Whether you’re a company employee or an independent contractor, you surely want to be saving for retirement. With Americans living longer than ever, planning for your retirement now can bring you peace of mind later. While there’s no substitute for consulting with a legal professional some simple knowledge about retirement plans is invaluable. 401(k) PlansA 401(k) plan is a retirement plan where an employee defers part of his or her current income into a tax shelter where it grows tax-free until the employee withdraws it. The employer has the discretion to match the employee’s contributions. Annual contributions of employer and employee are generally limited to $18,000 plus another $6,000 if you are over 50 years old. The plan allows an employee to save for retirement and simultaneously reduce his or her current income tax bill. Employees are often allowed to make decisions as to the investment of these funds. Pension PlansA Defined Benefit Pension Plan is a traditional pension plan that pays workers a specific monthly benefit at retirement. These plans either state the promised benefit as an exact dollar amount or specify a formula for calculating the benefit. Generally, a company funds the pension plan, and a professional money manager invests the assets of the fund. Qualified Retirement PlansQualified retirement plans are described in Section 401(a) of the Tax Code. A qualified retirement plan is established by a business. The most common types of plans are profit sharing plans, defined benefit plans, and money purchase pension plans. IRAsIndividual retirement accounts (“IRAs”) are not qualified retirement plans. Traditional IRA earnings are taxed when they are withdrawn. They are also described under a different section of the Tax Code. An IRA is basically a savings account with some attractive tax breaks. Keogh PlansA Keogh plan is a qualified retirement plan for self-employed individuals. Contributions to this plan are tax-deductible. The individual can direct the investment of the funds that are put into a Keogh, e.g., stocks, bonds, or mutual funds. Roth IRAsRoth individual retirement accounts (“Roth IRA”) are similar to traditional IRAs except the contributions to a Roth IRA are taxed at normal income rates. When you withdraw money from a Roth IRA in retirement, it will be tax-free. Estate Planning Lawyer Free ConsultationWhen you need legal help with your retirement plans or estate planning, please call Ascent Law for your free consultation (801) 676-5506. We want to help you.
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