It is the employers (also called the plan sponsor) responsibility to run the plan in accordance with law, rules and regulations, and provisions of the plan itself. This includes deciding who is eligible for the plan, how much and when they can contribute, how much the employer will contribute to the plan, what investment options you will have, how often you can reallocate your investment assets, hiring the vendors necessary to run the plan, and what features the plan will have (will loans be allowed, will hardship withdrawals be allowed, etc.).
It is your responsibility to decide if you want to participate in the 401k, and if so, how much you will contribute each pay period. If you earn $750 each pay period and elect to defer 5% of your pay, $37.50 is taken out of your pay and placed in the 401k plan. These contributions are deducted from your salary on a pre-tax basis. This means that by contributing to a 401k, you actually lower the amount you pay in current income taxes. For example, instead of being taxed on the full $750 per pay period, you are only taxed on $712.50 ($750 minus your 401k contribution of $37.50 equals $712.50). You don't owe income taxes on the money contributed until you withdraw it from the plan.
Here are a couple of things to remember about 401k plans:
Don't put off participating in your 401k, even if you think you can't afford to. Time is your best guarantee that you will make your retirement goals, so the sooner you start contributing the better off you are going to be in retirement. Even just one or two percent will make a big difference.
A 401k is a retirement plan, not a savings account. Money placed in a 401k is not easy to access in an emergency. Some plans allow loans and hardship withdrawals, but the rules governing them are restrictive.
When you take a 401(k) from an old job, you have a few options on what to do with it. But for many people, a great choice is to convert the 401(k) into an IRA.
How to start your rollover
There’s a right way to roll over your funds from a 401(k) and a wrong way. You don’t want the 401(k) provider to cut a check in your name, and you don’t want to cash out your balance. In both scenarios, you’re at risk of owing up to a third of your balance to the IRS.
Take these four steps to roll over your funds without incurring any unpleasant tax surprises:
- Decide on a Roth or a traditional IRA. If you roll into a Roth IRA, you’ll owe taxes on the rolled amount. If you want to rollover your funds without incurring taxes, stick with a traditional IRA.
- Open a rollover IRA account. Call us to help you pick a provider that works best for you.
- Ask your 401(k) plan for a “direct rollover.” These two words are important: They mean that the 401(k) plan will cut a check directly to your new IRA account, not to you personally.
- Choose your investments. The 401(k) funds will enter the IRA as cash, so you’ll need to invest the money.
What is an annuity?
An annuity is a long-term investment between you, the annuitant, and an insurance company, the annuity issuer. Under this contract, you pay after-tax funds to the annuity issuer, who then invests your principal to meet your financial objectives and pays you or your beneficiary back with earnings (subject to the claims-paying ability of the issuer).
If you have a fixed annuity, your interest rate is guaranteed. With a variable annuity, your earnings are linked with the fluctuating performance of your investments and may be worth more or less than your principal when redeemed. In addition, you have added control in how your money is invested, creating a higher potential for growth. However, this option comes with a higher risk in return.
Unlike other investment plans, there is no limit to how much you can invest in an annuity. Your funds will steadily grow with a tax-deferred status, and you pay your regular tax income rate on only your earnings upon withdrawal.
What annuity options are available?
An immediate annuity can begin paying you right away. You can choose whether you want your income guaranteed for a specific time period or if you want lifelong payments. The amount of your payments is calculated based on your principal and your life expectancy.
A deferred annuity is broken up into two phases:
Accumulation: This is when you add money to your annuity, whether you pay in a lump sum or you make a series of payments. You can continue to let your account grow tax-deferred for an indefinite amount of time.
Distribution: This is when you begin withdrawing money from your annuity whether you take out systematic withdrawals or you annuitize to supplement your finances with a regular stream of income for life.
Why buy an annuity?
An annuity is a good investment option for individuals who are willing to take a bigger risk in hopes of earning a bigger payout. Your earnings can then be used for supplemental income during retirement, guaranteed financial independence as you age, or a monetary legacy to leave behind for your loved ones. An annuity can help you continue living comfortably well into old age.
Your Annuity value grows tax deferred and you get triple compound interest. Your principle earns interest and the interest compounds and the money saved in deferred taxes earns interest. You only have upside potential and 0% downside. You are protected from Probate, Creditors, Lawsuits, and Nursing homes if you have money in an Equity Index Annuity.
In addition, we specialize in Stretch IRA, Multi Generate IRA, or Legacy IRA. You can stretch your IRA to your children and grandchildren by leaving Legacy and you can insure your nest egg. We provide Safe $$ alternatives and Safe money solutions.