Retirement Plans Made Simple | Retirement Planning

Everyone wants to retire in style, but many people are unsure how to do so in such a tough economy. Fortunately, one of the keys to retiring well is to start saving early. For individuals who are in their 20s, 30s and 40s who do not plan on retiring until their 60s or later, today is the perfect time to begin building that nest egg to sustain them into the future.

Types of Retirement Plans

The best plans for those who are not planning on retiring for several decades are those that accrue a great deal of interest over time. These include Individual Retirement Accounts (IRAs) and company 401k plans. Both of these plans allow individuals to invest in stocks, bonds, and mutual funds over a long period of time, thus accruing interest in their accounts that will sustain them in their golden years.

Individual Retirement Accounts (IRAs)

IRAs are the no-brainers of retirement accounts. Several organizations, including investment firms and insurance agencies, offer different types of individual retirement accounts. The most popular are Traditional IRAs and Roth IRAs.

Roth IRAs

One of the many benefits to having a Roth IRA is that money entering the account has already been taxed. This means that when one withdraws their funds years down the line, they do not have to worry about future tax rates. One can also withdraw money sooner from a Roth than a Traditional IRA; the age set at making withdraws tax-free starts at 59 ? years of age. The other advantage to opening up a Roth is that since the money contributed to the account is already taxed, one can withdraw contributions at anytime. However, there is a penalty if someone withdraws money earned from invested income within the account, usually around the 10 percent penalty tax range, although this may differ between institutions. Exceptions to this rule include the following:

? Individuals can pay up to $10,000 for their first home purchase.

? Individuals can use Roth funds for college (this includes tuition for the holder of the account, their spouse and their children).

? Individuals can use their Roth funds for costs associated with a sudden disability.

? Individuals can use Roth funds to pay for medical expenses that exceed 7.5 percent of adjusted gross income.

Traditional IRAs

Unlike Roth IRAs, Traditional IRAs are not taxed until one begins withdrawing funds, which can start, tax-free, at age 59 ? and must start by age 70 ?. The advantage to this system is that one is able to save a greater amount of money tax free for several decades. Some of the other rules for Traditional IRAs are that an individual can contribute $5,000 or 100 percent of their yearly income, whichever is less, and they can take their distribution as a lump sum, or as individual payments.

401k Plan Accounts

401ks are investment plans offered to employees at through their place of employment. The beauty of a 401k is that they can be automatically deducted from an individual?s paycheck pre-tax, meaning that an individual is put in a lower tax-bracket, thus enabling them to pay less in taxes, and save money for retirement, at the same time. Many companies also offer company matching programs, usually less than 6 percent of whatever amount an individual invests out of each paycheck. So if an employee invested 6 percent of their paycheck, the company would match that 6 percent, thus enabling an increase of 12 percent of funds into that person?s 401k account during each pay period. Another benefit to employees is that when they leave the company, they can take their 401k with them, either by rolling it into their new company?s 401k plan, or by transferring the money into a Traditional or Roth IRA.

401k plan accounts and IRAs are two of the best and easiest ways for individuals to invest in their future. Thanks to the popularity of both, there are more opportunities through the United States to find the best plan for each budget.

Kyle Sims, the author of this article, is a freelance writer.

Source: http://phonesb.com/retirementplanning/retirement-plans-made-simple/

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