A Few Points To Keep In Mind
While the primary objective of retirement planning is to ensure personal financial comfort for one’s Golden Years, the right retirement planning company will help you exceed your set goals. A savvy retirement planning consultant will be able to achieve the following when setting up your benefits: maximizing your legacy wealth via appreciation of your investment and minimizing your tax liability post-retirement. Hence, you’ll be able to secure a bountiful legacy that will not only take care of your retirement needs but also leave something behind for your heirs. However, this would call for close management and monitoring of your retirement wealth from certified professionals.
Which Retirement Plans To Choose
Now that we have a reasonably good idea about the meaning of retirement planning, let’s have a look at the various retirement plan options available to employers and employees. Each one is unique and has its own specialties and features. The onus lies on the investors to do their research and choose a plan that takes care of their clients’ retirement objectives. There is no doubt that the role of a good retirement planning company is vital to saving for retirement and maximizing ongoing contributions. They do not just provide the right investment opportunity but also fully take care of your financial needs to guide you through the process for optimal results.
Read on to learn more about a few major retirement planning options that are popular today. Keep in mind that there could be variations within each of these plans, and sitting down with a retirement planner to discuss the details is the best way forward. You could get started with a single plan and then might consider adding two or more down the line. This is quite common your objectives might involve broadening your investment to ensure that you get the best returns.
Individual Retirement Accounts (IRAs)
There is no doubt that the IRA is considered the most popular, basic retirement plan. It is tax sheltered. This plan is particularly popular because it is easy to understand and set up, and managing the plan is also quite easy from a layman’s perspective. However, an IRA is only available to those who can show an earned income but performs the task of a destination account quite well because it allows all other retirement plans to be rolled into one. This goes a long way in helping account owners avoid painful tax obligations and liabilities. The rollover is planned in such a way that you could end up paying very little as far as taxes go.
There is one more reason for its popularity. The IRA is a completely redirected retirement plan, making it different from employer-sponsored plans. These employer-sponsored plans limit the number of investments to a few–mostly in the form of mutual funds or ETFs (exchanged-traded funds). The best part about an IRA is that it can be held in a big-sized investment brokerage account and can be invested across all asset classes that are available. This includes bonds, stocks, fixed income, commodities, as well as investments in real estate trusts. This compares very well to almost any employer-sponsored plan because they do not offer as many options as an IRA.
However, be aware that there is a list of IRA investments that are prohibited. The list is short, and apart from these, you are free to invest in anything that fits your financial situation and goals. Seeking counsel from retirement planning administrators is important because they will be able to help you choose and customize IRA investments after carefully considering your retirement goals, your expenses, and other additional factors. You’ll also need to understand the ways in which contributions to IRAs are made. It must be made on or before the tax filing date and your tax and retirement planner could assist you with this. In addition to traditional IRAs, there are a plethora of other options. Here are a few of them:
- Traditional IRA
- SEP IRA
- Nondeductible IRA
- Roth IRA
- Simple IRA
- Spousal IRA
- Self-directed IRA
Health Savings Account (HSA)
This is an interesting retirement plan that is closely associated with medical expenses and health insurance. While the main objective is to ensure that your healthcare and medical care expenses are reasonably protected post-retirement, this plan allows for a creative approach in saving an additional amount for retirement. Because there are some health insurance plans that are high-deductible in nature, it makes sense to invest money into the right HSA.
Keep in mind that the contribution limits for HSA plans range from $3,450 to $6,900. The former limit is for individuals while $6,900 is available for family plans. If there are investors beyond the age of 55, then you are allowed to make an additional $1,000 contribution. The money that is accumulated in the account can be used anytime for allowable medical expenses. If the funds are not used, it can be rolled over to the next year and so on. If you plan and strategize well, you can also enjoy a nice tax deduction. It is a long-term investment that will grow over an extensive period of time. It will certainly come in handy when one reaches retirement age and needs money to take care of health costs and medical expenses. The best part about an HSA is that the money you invest will be totally tax exempt, provided it’s used for the approved list of medical expenses. You are also allowed to use the funds for other purposes before the age of 65. However, this should be avoided because it comes with steep taxes and a 20% penalty. However, by keeping medical receipts for various healthcare expenses will allow you to avoid the high taxes (but not the penalty).
Cash Balance Pension Plan
This is another attractive retirement planning option and is suitable for those who belong to the high income earning group. It has the potential to help individuals accumulate large amounts of money before taxation. Pension plans could also be suitable for small business owners saving for retirement. This option could also potentially reduce a business owner’s tax liability rather significantly.
The results of a pension plan are optimal when they are combined with a 401(k) profit sharing plan. If the planning is done right with a professional administrator, an individual can experience up to (or beyond) $100,000 in tax savings. Keep in mind that a cash balance pension plan is not as useful on its own. As an employer or business owner, you may have to contribute to these types of plans for employees as well.