Your retirement years may seem far off, but planning for retirement should start early in your working career – your retirement years could be decades, hopefully. With a healthy retirement plan, you will have the resources to live a comfortable lifestyle. You are likely eligible for Social Security benefits, but those benefits average only about $1,200 a month, certainly not enough to cover all expenses. Many companies offer employees the ability to invest in a retirement plan, one of the easiest, and most successful ways to ensure you will have the money you need when your working days are over.
Benefits of Employee Retirement Plans
Benefits for Employees
When you invest in an employee retirement plan, you gain more than the funds you need for the future:
- The funds you pay into the plan reduce taxable income.
- The money in your retirement fund is not taxed until it is distributed to you.
- The contributions are taken out of your payroll check.
- If you change employment, your retirement funds can be transferred to a new plan.
Benefits for Employers
Employers also gain advantages when they establish a retirement plan their employees can invest in.
- Attracts better employees, aids in retention.
- Employer contributions to the retirement plan are tax-deductible.
- Assets grow, tax-free.
- Tax credits may be available when putting a retirement plan in place.
Choosing a Retirement Plan
If you are ready to put a retirement plan in place, it is advised that you get help from a professional. For a business owner, several options are available, each of which affects taxation, and requires managing and reporting. For an employee, the contributions you make to the plan should reflect your estimated financial needs after you are not earning a paycheck. The types of plans that can be established include:
- Defined benefit plans: These plans promise a certain amount in monthly benefits when an employee retires.
- Defined contribution plans: These plans do not promise a set amount in monthly benefits. The employee (and often the employer) contributes to the plan. At retirement, the plan is transferred to the employee. These plans may include 401(k) plans, 403(b), stock ownership plans, or business profit sharing plans.
How to Set Up a Retirement Plan
The steps to putting a retirement plan, both for businesses, employees, and self-employed individuals:
Choose the right plan
- For employees: Select the ideal types of retirement plan to suit your income and save the maximum possible for your retirement (while enjoying tax savings).
- For businesses: Determining the ideal retirement plan to match your business.
Putting a retirement plan in place
Once the plan is chosen, it must be implemented.
- For employees: An employee who wants to participate signs various documents so that paycheck deductions are transferred and invested in the retirement account.
- For businesses: The process involves establishing a trust, a written plan, and notifying employees of the option.
- For self-employed individuals: For those who are self-employed, several retirement plans are available, including Traditional or Roth IRAs, 401(k), SEP IRA, Simple IRA, or a Defined Benefit Plan.
With the help of a local agent, the right type of retirement plan can be put in place. Even if you are at the beginning of your career, saving for retirement is not only wise, watching the fund grow can be extremely rewarding, growing into being a major asset over time.