 Do you have a significant portion of your retirement assets in a 401(k) plan or traditional IRA? If so, you’re not alone. Many Americans use these tax-deferred vehicles to accumulate retirement assets.
Traditional IRAs and 401(k) plans provide tax benefits in several ways. First, your contributions may reduce your taxable income. Traditional IRA contributions may be tax-deductible, and 401(k) contributions are taken from pretax earnings. As long as the funds stay inside the account, you don’t pay taxes on your growth. However, you can’t defer your taxes forever. Distributions from these accounts are usually taxable. The IRS requires you to take distributions from a traditional IRA or 401(k) by age 70½. The amount of these required minimum distributions (RMDs) is based on your account balance and your age. The withdrawal usually increases as you get older.
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 Do you use an individual retirement account to save for retirement? If so, you’re not alone. Americans own a collective 25 million individual retirement accounts, also known as IRAs. According to a 2013 study from the Employee Benefit Research Institute, those IRAs hold nearly $2.5 trillion in assets, making the IRA one of the most popular retirement savings vehicles available.1
There are actually several different types of IRAs available, and each kind offers its own set of unique advantages. It’s not always easy to tell which kind is right for you. If you don’t currently have an IRA, you may be wondering which type is right for you. Even if you do own an IRA, you may be curious as to whether you should use a different type.  There was a time when retirees could count on guaranteed lifetime income from Social Security and an employer pension to fund their golden years. Today’s retirees still enjoy Social Security income, but very few have access to a pension. In 1998 nearly 60 percent of Fortune 500 companies offered a pension. As of 2015 fewer than 20 percent offer one.1
As employers have shifted away from the pension, also known as a defined-benefit plan, many have adopted the 401(k). Known as a defined-contribution plan, a 401(k) allows employees to save for their retirement and may create a reduced financial obligation for employers.  An employer-sponsored 401(k) plan can be one of the most useful tools at your disposal for saving for retirement. The combination of employee contributions, employer matching and tax-deferred growth can help you generate a significant nest egg, especially when the growth is compounded over a long period of time.
 Is a job change in your future? Or maybe you’ve already accepted a new position and are in the middle of transitioning into your new role. If so, this is probably a hectic time for you. And amid the chaos it’s easy to overlook the impact a job switch can have on your retirement savings.
 Do you own one of the more than 25 million individual retirement accounts in the United States? Since its inception in 1974, the IRA has become a popular savings vehicle for retirement, largely due to its flexibility and substantial tax advantages.1
Originally, there was only one type of IRA available - the traditional IRA. Traditional IRAs offer potential tax deductions for upfront contributions, assuming you meet income limitations. They also offer tax-deferred growth as long as the funds stay inside the account. However, all distributions from a traditional IRA are taxable.  A new year is here, and if you’re like many Americans, that means it’s time to make resolutions to improve your life. Perhaps you want to lose weight or drop an unhealthy habit. Maybe you’ve resolved to finally get organized. Or you could make 2017 the year you take back control of your financial future.
Many resolutions are simply a promise to one’s self to build more productive habits. Losing weight is about getting in the habit of exercising regularly and eating healthy. Quitting smoking or some other unwanted behavior is all about developing the habit of self-control.  You’ve been dutifully contributing to your 401(k) plan for years, possibly even decades. Now retirement is right around the corner, and all of that disciplined saving is about to pay off. If you’re like many retirees, your 401(k) plan may be your single largest retirement asset.
As you’ve saved and accumulated 401(k) assets, you’ve probably asked yourself a number of questions. How much should I contribute? What allocation is best for me? Should I roll my old 401(k) plans into an IRA?  Thinking of tapping into your 401(k) to help pay for large expenses, such as college tuition or medical bills? Generally speaking, it’s a good idea to look for other sources of cash before pulling funds out of your 401(k). Your 401(k) plan is meant for retirement. If you pull money out before you retire, you may lose out on tax deferral and investment growth.
You also may face taxes and an early withdrawal penalty. Your 401(k) account is tax-deferred, which means you don’t pay taxes on your growth until you make a withdrawal. It’s tax-deferred because it is designed for retirement savings. If you take money out before retirement age—designated as age 59½ in 401(k) plans—you could pay a 10 percent penalty on top of income taxes. |
Kirt CarstensCarstens Financial Group focuses on providing comprehensive asset management, estate planning and life insurance solutions. Allow us to help you secure your financial future. Archives
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Kirt Carstens, CLU, ChFC
Investment Advisor Representative |
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Securities and Advisory Services offered through Client One Securities, LLC Member FINRA/SIPC and an Investment Advisor. Carstens Financial Group and Client One Securities, LLC are not affiliated.
This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
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Securities and Advisory Services offered through Client One Securities, LLC Member FINRA/SIPC and an Investment Advisor. Carstens Financial Group and Client One Securities, LLC are not affiliated.
This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
Check the background of an investment professional. | Privacy Policy