Retirement Investments

Putting It All Together

Saving for your future is a process, not an event. It is not something that you do once and forget about; it is a continual process of taking action: planning and doing, maintaining and balancing your priorities, and re-evaluating and making changes.

The bottom line is that it is up to you to plan for your retirement. Company plans are a great start, but it is up to you to build a retirement fund to live the lifestyle of your dreams. If you or your spouse has a business, it is up to you both to provide for your retirement by setting up your own retirement plans.

Following is a review of various retirement plans and strategies. [Note: For all Keogh plans listed below, they are qualified plans, so unless it is a profit sharing plan that allows for in service distributions, hardship or loans, the only distributable events are termination of employment, retirement, death, or disability].

Plan/Strategy

Best for

Early Withdrawal

401(k)'Profit Sharing

Employees who qualify3,7

Depends on the plan2,4

IRA

Those who don't have company pension plans or who have put the pre-tax maximum into their company plans

Always permitted2,5

SEP

Self-employed person who is a sole proprietor1,7

Always permitted2,5

SIMPLE PLAN

Employers with 100 or fewer employees who earned $5,000 during the preceding year7, 10

Depends on plan

PROFIT-SHARING KEOGH

Small-business owner who is funding a plan for himself and employees. Contributions are discretionary.1,7

Depends on plan2,6

MONEY-PURCHASE KEOGH

Small business owner who is funding a plan for himself and employees. Contributions are required to be made each year.1,7

Depends on plan2,6

DEFINED BENEFIT KEOGH

Self-employed person nearing retirement who needs to fund a larger retirement benefit1,7

Depends on plan2,6

VARIABLE ANNUITY

Someone who has put the maximum into other plans and who won't need the money for at least 10 years8

Always permitted2,5

FIXED ANNUITY

Someone who has put the maximum into other plans, prefers a fixed rate of return and who won't need the money for at least 10 years8

Always permitted2,5

CASH-VALUE LIFE INSURANCE

Someone who has put the maximum into other plans, needs additional insurance coverage, and who won't need the money for at least 10–12 years8

Permitted by surrendering your policy4

NONQUALIFIED DEFERRED COMPENSATION

Everyone who qualifies9

Generally, only for hardship, but depends on plan

TAX EXEMPT INVESTING

Individuals who are in at least the 25% federal marginal income tax bracket

Always permitted

Notes:

  1. Small-business owners fund the SEPs and Keoghs of their employees.
  2. Amount of withdrawal is subject to 10% income tax penalty (if applicable), except in case of death or disability.
  3. Matching contributions—Anywhere from 0% to 100% of percentage of employee's contribution, but typically anywhere up to 6% of salary.
  4. Loans may be permitted.
  5. Loans not permitted.
  6. Loans may be permitted.
  7. Tax break on contributions and earnings.
  8. No tax break on contribution, earnings grow tax-deferred.
  9. Taxes postponed on deferred earnings.
  10. Matching contributions required—up to 3% of employee's wages or $6,000, whichever is less.
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