How can someone create their own retirement plan? When I say create your own retirement plan I mean making use of all the retirement options available to all people. It is time to depend on your own resources instead of just the government or your employer for your retirement income.
Use All Three Income Options
Too many good people only depend on Social Security as their sole income source when they retire. For many the amount will be lower than what they earned while they were employed. Of course monthly expenses will be lower since commuting to and from work is gone. Another expense which will be eliminated would be the monthly taxes you pay on your earnings.
Surviving during your retirement years only on Social Security will not be enough to live lifestyle you dreamed of while you were planning your retirement years. We need to save your pay in a work 401k or IRA to have additional spending money each month while retired.
Use 401k and Traditional IRA, Roth IRA
Today employers offer a 401k plan and many even include a company match. Each month you can have a portion of your paycheck invested directly into a 401k account. The investments inside the retirement plan will offer stock and bond mutual funds.
What if your employer does not offer a 401k?
Instead of investing in a 401k plan instead you can use a Traditional IRA or Roth IRA if your employer does not offer a 401k plan. Currently an individual can invest up to $5,000 per year in either a Traditional IRA or Roth IRA in total. The main difference between the two IRAs is how your money is taxed when you retire.
A Traditional IRA works like a 401k when you retire. The money you withdraw will be taxed at your current tax rate. The tax rate may be the same, higher or lower than when you were working. The main point is you are only taxed on the amount you withdraw, not the entire balance. The remaining balance continues to be tax-deferred.
The Roth IRA works in reverse than a Traditional IRA since taxes are paid today when you invest in a Roth IRA. However, when you start withdrawing money during retirement the money comes out federally tax-free. Not having to pay taxes when you retire is significant since we do not know what the tax rates will be in the future. Many financial experts believe taxes will be higher in the future than they are today. A Roth IRA is essentially a hedge against future tax rates.
Choose One or All
Regardless of your current financial situation the goal for everyone should be to use all of the above retirement accounts. The Roth IRA does have some income restrictions, meaning if you earn too much you cannot contribute to a Roth IRA. However, a recent tax law change does allow the Roth IRA available to all income earnings if you follow a couple rules. For these rules you should consult an accountant to see if are eligible.
Message from Uncle Sam
When you review all of these retirement accounts one message should be loud and clear from the government: Do not depend solely on Social Security for your retirement income. In fact take a look at a Social Security statement. The Social Security department states that Social Security checks should not be your sole income source for income and you should seek other ways to save for retirement.
The government is attempting to get out of the retirement business because they see the costs associated with retirement income. Do yourself and your family a favor and start saving your own money. By saving your own money you are more in control of your financial destiny. Creating your own financial destiny starts with creating your own retirement plan.
Create your retirement plan today.
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Article Source: EzineArticles.com/expert/Teddy_Dutch_Danfield/874805
Sub Headline: New Tax-Free Retirement Strategies May Supplement Traditional 401(k)s & IRAs
Synopsis: Most working Americans are not in a high-effective tax bracket and many don’t receive an employer contribution match. So why glorify a minimal tax deduction on contributions today, only to pay significantly more taxes later in tomorrow’s retirement? Why should you subject your money to the regulatory rules of ERISA plans when you can have much more flexibility outside ERISA’s jurisdiction? Four tax-free strategies may generate more net-spendable income than any retirement plan before.
Content: Now keep in mind, if you are in a high-effective tax bracket, then you may want to fund your 401(k) because saving 35 percent in taxes is a big deal. Or, if your employer matches your contribution, then fund up to the employer match, but no more. It’s free money. But for the rest of young America, you may want to opt out of ERISA and opt into the new tax-free retirement. Watch the interview with retirement consultant Bruce Bullock as he discusses tax-free options for retirement.
There are four retirement resources that can create a tax-free retirement for Americans under age 50: Social Security, reverse mortgages, cash-value life insurance and Roth IRAs.
Depending upon your deductions and exemptions in retirement, you may be able to receive your Social Security benefits tax-free providing you use the other three tax-free retirement resources with no other reportable income.
Utilizing housing wealth to generate tax-free income from a reverse mortgage is simply tapping into your home equity via collateralized loans. Loans are not reportable as income. One word of caution: it is strongly recommend a reverse mortgage should only be considered if you and your spouse commit to living the rest of your life in that home.
Another tax-free equity resource is collateralized policy loans from cash-value life insurance contracts. The policies must be issued as non-modified endowment contracts and kept if force for the life of the policy insured. There are four basic types of cash-value life insurance: participating whole life, universal life, indexed universal life and variable universal life.
You need to determine your risk tolerance before selecting the crediting method used in any of these contracts, as well as any mutual funds or ETFs in a Roth IRA. Roth IRA income is tax-free and not includable in the provisional income test to determine taxation of your Social Security benefits.
Under current law, these four strategies can generate a tax-free retirement and more spendable income in your golden years.
Syndicated financial columnist Steve Savant interviews retirement consultant Bruce Bullock creating a tax advantaged retirement. Right on the Money is a weekly financial talk show for consumers, distributed as video press releases to 280 media outlets nationwide. (www.rightonthemoneyshow.com) https://youtu.be/VTFwda0OaTM