IRS announced changes to contribution limits to various retirement plans in October 2013 owing to changes in demographics and their cost of living. However, numbers for 401k and IRAs have not seen any changes because the Consumer Price Index or CPI did not see major fluctuations. Below image provides you the necessary contribution limits of retirement plans available in US currently.
401k and other retirement plans – contribution limits for 2014
If you are an investor in 401k, here is more information on 401k contribution limits.
Unknowingly people commit lot of mistakes while investing towards their retirement. These mistakes however are very much avoidable. In this video Diane Armstrong, a retirement strategist provides tips and advice to avoid these very costly mistakes and make the most from your retirement investments. Watch this video and make your Golden years wonderful. For more information on retirement strategies.
Probably the most common bits of retirement advice would be to maximize your 401(k). Lots of people – finance gurus incorporated – believe this can be a guaranteed way to have a prosperous existence during retirement.
The simple truth is, adding to a 401(k) is not for everybody. We want to think in one universally relevant panacea for retirement planning , however it simply doesn’t exist. Everybody includes a unique group of conditions, needs and goals which will determine the right strategy. In many instances, dumping money right into a 401(k) is unwise.
Listed here are five explanations why you wouldn’t like to set up your company’s 401(k) plan as the ultimate plan for your Golden years
1. Lack of Emergency funds
Everyone needs to have an emergency fund for unforeseen events. Before saving, investing, trading or virtually something that involves moving money around, begin by establishing an urgent situation fund. Within the unfortunate situation of the job loss, medical emergency or any other personal crisis, you will want to possess the assets essential to carry your loved ones right through to safety. Generally, the suggested emergency fund is the same as six several weeks of earnings.
Creating an urgent situation fund first is imperative. You won’t want to have to use your 401(k) when struggles arise. Early withdrawal is really a pricey prospect. You’ll frequently be needed to pay for a ten Percent penalty fee on the top of tax, plus you are getting rid of assets with tax-advantaged growth potential. You will find some narrowly defined exceptions towards the penalty, but many individuals will pay very much for early use of individual’s funds.
2. Your employer does not match contributions
Among the finest advantages of a 401(k) originates from employer matches on contributions. If you are lucky, your organization will agree to fit your contributions up to and including specific amount. You need to more often than not meet the organization match. It’s essentially free money. Regardless of whether you lead past the match is really a decision you will want to make considering other trading options.
Regrettably, many companies that provide a 401(k) plan don’t match contributions. For the reason that situation, you will find frequently better investment methods. Because the money you lead for your 401(k) is going to be taxed later in existence and frequently has limited investment options, you might want to go for an alternate retirement checking account, like a traditional or Roth IRA .
3. Fear of Debt
Trading inside a 401(k) is a terrific way to increase your money, however it will not do much good if debts are concurrently eating away at the accounts. Just like the interest in your savings is adding to to construct your assets, therefore the interest in your debts are adding to to tear them lower.
You need to generally prioritize having to pay lower current financial obligations before stashing away money for future years. The earlier you have to pay what’s owed, the less you’ll lose to rates of interest. There might be exceptions for this rule in case your company includes a generous 401(k) match, which means you should most likely look for a financial consultant that will help you within this scenario.
4. You fear for future tax increases
Area of the allure of 401(k)s is the opportunity to defer tax. You aren’t taxed in your contributions before you make distributions throughout retirement. However, it does not always seem sensible to defer taxes instead of having to pay in advance.
Presently, the greatest federal income tax bracket is 39.6%. That could appear high, but in the past, it’s fairly low. In 1980, the greatest bracket was 70%. In 1960, it had been 91%. When you hit retirement, the nation might be back at sky-high levels. Many people may deem it smarter to pay for taxes now while minute rates are reasonable. Obviously, predicting the tax brackets of 2030 is really as large a big gamble as spinning a roulette wheel in Las vegas, but it is certainly something to think about.
Along individuals same lines, deferring taxes before you withdraw in retirement could finish up costing you plenty more–even when the tax brackets stay at exactly the same level. If you have invested lots of money to your 401(k), making large annual distributions may potentially generate a greater income tax bracket. This is also true if you are also drawing significant earnings using their company sources. In by doing this, the deferment advantage of a 401(k) plan does not always work to your benefit. If one makes enough with this to become a concern, consider a good investment vehicle that enables you to definitely pay your tax in advance.
5. Insufficient versatility and high on maintenance costs
Whenever you invest profit a 401(k), you should not touch individuals funds until retirement. Otherwise, you’ll disrupt your retirement funds while taking on nasty penalty costs. Putting lots of money right into a 401(k) is an awful idea if you want money immediately or for brief-term expenses. When identifying whether or not to squirrel away your wages for the golden years, consider individuals funds frozen until retirement.
