401k vs Roth: Which is best for you?

12 minutes

photo courtesy of girls just wanna have funds

 

“Hang in there, retirement is only 30 years away!” Workplace graffiti
401k is one of the most common words used when discussing retirement. But what do we really know about them? Most employers offer them to their employees as a means of providing a benefit to their employees. It is also a means of retirement for many workers.

Let’s lay out some stats for you so you get a framework of the influence a 401k has on our retirement.

Total value of assets held in a 401k   $4.5 Trillion

  • Percentage of assets held in a 401k    18%
  • Total number of participants in a 401k    52,500,000
  • Percent of works that participate   81%
  • Average percent of salary contributed   6.8%
  • Percent of assets held in a mutual fund   64%

The average match of company contributions to 401k plans is 2.7%.

Let’s spend a little time to layout what a 401k is and how it works. Then we will spend some time comparing it to a Roth IRA.

 

What is a 401k?

 

A 401(k) is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account.”   Wall Street Journal

The 401k was established in 1978 and has grown to become the most popular type of employer-sponsored retirement plan out there.

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Keogh Plan: Secrets Unlocked for You

3 minutes

Photo courtesy of wisegeek.com
Photo courtesy of wisegeek.com

What in the world is a Keogh Plan?

According to Investopedia. A Keogh plan is a tax-deferred pension plan available to self-employed individuals or unincorporated businesses for retirement purposes.

A Keogh plan can be set up as a defined-benefit plan or defined-contribution plan, although most plans are set-up as a defined-contribution plan.

More on this later. The Keogh plan was initiated in 1962 and was the invention of a New York congressman named Eugene Keogh. Prior to 2001, they were very popular but due to changes in the tax system they were replaced by the SEP IRA, which has the same contribution limits and much less paperwork. Always a good thing.

So, how can this plan help me?

So who can set up a Keogh plan? Any self-employed individuals or any small business that is a sole proprietorship, partnership, or LLC.

This type of plan is a perfect choice for high-income earners.

Typically the Keogh is funded by the employer.

The Keogh comes in two kinds of flavors.

Defined contribution: these types of plans have two variations. Profit sharing and money purchase. The profit sharing version is most like a SEP, there is a ceiling on contributions. 25% of contributions or $53,000 in 2016. Below these limits you can contribute up to. With the money purchase plan, you can choose the percent you would like to contribute each year. And stick with it, if you don’t the IRS will become your best buddy. Not! Penalty for you.

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Simple IRA: 10 Valuable Benefits

6 minutes

What the heck is a Simple IRA?

Picture courtesy of nextgenerationtrust.com
Picture courtesy of nextgenerationtrust.com

The SIMPLE IRA is an acronym for Savings Incentive Match Plan for Employees. This plan allows employees and employers to contribute to a Traditional IRA which is set up for employees.

The ideal use of the SIMPLE IRA is for start-up retirement savings plans for small employers not currently offering any sort of retirement plan.

I’ve touched on these statistics before but did you know that:

  • the average 50-year-old only has $42,797 saved.
  • 45% of Americans having nothing saved.
  • 38% don’t actively save for retirement at all.
  • 20% of Americans tap into their 401k savings early, either thru a loan or early withdrawal
  • 80% believe they will not have enough savings when they retire.

These numbers scare the crap out of me and that is why we are here talking about this subject.

If I can make the difference with just one person my mission will be complete.

This is why we are talking about all the different retirement plans out there so you have some ideas of which would be the best fit for you. And how they could help you.

Benefits of a SIMPLE IRA

1. Very easy to setup.

A Simple IRA is very easy to setup and is ideal for the small business that wants to offer a retirement plan for their employees.

There are no start-up costs and no operating costs of a conventional retirement plan.

It is available to any small business with less than 100 employees. And it is easily established by filling out a few forms. These forms are available at IRS.gov.

There are no filing requirements for the employer, but keep in mind that they may not have any other retirement plan currently setup.

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10 Revealing Questions to Share Benefits of the SEP IRA

6 minutes

Eggs in a basket savings. Photo by 401kcalculator.org
Eggs in a basket savings. Photo by 401kcalculator.org

What is a Sep IRA?

A Sep IRA stands for simplified employee pension plan which allows an employer to have a simplified way to contribute to an employee’s retirement plan. It also allows them to contribute to their own retirement savings.

Contributions are made to an IRA or Annuity IRA for each employee who participates. This is a SEP IRA.

A SEP IRA account is a Traditional IRA and has the same investment, distributions, and rollover rules as a Traditional IRA.

10 Questions

1. What are the best SEP IRA plans?

As SEP IRAs are considered Traditional IRAs by the IRS. And they have to be set up by your employer the clear answer is a Traditional IRA.

This also means that it will have to same rules in regards to contributions, distributions, and tax related benefits. We discussed these in an earlier post.

Also, any plan that you contribute to is a great plan. The point of all this is to show you the light and help you take action.

2. Can I open a SEP IRA?

If your w2 income comes from that employer then you will need to participate in their retirement plan. If they are small enough they may have a SEP IRA plan for you to participate in.

You also can open up your own Traditional or Roth IRAs as well.

Continue reading “10 Revealing Questions to Share Benefits of the SEP IRA”