On this audio podcast episode, Miguel Gonzales talks about the preferred vehicle to save for the retirement AND the one of the most desirable employee benefit - a 401k plan.
Welcome to Cortburg Speaks Retirement Podcast
with Miguel Gonzalez, MBA, AIF®, CPFA®, CRC®
CLICK HERE TO LISTEN TO MIGUEL'S LATEST PODCAST
FOLLOW US ON:
On this audio podcast episode, Miguel Gonzales talks about the preferred vehicle to save for the retirement AND the one of the most desirable employee benefit - a 401k plan.
Welcome to Cortburg Speaks Retirement Podcast
with Miguel Gonzalez, MBA, AIF®, CPFA®, CRC®
CLICK HERE TO LISTEN TO MIGUEL'S LATEST PODCAST
FOLLOW US ON:
INTRODUCTION
Welcome to Cortburg Speaks Retirement
An audio podcast about investing in the stock market, financial planning, money management and retirement planning. Each Wednesday, we help investors at all stages of life learn how to potentially grow and preserve their money from first job through retirement.
Now here is your host, Miguel Gonzalez.
HOST
Good morning and welcome to the CORTBURG SPEAKS RETIREMENT audio podcast.
On this week’s audio podcast, I discuss the preferred vehicle for retirement savings – the 401(k).
A 401(k) retirement savings plan is one of the most desirable fringe benefits a small business can offer. For a business owner, it can help strengthen a company’s position when competing for top talent. It can also be structured to help retain employees once they are hired. For employees, a company-sponsored 401(k) plan offers an excellent way to build a retirement nest egg through tax-deferred savings.
In Brief
A 401(k) plan allows each employee to set aside part of his or her salary, subject to certain limitations, in a separate account to grow on a tax-deferred basis. Participants have the flexibility to choose from among a variety of funding options offered by the plan. Employers may contribute to employee accounts by matching a percentage of their employees’ contributions. Withdrawals usually occur at retirement—when plan participants are more likely to be in a lower income tax bracket.
Possible Advantages
The benefits of a 401(k) plan are numerous and may include some, or all, of the following:
Pre-Tax Contributions
Employee contributions are typically made on a pre-tax basis, subject to certain limitations. By lowering their taxable salary or wages, plan participants are able to lower their income tax for each year they participate.
Employer Matching Contributions
Some employers match contributions up to a certain percentage. For instance, with a 50% match, an employer would contribute $0.50 for every $1.00 an employee contributes. The advantage of matching contributions generally depends on the level of the match and the employer’s vesting requirements.
“Vesting” refers to an employee’s right to the funds in his or her account. An employee’s contributions, and the earnings on those contributions, are fully vested from his or her start in the plan. An employer’s matching contributions vest according to a schedule that usually depends on the employee’s length of service. Thus, an employer can arrange the vesting schedule to reward and retain employees by fully vesting plan participants after, say, five years.
Variety of Funding Options
Plan participants may select from a variety of funding options. Most plans also allow employees to change their funding choices periodically to reflect their individual needs and goals.
Tax-Deferred Earnings
Earnings on any contributions accumulate on a tax-deferred basis. This includes earnings on matching contributions made by employers.
After-Tax Contributions
Many plans also allow employees to make after-tax contributions, subject to certain limitations. While these contributions do not lower the current year’s income tax, as do pre-tax contributions, they accumulate earnings on a tax-deferred basis.
Restrictions
As with all retirement plans, 401(k) plans have certain limitations:
Limits for Highly Compensated Employees (HCEs)
The contributions of HCEs may be limited if lower paid employees do not contribute a sufficient amount. Every year, plan administrators must perform certain “top-heavy” tests to determine the maximum amount HCEs may contribute.
Taxation at Withdrawal
Plan participants are subject to income taxes for pre-tax contributions when they withdraw the funds. However, after-tax contributions are not subject to further taxation when withdrawn.
Early Withdrawal Penalty
Withdrawals prior to age 59½ may occur only under certain circumstances and, when allowed, may be subject to a 10% early withdrawal penalty.
A 401(k) plan offers advantages for both employer and employees. For business owners, it can help attract and retain desirable employees. For employees, a 401(k) plan, when combined with income from other sources, such as Social Security, a pension, and personal savings, can help them work towards their retirement objectives. It’s no wonder that, for many, 401(k) plans have become the preferred vehicle for retirement savings.
Make sure to visit our website, www.CortburgRetirement.com. Our site is filled with educational videos, eBooks, publications, and financial calculators designed to help you learn more about your finances. As you search our site, send us a note regarding any questions you may have about any particular investment concepts or products. We will get back to you quickly with a thoughtful answer.
This is Miguel Gonzalez, Certified Retirement Counselor (CRC) and Managing Partner, with Cortburg Retirement Advisors signing off for this week’s educational podcast.
DISCLOSURES
Opinions expressed are subject to change without notice and are not intended as investment advice or a solicitation for the purchase or sale of any security. Please consult your financial professional before making any investment decision.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
CRC conferred by The International Foundation for Retirement Education.
Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through Private Advisor Group, LLC, a registered investment advisor.
Private Advisor Group, LLC and Cortburg Retirement Advisors, Inc. are separate entities from LPL Financial.
Investing involves risk including possible loss of principal.
· This material was created for educational and informational purposes only and is not intended as ERISA or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
· Investing involves risks including possible loss of principal.
· This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
· This article was prepared by Liberty Publishing, Inc.