Here are some scary facts on American retirement.
- 36% of Americans said they don’t contribute anything to retirement savings , like a 401(k) or a IRA.
- 35% of Americans over the age of 65 rely almost totally on Social Security alone.
- 55% of American workers have less than $2000 saved for retirement.
- Starting this year, social security fund outflow exceeds the total inflow from payroll taxes.
Now, here are 20 steps you should take today to secure your future. First let me introduce you to the terminologies, in case you need.
Retirement Saving Terminology
Rollover: Thisis the term used for funds that an employee and employer have accumulated and have options to be transferred when the employee leaves the job.
Split Rollover assets:These are assets following a divorce. The assets from an IRA or Roth IRA fund may be split and put into another qualified trust by the recipient.
Qualified plan or trust: One that has been approved for tax exemption by the IRS
Rollover withdrawal: Is when you elect to withdraw funds that you have accumulated.
IRA: Individual retirement account
Roth IRA: Roth was the Congressman who made the amendments to the standard individual retirement plan
If you are a US employee and your company has a 401 k IRA plan, you have the option to enroll in it. This gives the employer the right to make a contribution to a 401k plan, provided the employee permits an equal deduction from their salary. The combined amounts must be paid into a qualified trust. These combined amounts are sheltered from tax When the employee leaves the job, for whatever reason, the money in the trust fund allows for a cash withdrawal from the age of 59 ½. It also enables the plan to be moved to another qualified investment or possibly leave it where it is. Here’s a guide to 401(k) vs. IRA, should you rollover?
Definition of a Roth IRA
Contributions are not tax deductible but when the investor makes a withdrawal at retirement age (min 59 ½ years) all proceeds are completely tax free. There’s no age restriction on withdrawing contributions, however, if you are under 59 ½ you will pay penalties if you withdraw any of the profits from investments. There are restrictions on who is eligible for a Roth IRA: A person submitting as a single cannot earn more than $95,000 per year. A married couple cannot earn more than $150,000 per year.
20 Do’s and Don’ts for Retirement Saving
- Work out how much you will need to maintain an acceptable lifestyle when you retire.
- Save as much as you can. here are some ways to save.
- Contribute to your employer’s retirement plan (401k), at least that much where you can take 100% employer match, if any.
- Consider whether an IRA or a Roth IRA would be best for you.
- Find out if you will benefit from your spouse’s or legal partner’s pension plan.
- Find out details about your employer’s benefit plan, scan the benefit documents.
- If your employer doesn’t have a plan, ask if they would set one up
- Find out all you can about where you can deposit your savings, including the benefits and risks involved. Create a balance by mixing high risk investments with moderate to low risk investments
- Do not make withdrawals from your plan before retirement age as you may lose tax advantages or have to pay penalties
- Find out what Social Security benefits you will be entitled to, post retirement.
- Max out all retirement saving contribution, if you can, specially if you have started late.
- If you leave a job where you have made contributions to an IRA plan, you can transfer funds to another qualified plan, tax free, if you abide by the plan’s rules. However, some options could land you with a tax bill, penalties and administration costs.So read the conditions carefully
- You can normally transfer your IRA funds to your spouse / legal partner when leaving your employment but you must adhere to the conditions of your plan to prevent a penalty being imposed by the IRS.
- If you are divorced your retirement assets may be divided between your spouse or legal partner and you
- If you are the person receiving a divorce split rollover assets, you must put them into an IRA in your name, within 60 days to avoid taxes and penalties
- It doesn’t usually affect your plan if you move it whilst the stock market is rising or falling, as it’s the longer term impact of the stock market that impacts on growth. Losses you have incurred through market downturns are not usually deductible in your tax return due to the tax free shelter that you already have
- When you transfer your funds to another qualified account ensure that you find out the administration charges and what investments the company going to make on your behalf.
- You have 60 days to decide where you want to move your rollover fund to. If you take longer you will be subject to IRS penalties
- When your plan allows you to withdraw money. You will have the options of either taking a larger lump sum with a smaller pension, a smaller lump sum with a larger pension or in some cases leaving your plan where it is until you are ready to withdraw.
- If you do elect to take a larger lump sum make sure that you don’t unwittingly move yourself into a higher tax band.
Readers, what other measures you consider important and not mentioned here? And, are you contributing to retirement saving?