| Building Wealth with Retirement Plans |
 |
 |
 |
| Member - Member | |||
| Tuesday, 27 April 2010 17:27 | |||
|
Hatton Consulting, Inc. specializes in helping folks save and grow their money. In this article, we reiterate the reasons for retirement savings and present some simple strategies to help you maximize the benefits of your 401(k), 403(b) or other type of retirement account.
If you would like to speak with us about ways we can help you grow your money, call 602-852-5522 or visit www.hattonconsulting.com . Our firm works with households with $500,000 or more in assets and we treat all our clients with the service usually reserved for the wealthiest of people.
Why should you save in a retirement account?
It is increasing obvious that Social Security benefits will not provide enough income for an adequate lifestyle in retirement. In addition, fewer companies offer lifetime pensions to their employees when they retire. For these reasons, individuals must take responsibility for themselves in order to have enough money to pay for their living expenses in retirement. That means saving money while you are working, so that it can generate the necessary income when you retire.
In a retirement account, the temptation to withdraw your money prematurely is severely curtailed because many accounts do not permit withdrawals, or permit them only for limited reasons (for example, financial hardship). In addition, a 10 percent early distribution penalty generally applies to the taxable portion of any withdrawal you make before age 59½ (unless an exception applies). Thus you are disincentivized to withdraw assets and instead, the money is left to grow over a significant amount of time.
These accounts offer significant tax advantages. Certain accounts allow employees to defer part of their salaries into them, such as 401(k) accounts. Other accounts allow a tax deduction for the amounts that are saved in them. Deferring your salary and taking a tax deduction lower your present taxes. The money you earn in these accounts is also free from income taxes until you withdraw it. When you do eventually take the income at some future point, it's possible that you'll be in a lower tax bracket, which reduces the amount of taxes you’ll pay. Some accounts also permit Roth contributions. There is no tax deduction for Roth contributions, however, if certain conditions are met, Roth contributions and all accumulated earnings are free from federal income taxes when you withdraw them from the account.
How can you maximize the benefits of a retirement savings account?
Employer-sponsored accounts (such as a 401(k) and a 403(b)) allow much higher annual contributions compared to Traditional IRAs, therefore, you should save money in these accounts first until you have saved the maximum amount allowed by law. Next, you should save the maximum tax-deductible amount to an individual retirement account (IRA). Finally, save the maximum amount allowed by law to a Roth IRA. Contributing in this way will maximize your retirement savings, defer the most taxes, eliminate taxes on the earnings, and build a source of tax-free retirement income.
You can also optimize your retirement account benefits by taking full advantage of employer matching contributions. Some employers, for example, might contribute 50 cents for every dollar you contribute to an employer sponsored account, such as a 401(k). In a very real sense, this gives you an automatic 50 percent return on your investment. This is another reason to save to these types of accounts first. By doing so, you ensure you get the most matching contributions and there is no extra effort required.
Material for this article was provided by Hatton Consulting, Inc. and Forefield Inc. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Hatton Consulting, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request. Forefield Inc. does not provide legal, tax, or investment advice. All content provided by Forefield is protected by copyright. Forefield is not responsible for any modifications made to its materials, or for the accuracy of information provided by other sources.
         
|
Do you want to retire a millionaire? For most folks, saving money in a tax-deferred retirement account is the most effective way to build wealth and retire a millionaire. Member Banner - GolfSmith
Oprius
