Essentials of Retirement Planning

When planning for retirement, you want to make sure that you are ready. The following list of retirement plans allows you to begin considering your options and plan accordingly.

1. Defined Benefit Pension - Normally offered and maintained by your employer, this pension provides you with a consistent payment on a monthly basis and is calculated by multiplying your tenure with your employer by a percentage of your salary.

2. Employee Stock Ownership Plan - An employee stock ownership plan (ESOP) is established by the employer, which disburses stock in intervals as part of a retirement package. At 55 years of age and with at least a decade of interaction in the ESOP plan, you are automatically granted the option to diversify a quarter of the account. In five more years, you will be granted a one-time option to diversify half. This plan can result in one payment of shares when you retire.

3. Money Purchase Pension - You either receive one large or multiple small payments from this pension, which is primarily provided by your employer.

4. Savings Plan - One popular version of a savings plan is a 401(k) account. The amount depends upon the money invested by you, which may be tax deductible, and any extra contributions provided by your employer.

5. Profit-sharing Plan - Developed and funded by your employer and sometimes consisting of your additional contributions, a profit-sharing plan pays out a lump sum following your retirement. In addition, any money that you voluntarily add to this plan may be subject to tax deductions.

6. Simplified Employee Pensions (SEP) - This plan is associated with small businesses, and although your employer is responsible for the majority of contributions in the plan, you may be permitted to contribute as well. If you contribute to the pension, you may have tax deductions associated with that amount. These pensions are distributed in one-time or monthly payments after you retire.

7. Individual Retirement Accounts (IRAs) - A popular account option, IRAs are essentially non-discriminatory. Held in a number of financial institutions, you are responsible for the amount included in the account and can receive one-time or monthly payments after retirement. Accounts that are tax deductible and taxed on withdrawal are known as Traditional IRAs, whereas Roth IRAs are not tax deductible and not subject to withdrawal taxes.

8. Keogh Plans - Like IRAs, you are responsible for the amount included in the Keogh plan and can receive one-time or monthly payments after retirement. However, these plans are designed for those who are labeled as self-employed individuals. The plan is tax deductible to a certain degree.

9. Tax-sheltered Annuities (403 (b) Plans) - Originating with educational and tax-exempt entities, these plans consist of your monetary contributions, which are tax deductible and can be paid out in a one-time disbursement or once a month after you retire.

10. Savings Incentive Match Plans for Employees (SIMPLE) - This plan is also associated with small businesses and can be established in two forms: IRAs and 401(k)s. They are pre-taxed contributions originating from you and matched by your employer. Tax is deferred on the growth of the principal and interest.

11. Annuity Contracts - Essentially not classified as a retirement plan, annuity contracts allow for unlimited contributions, face withdrawal stipulations, and serve as an extra way to generate retirement monies in addition to your employer-provided plans.

This information is presented to educate the reader and does not constitute professional tax and legal advice.

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