Saving for Retirement Through Workplace Plans

By Joe Globensky, RFC®

A workplace retirement plan can be one of the most powerful ways for you to save for life after work. And, as our need for self-reliance continues to grow, taking advantage of this benefit could help make you more financially confident when you retire.

Types of Workplace Retirement Plans

There are several types of plans available, but some plans are only available to certain kinds of employers. There’s a 401(k) that may be offered by for-profit companies. This differs from a 403(b) that may be offered by a public school or tax-exempt organization, or a 457 plan that may be offered by governmental and certain non-governmental employers.

Or, you might have access to a SIMPLE IRA plan, sometimes offered by employers with less than 100 workers. Some employers might offer a SEP IRA. This is one where your employer may contribute on your behalf, but typically you cannot save for yourself.

While the options may sound confusing, it is important to find out if your employer offers a retirement plan, and if you are eligible to participate.

Benefits of Workplace Retirement Plans

One of the biggest potential benefits is that some of these plans may offer a company match. Think, “free money.” If your plan offers a company match, find out if there is a vesting schedule. This will let you know when the company match becomes yours.

Some of these plans may offer a traditional option, a Roth option, or both. A benefit of the traditional option is that employee pre-tax contributions are excluded from your income when calculating income taxes. A benefit of the Roth option is that your earnings in the plan may be withdrawn tax-free if you meet certain IRS criteria when taking a withdrawal.

A valuable benefit with all these plans is that earnings inside the plan will grow tax-deferred until you start withdrawals. So, if you let the money continue to grow without touching it, you don’t have to pay taxes along the way.

Not Covered by a Workplace Retirement Plan?

You are in the majority as only 40% of workers were covered by any type of retirement plan through their workplace in 2017. So, what should you do?

Talk with your employer. Your employer may not be aware there is a need for a plan, they may not know about potential tax incentives for offering a plan, and it can also be a benefit for your employer to shelter some of their own income from taxes.

Open your own retirement account. Individual retirement accounts (IRAs) and Roth IRAs may be your best option for tax-deferred growth, and potentially tax-free withdrawals with the Roth IRA. These plans can be established with a small initial amount and allow for regular contributions.

Fund a health savings account. If you have a high-deductible health plan through your employer, you also have access to a health savings account. Your contributions to this account are pre-tax money, can count towards your retirement savings, and don’t have to be spent by year-end like a flexible spending account.

We’ve covered a lot in this blog post, and it can be confusing. But don’t let that get in the way of your future retirement. If you need help, ask. Ask your employer, ask your co-workers, or ask a financial advisor at Connections Financial Advisors how to get started today.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Tax laws and provisions are subject to change. Contributions to a Traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal.

Recent Posts

Ways to Cope with a Significant Market Downturn

On March 12, 2020, the S&P 500 entered a bear market for the first time in 11 years.  And this bear market could go down as one of the most severe in history given how quickly it occurred after reaching a new high in mid-February.  But this is not the first bear market we have experienced, nor will it be the last. 

5 Ways to Keep Your Personal Data Safe

By Joe Globensky, RFC®Hopefully I don’t have to tell you how important it is to keep your personal data safe.  Whether it’s your social security or bank account numbers, information from your driver’s license, or items that can be pulled from your social...

Kiddie Roth IRA – Teach Better Money Habits

By K. Bridget Schneider, CFP®, CRPC®Do your children or grandchildren have earned income?  Opening a Kiddie Roth IRA can be a valuable tool for teaching them better money habits.  It may also be an opportunity to help them begin a powerful savings plan for...

Six Common IRA Mistakes to Avoid

Knowing the common IRA mistakes to avoid could save you thousands of dollars over your lifetime. We’ll cover 6 of the most common mistakes in this article.

Contact

Office: 217.605.8130
Toll-Free: 844.305.7670
Fax: 217.666.4188

604 N Union St Ste 1
Lincoln, IL 62656

Email Us

eNews

Sign up to receive the latest news, tips, outlooks and more: