Plan for Retirement Now to Secure the Retirement of Your Dreams
With spring in full swing, retirement is the probably the last thing on your mind today. The problem for many Americans is that retirement rarely crosses our minds until we are nearly ready to retire. This causes a tremendous problem when we dream of an ideal retirement, but fail to adequately plan for such. Quite simply, the best way to secure a comfortable lifestyle in your later years is to make retirement planning a priority in your early adult years. Many experts recommend starting a retirement savings plan at age 25. The longer you wait to start, the harder it will be to accomplish your goals.
If you already have a retirement plan set in motion, you are off to a great start. Perhaps your retirement plan is tied to your employment or the employment of a spouse. Or maybe you opened an IRA account because someone told you that you should. In either scenario, make sure that you are well educated on the terms of your plan and most importantly confirm that your plan will enable you to reach your retirement goals. If you have questions or doubts, seek the advice of a trusted financial professional.
If you do not currently have a plan in motion for retirement, here are some basic facts about different retirement options available:
401(k)
A 401(k) is a retirement plan that is sponsored by an employer. Each participating employee can choose an amount to be automatically deducted from each paycheck. The money placed in the 401(k) is then invested with each employee controlling how their own money is invested. Many employers offer matching incentives where the employer will match a certain amount. The money you contribute stays with you, even if you switch jobs, as long as your roll the funds over to a new retirement account. The money your employer contributes in a matching program may not be available for roll over, depending on how long you have worked for the company.
Traditional 401(k)
Money from your wages is contributed to your 401(k) before taxes are taken out of your paycheck. When you withdraw the money upon retirement, you must pay income taxes on the full amount (all contributions plus any money gained through the investments). Restrictions apply on when you can withdraw the funds and if you withdraw the funds early, you will be charged a significant penalty.
Roth 401(k)
Money contributed to a Roth 401(k) is taxed before the money is contributed. This means you don’t have to pay income tax when you withdraw the money later. If you have held the account for more than five years, you can withdraw your funds without restrictions and without penalties.
Individual Retirement Account (IRA)
IRAs, or Individual Retirement Accounts, allow you to place money in a specific investment account for your future retirement. Below is a brief explanation of each type of IRA:
Traditional IRA
To qualify for a traditional IRA you must be under age 70.5 years old and be employed. For married couples with only one working spouse, an IRA account can be established for the non-working spouse as well.
Any money put into a traditional IRA is not taxed until it’s withdrawn. Restrictions do apply concerning how much you can contribute to your traditional IRA each year and penalties apply if you withdraw the funds before age 59.5.
For the most up-to-date information about Traditional IRAs, visit the IRS website.
Roth IRA
If you are employed, you can open a Roth IRA at any age; however, some income restrictions apply for higher income earning individuals.
Any money contributed to a Roth IRA is contributed after being taxed, so the funds can be withdrawn tax free.
Money can be withdrawn from your account before you’re 59.5 years old without a penalty, but strict conditions must be met.
For the most up-to-date information about Roth IRAs, visit the IRS website.
Self-Directed IRA
Self-directed IRAs are designed for people who want to personally control the selection of the investments in their retirement account. The individual who sets ups the account literally assumes all responsibility for the account and all transactions. By setting up a self-directed IRA, you can also purchase hard assets like silver, gold, foreign currencies, and real estate; however, you cannot have these assets in your possession.
If you include real estate in your IRA, you cannot live on the property for any period of time, nor can any family member. If you invest in a private business, the business cannot be owned or operated by family members. Other restrictions apply regarding potential assets, but the opportunities are nearly endless.
You can choose to roll your current IRA into a self-directed IRA. One example is to take your current retirement account, set up a new self-directed account, and begin purchasing foreign currencies or precious metals in connection with your account. For an example on how this process works, check out this information from the Treasury Vault.
Other Retirement Options
Some individuals may choose to take a different route to retirement planning and focus on increasing their overall wealth, instead of focusing on one of the retirement accounts above. Any method to acquire additional wealth, or to save money would fall in to this category. However, many prefer having their retirement planning separated from other financial endeavors to ensure that they will be able to retire comfortably when the time comes.
Summary
Start planning now for retirement. If you are still confused about what retirement option is best for you, seek the advice of a seasoned financial advisor. Not moving forward because you are unsure of what to do is not a good reason to hold your future hostage. Planning for retirement now will bring peace today and in the decades to come.
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Category: Investing, Retirement
