important benefit. Contributing to your retirement plan will allow you to defer from taxes a portion of your current income and allow your retirement account to grow even more through the power of compounding which is the overall gains experienced when the returns and interest paid on your investments remain in those investments and begin to earn returns and interest on themselves. Compound interest is the interest paid on both the principal and reinvested interest

Retirement plans available:

Defined Contribution Plan: A retirement plan providing an individual account for each participant. The participant's benefit is the balance in the account, which changes over time, based on the amounts contributed, plus or minus any gains or losses in investments. The employer chooses whether or not participants direct the investment of their accounts.

Defined Contribution Plans

Profit Sharing Plan: A type of retirement plan under which an employer may, under the terms of the plan, make fixed or discretionary contributions. These contributions are subject to limits set by the Internal Revenue Code and may be -- but are not required to be -- tied to profits.
Profit Sharing Plan: A type of retirement plan under which an employer may, under the terms of the plan, make fixed or discretionary contributions. These contributions are subject to limits set by the Internal Revenue Code and may be -- but are not required to be -- tied to profits.
SEP-IRA (Simplified Employee Pension Plan): A type of retirement plan with individual IRA accounts for each participant. The employer funds the retirement benefit by making contributions that are remitted directly to the IRA accounts. Employers must contribute a uniform percentage of pay for each employee. Employer contributions are limited to the lesser of 15% of an employee's annual salary, or an annually adjusted maximum ($25,500 in year 2000). All contributions are immediately 100% vested.
401(k) Plan: A 401(k) plan is a profit sharing plan that allows employees to make pretax employee contributions into an account under the plan. The plan may also include an employer match of all or a portion of an employee's contributions, as well as a standard profit sharing contribution.
Money Purchase Plan: A type of retirement plan under which an employer agrees to make mandatory contributions annually. Generally, contributions are based on a specified percentage of each participant's compensation.
403(b) Plan: A 403(b) plan is a retirement plan offered by a 501(c)(3) organization or certain educational institutions, which allows employees to make employee contributions into an account under the plan.

With defined contribution plans the amount you have available to you at retirement depends on how long you participate in the plan, how much you contribute, the amount of your employer's contributions (contributions paid by an employer into an employer sponsored retirement plan ... if provided for under the plan, employer contributions may be mandatory "fixed" or discretionary), and how well your investments perform over the years.

The biggest advantage of investing in a plan for many people is the significant tax breaks an employer-sponsored retirement plan offers. The money you invest in a plan and the earnings on those contributions are deferred from income taxes until you withdraw the money. Since your earnings may well be lower when that day comes, you could experience an overall tax savings.

Tax deferment also means that contributing to your plan may not decrease your take-home pay as much as you might think. For example, if you put $100 into a retirement plan each month and your income tax rate is 15%, because of your tax deferment, your take home pay is only decreased to $85.

Just as important, many plans give the employer the opportunity to contribute to the retirement nest eggs of their employees. And, though with some plans the money an employer contributes may not be available to employees immediately, your nest egg continues to grow through compounding. The money you contribute is generally available to you, although penalties may apply if you withdraw any funds before you retire.

How do you make the most of your employer-sponsored retirement plan?

  • Join as soon as you become eligible.
  • Put in the maximum amount allowed so you can make the most of any employer matching contributions.
  • Make informed decisions on the investment choices available to you.
  • If your employer matches your contributions with stocks instead of cash, financial experts recommend that you don't let your account get overloaded with company stock.

If your employer doesn't currently offer a retirement plan -- or if you are an employer who wants to know more -- Your Newbridge Financial Consultant can show you the many business advantages that establishing a plan provides. You'll also find helpful information for employers in our Resources section.