What you should know about Retirement Savings

#RetirementSavings #Employee #Employer #Employeebenefits

What you should know about retirement savings


When you're thinking ahead about retirement plans, tax planning should be part of your decision-making from the beginning. Depending on your situation you may qualify for either a tax-deferred, a tax-exempt account, you might have the option or the necessity to choose a 403(b) plan or even a Solo 401(k). Either way, your retirement savings account might be one of the most important financial decisions one can make, so it's important to know their differences and how each of them works, as well as their advantages and disadvantages. Check it out.

在你為自己的退休計劃作準備的時候,納稅計劃應該成為你做決定的重要考量部分。根據你的情況,你可能有資格申請延稅或免稅退休帳戶,例如你可以選擇403(b)退休計劃,或者選擇個人/獨立 401(k)退休計劃。無論如何選擇,你的退休儲蓄帳戶是最重要的財務計劃決定之一。所以,了解各個退休帳戶之間的區別,其各自的功能,以及它們的優缺點都是非常重要的。我們一起學習吧。

Tax-Deferred Retirement Accounts


Tax-deferred accounts allow you to realize immediate tax deductions up to the full amount of your contribution, but future withdrawals from the account will be taxed at your ordinary income rate. The most common tax-deferred retirement accounts in the United States are traditional IRAs and 401(k) plans. Essentially, as the name of the account implies, taxes on income are "deferred" to a later date.


For 2020 and 2021, individuals are allowed to contribute as much as $19,500 to a 401(k) plan, plus a $6,500 catch-up contribution if they are 50 or older. For 2020 and 2021, you can contribute a maximum of $6,000 to a traditional IRA (those 50 or over can add an additional $1,000).


Participation in a workplace plan and the amount you earn may also reduce the deductibility of some of your traditional IRA contributions.


Tax-Exempt Retirement Accounts


Tax-exempt accounts don't deliver a tax benefit when you contribute to them. Instead, they provide future tax benefits; withdrawals at retirement are not subject to taxes. Since contributions into the account are made with after-tax dollars, there is no immediate tax advantage. The primary advantage of this type of structure is that investment returns grow tax-free.


Popular tax-exempt accounts in the U.S. are the Roth IRA and Roth 401(k).


With a tax-deferred account, taxes are paid in the future, but with a tax-exempt account, taxes are paid right now. However, by shifting the period when you pay taxes and allowing for tax-free investment growth, major advantages can be realized.


Because the benefits of tax-exempt accounts are realized as far as 40 years into the future, some people ignore them. However, young adults who are either in school or are just starting work are ideal candidates for tax-exempt accounts. At these early stages in life, their taxable income and the corresponding tax bracket are usually minimal but will likely increase in the future.


By opening a tax-exempt account and investing the money into the market, an individual will be able to access these funds along with the additional capital growth without any tax concerns. Since withdrawals from this type of account are tax-free, taking money out in retirement will not push someone into a higher tax bracket.


403(b) Plan


A 403(b) plan is a retirement account for certain employees of public schools and tax-exempt organizations. Participants include teachers, school administrators, professors, government employees, nurses, doctors, and librarians.


The 403(b) plan is in many ways similar to its better-known cousin, the 401(k) plan. Each offers employees a tax-advantaged way to save for retirement. Both have the same basic contribution limits: $19,500 in 2020 and 2021. The combination of employee and employer contributions is limited to the lesser of $58,000 in 2021 or 100% of the employee's most recent yearly salary. Also, both offer Roth options and require participants to reach age 59½ to withdraw funds without incurring an early withdrawal penalty. Like a 401(k), the 403(b) plan offers $6,500 catch-up contributions for those age 50 and older in 2020 and 2021.


Earnings and returns on amounts in a regular 403(b) plan are tax-deferred until they are withdrawn and tax-deferred if the Roth 403(b) withdrawals are qualified distributions. Employees with a 403(b) may also be eligible for matching contributions, the amount of which varies by employer. Many 403(b) plans vest funds over a shorter period than 401(k)s, and some even allow immediate vesting of funds, which 401(k)s rarely do. Also, certain nonprofits or government agencies allow employees with 15+ years of service to make additional catch-up contributions. Under this provision, you can contribute an additional $3,000 a year up to a lifetime limit of $15,000 and, unlike the usual retirement plan catch-up provisions, you don't have to be 50 or older to take advantage of this. Finally, 403(b) plans are not required to meet the onerous oversight rules of the Employee Retirement Income Security Act (ERISA).


In most instances, funds are withdrawn from a 403(b) plan before age 59½ are subject to a 10% tax penalty. One may avoid this penalty under certain circumstances, such as separating from an employer at age 55 or older, needing to pay a qualified medical expense, or becoming disabled. Also, 403(b) may offer a narrower choice of investments than the other types of retirement plans. For 403(b)s that don't have ERISA protection, accounts may lack the same level of protection from creditors as plans that require ERISA compliance. Another disadvantage of non-ERISA 403(b)s include their exemption from nondiscrimination testing. Done annually, this testing is designed to prevent management-level or highly compensated employees from receiving a disproportionate amount of benefits from a given plan.


Solo 401(k)


Self-employed individuals who meet certain requirements can set up a solo 401(k) to save for retirement, this type of plan offers several benefits over other types of retirement accounts. One of the main benefits is that contribution limits are typically higher than other retirement plans.


In order to invest in a solo 401(k), you must meet certain requirements. The first stipulates that you, and not an employer, are responsible for your income. Sole proprietors, small business owners without employees (though spouses can contribute if they work for the business), independent contractors, and freelancers typically fit this description. The second requirement is that you must have earned income. This can be verified through tax records.


With a traditional individual plan, you invest your dollars pretax, effectively claiming a tax break during your working years. When you reach retirement age, you pay income taxes on the funds you withdraw—including the money your investments have earned over the years.


Roth plans are funded with after-tax dollars. Since you've already given the IRS its cut, withdrawals are tax-free when it's time to retire. That's totally tax-free, both the amount you paid in and the returns the account earned.

羅斯退休計劃是稅後收入。因為已經扣減了國稅局的稅額,所以在退休時提款是免稅的,無論是退休帳戶供款,還是所獲得的收益,都完全是免稅的。 Source 文章來源: investopedia.com

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