07/20/2018










Deciding on a Retirement Plan

For those who are beginning to think about their financial futures, researching retirement plans can be a stressful and confusing process. However, with just a little research and the guidance of an advisor, starting a retirement plan can be easier than most people think. Several different programs provide tax advantages to both employees and employers, so it is important to carefully weigh all available options before choosing an account that is right for you.

What are Pre-Tax Contributions?

Most retirement funds are funded by a “pre-tax contribution,” meaning that taxes are not taken out of the contribution at the time of the deposit but will instead be owed later when the money is removed from the savings account. For instance, if an individual begins to save money when he or she is 20 years old, the money contributed to the plan is pre-taxed. If it remains in the account untouched until he or she turns 70 years old, the money is tax-deferred, or protected from tax, until a portion or all of it is removed.

Common Types of Retirement Plans

Each of the following accounts has additional restrictions and benefits, so it is important to understand that the information provided is a general overview of the most commonly held retirement savings accounts.

1. Traditional 401(k)

A 401(k) is a pre-tax retirement plan for employees and their employers. It allows eligible workers to contribute pre-tax money into a savings account and permits a “profit-sharing” contribution for the employer to also contribute to the account. While the money remains in the 401(k) or other allowed account such as a Rollover IRA, the money is tax-deferred, and account holders are not required to pay taxes on the money unless it is removed from the account.

2. 403(b)

This pre-tax retirement account is used by some hospitals and public schools as well as other eligible organizations with a non-profit tax status. The 403(b) plan allows both employees and their employers to contribute money into the account.

3. IRAs

There are several types of IRAs including traditional IRAs, Rollover IRAs, and Simple IRAs. Traditional IRAs allow individuals to either work with an advisor or on their own to save pre-tax money while Rollover IRAs allow money to be rolled out while the account maintains a tax-deferred status. Simple IRAs are designed for employers with fewer than 100 employees.

4. Roth IRAs

Roth IRAs differ from the aforementioned retirement accounts as contributions are made after taxes are paid on the money. If the Roth account has been opened for at least five years and the account is taken after age 59½, distributions are tax-free.

Contact Us Today

The Law Office of Andrew M. Lamkin, P.C. is dedicated to helping its clients with their retirement planning needs. Call Andrew Lamkin today at (516) 605-0625 for a free consultation and to learn more about the most efficient ways to choose a retirement plan.



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