Bear in mind, though, that costs connected with 401(k) plans extend beyond early withdrawal. You will find also plan administration costs, investment costs, individual service costs, sales charges and management costs. The typical household with two working grown ups pays $150,000 to $200,000 in 401(k) costs on the lifetime.
You are able to avoid these costs by selecting retirement funds accounts with increased extensive investment options, or by focusing on passive funds inside your 401(k) account with lower embedded costs. Many experts say it is prudent to rollover 401k to IRA which offers high flexibility and low maintenance fee.
It is wide spread notion that IRAs or widely known as Individual Retirement Accounts hold only Currencies, Mutual funds, Bonds, CDs, Stocks and Annuities. But that is not the case; there are various other unusual asset options that you can have in your IRAs too. These assets bring in varied benefits and returns to your retirement portfolio. If you want your retirement goals to be met without any glitches, all I am saying is give these assets also some consideration in your IRA. Here is the list
Alternate Investments
Alternate Investments for IRAs
Alternate investments such as derivates, commodities hedge funds, distressed securities etc can be held in an IRA. The Merrill Lynch/Cap Gemini Ernst & Young World Wealth Report 2003, based on 2002 data, showed high net worth individuals, as defined in the report, to have 10% of their financial assets in alternative investments.
Coins
Coins of Historical value for IRA
Rare Gold and Precious Metal Coins and other antiques of historical importance can be part of one’s retirement portfolio
Precious Metals
Precious Metals – Gold and Silver for your IRA
Precious metals are part of alternate assets, but I want to stress a little more on them, hence a separate asset class. Precious metals are in one’s retirement portfolio is not an option these days, but a necessity. Gold and other Precious metals help in maintaining the value of your IRA when the economy is hit by hyperinflation. Hedging your Retirement Investments is a must because if it is exposed to hyperinflation, there will be nothing left for your Retirement years; and gold is a hedging asset. If you want to know more on Gold IRAs and Gold as an Hedging asset.
In my earlier article, I put stress on the need of opening an IRA account. If you are convinced that you need a Roth IRA for you, I intend to write the steps on how to get a Roth IRA. Before moving on let me briefly define what exactly Roth IRA is; A Roth IRA is a type of retirement investment account, which offers its owners a tax-free income after retirement. Follow these steps to have your Roth IRA set up and your retirement goals met with ease.
Step 1: Calculate your Modified Adjusted Gross Income (MAGI). MAGI is very important in determining your qualification to own a Roth IRA. If you are new to calculating your MAGI then here is some help.
Step 2: Determine if you are eligible for owning a Roth IRA. Roth IRA accounts have an income limit, and those who have an adjusted gross annual income greater than the allowed income for their tax filing status may not open a Roth IRA account.
Step 3: If you are eligible to have a Roth IRA on your name then decide what assets you want your Roth IRA to have. Almost any types of investments are allowed in a Roth IRA, but make sure you do a round of research on all these asset types before taking a call. In a Roth IRA, the following asset types are typical – Stocks for high returns, but with higher risks; Cash – s most common one, but has inflation risks; Certificates of Deposits for a constant risk free returns; Gold and Precious Metals IRA for hedging your investments against hyperinflation; Real Estates etc.
Step 4: Determine where you want to open your IRA. Carry out some research and open an account – Banks, Brokerage Firms, IRA Custodians etc
Step 5: Identify your beneficiaries
Step 6: Apply for the new account. Some information you may need to have available when opening your account include:
Your social security number and the social security numbers of your beneficiary.
Your checking or savings routing and account numbers.
Your salary information. Brokerage firms and financial institutions use this information to determine your eligibility for a Roth IRA.
Step 7: Start making contributions to your Roth IRA. Here are your Roth IRA Rules.
As long as certain requirement are met, an individual can minimize taxes while maximizing retirement savings through tax free withdrawals and tax free growth potential. All this can become a reality in the form of a Roth IRA. The advantages of having a Roth IRA are not limited, but there are more that may be less well known.
Before we dig deep into the Roth IRA treasure, there is one thing that is very important to note. That is, not everybody can have a Roth IRA because the qualification is done by the IRS through imposed income limits. Below are some of the very important reasons why I want all readers to pursue to have yourself a Roth IRA.
Both Growth and Withdrawals are completely tax free
There is no compulsion for an individual to draw Minimum Required Distributions (MRD). Other IRAs in the form of 401k, 403b, Traditional IRAs have MRDs for their owners
Heirs can withdraw money tax free
Very flexible on the taxes while in retirement
One can reduce or even avoid the new Medicare surtax
Lot of asset options for owner – Roth IRA can hold varied set of assets – Gold and Precious Metals, Stocks, Bonds, Real Estate, Money etc. So if one is able to invest when young, his income would get a boost while retirement
Individuals can contribute towards their Roth IRA as long as they are in employment
Future tax hikes can be hedged against.
No matter what your age, since a Roth IRA might perk up your tax scenario, it makes absolute sense to take the time to see if you would benefit from one.
Retirement Master 