401(k)

Do I need a 401(k) plan?
Now, more than ever, the need for 401(k) Retirement Plans for American workers is apparent. Social Security, never meant to deal with the burden that has been placed on it of late was not designed to support a large generation of retirees who lived well past the point at which they stopped working. Personal savings have gone down significantly in the past few decades, from 12% of GDP in 1965 to 5% in 1995. There are traditional pension plans and retirement funds that might offer some relief, but these are not available to all workers, including those without benefits and the self-employed. Finally, while other means of providing for oneself after working exist, none are as versatile and with the same potential for growth as 401(k) plans.

401(k) or IRA?
401(k) plans are a better choice, mainly for the maximum allowable contribution that IRA's lack. While Individual Retirement Funds might be beneficial for some individuals, 401(k)'s let you contribute much more money per month. You can defer up to $10,500 from your salary before taxes. Between matching gifts and profit sharing features that some companies offer, you can add as much as $25,000 annually. IRA's only allow $2,000. What are “matching funds”?

Matching funds are dollars that are added to your 401(k) fund from your employer along with your regular contribution. The contribution of your employer is generally a smaller proportion of what you add, around 50%. This is done as an incentive by companies to encourage 401(k) investment on the part of their employees. For the exact details and level of matching funds added by your workplace, inquire with your 401(k) plan administrator.

What are the advantages of having the taxes deferred?
Normally, if you were to invest money in some sort of mutual fond or stock, you would only be able to do so with money that you had earned and already paid income tax on. Tax-deferred refers to the fact that because you are investing money from your paycheck immediately into a 401(k) fund, you will do so before taxes have been paid on it. You will have to pay taxes on this when you remove the money from your account, be it upon retirement or for an emergency.

What Should I do with my 401(k)?
If you've changed jobs or recently retired, you may be wondering what you should do with a 401(k) or other retirement savings account from a former employer.

Take Control of Your Retirement Savings. Walker Winslow can provide information as to how you can increase your retirement dollars.
Increase your investment options. Enables you to take control of your overall retirement plan. Allows you to move your money out of your former employer's retirement plan (401(k), 403(b), Thrift Savings Plan) without tax consequences or other penalties keeps your savings invested tax-deferred.

How to Do a Rollover
Don't delay. A Walker Winslow Retirement Specialist can help you complete your rollover in a few easy steps.

A Specialist will:

Help you develop an investment strategy
Assist you with the rollover application and any paperwork required by your former employer.
Contact your former employer and help ensure that your rollover assets are deposited in your new account.
Monitor the return on your investment and provide guidance when its appropriate.

Contact a Walker Winslow Retirement Specialist to discuss your retirement needs.

Individual Retirement Account (IRA)

Keough Pension Plans
There are two types of Keough plans, Defined Contribution and Defined Benefit. These contributions are based on a percentage of earned income and are tax deductible. Investment growth is tax deferred until the capital is withdrawn from the account. There can be a combination of these plans, however, the total contributions must not exceed the overall limits for these plans.

Defined Contribution Plan:
Provides an individual account for each participant in the plan. There are two types of Defined Contribution Plans, a Money Purchase Plan and a Profit Sharing Plan. A Profit Sharing Plan allows you to share your business profits with your employees. This type of Keough Plan allows you to vary contributions from year to year, depending on how well your business is doing. The Money Purchase Plan allows you to contribute as much as 20% of your earnings, up to $30,000. However, with a Money Purchase Plan the contribution is fixed and cannot be changed, regardless of income. The advantage of this plan is it enables the business owner to contribute a greater percentage into the plan.

Defined Benefit Plan:
This is any type of plan that is not a Defined Contribution Plan. Contributions to this plan are based on a computation to ensure the plan participants are receiving the contributions needed to provide the benefits they deserve. Generally, professional help is needed to determine the contributions that need to be made.

Roth IRA:
Unlike a 401(k) or a Traditional IRA, contributions to a Roth IRA are made on an after tax basis, so there is no immediate tax savings. However, there is no tax on the principle or the interest when the money is withdrawn, with few restrictions. The introduction of the Roth IRA added an attractive retirement savings plan. The law still limits the total contributed to an IRA at $2,000 annually (combined if you have both a Traditional and Roth IRA), so this cannot be your sole retirement plan, but it does provide a great start for your retirement fund.

Spousal IRA:
If your spouse has compensation during the year and each of you is under the age of 70 ½ at the end of the year, then you and your spouse can have regular IRAs. Each of you can contribute up to the $2,000 dollar limit, unless your compensation (or your spouse's) is less than $2000. If your spouse has little or no taxable compensation and you file a joint return, then $2,000 may be contributed to each IRA. This would allow you to add as much as $4,000 annually to the IRAs

IRA vs 401(k)

401(k) plans are a clear advantage over traditional retirement programs and pension plans. However, 401(k)'s and other funds require the cooperation and administration of an employer. If you are self-employed or simply do not have an employer that provides membership in these programs, you should learn more about Individual Retirement Accounts (IRA). IRA's are similar to 401(k)'s in most respects, and for the same reasons as 401(k) plans (Social Security, lower levels of saving, longer time spent in retirement), they are more important than ever.

Traditional IRA vs Roth IRA

	Traditional IRA	Roth IRA
Eligibility	Income, under age 70 ½	Income under: Single - $114,000 Married -$166,000
Contribution	Max. - $2,000	Max. - $2,000
Deductibility	Full if employer does not offer plan.	Not Deductible
Tax Advantages of Contributions	Within certain income limits: Single - $41,000 Married - $61,000 Tax deferred, more real money working for investments.	No tax on principle or interest when the money is withdrawn.
Tax Penalties	10% excise tax if money is taken prior to age 59 ½ , with certain exceptions.	10% excise tax if money is taken prior to age 59 ½ and held less than 5 years, with certain exceptions.
Required Distributions	Must start by April 1st after age 70 ½ .	No required distributions.

Contact a Walker Winslow Retirement Specialist to discuss your retirement needs.

Disclaimer: This is for information and educational use only. For specific information concerning investments in the stock market please consult with a securities licensed professional.