401K Planning Made For You

Since being created in 1978, the 401(k) plan quickly became and still holds the title of the most popular type of employer-sponsored retirement plan. In fact, for many Americans, this is their only retirement plan. It's no wonder that employers and employees alike see a 401(k) as a prime member of the benefits package, as it reigns supreme in regards to relative flexibility. What is still lagging, though, is the optimization of the thousands of plans across the US. A 401(k) planner near Wildwood, FL, can easily aid in the remedy of this lack of optimization.

401(k) Basics

The IRS has defined two versions of qualified retirement plans, defined benefits, and defined contributions. A pension plan would fall under the defined benefits umbrella, and a 401(k) would fall under the defined contributions umbrella. The beauty of a 401(k) plan is that you get to decide how to spend the funds you are investing into your retirement.

When you use a 401(k), employers often match the designated employee contribution up to a specific specified limit. This employer match makes a defined contribution plan even more enticing because not only can you have control of where your own money is being invested, but you can control where the company contributions are placed. This control gives you greater autonomy over the growth and diversity of your retirement plan.

An added benefit of this type of retirement account is that the investment earnings remain untaxed until the employee withdraws that money, which typically happens after retirement. Plus, all of your upfront investment dollars diverted from your paycheck are pre-tax.

Limits and Variations

There are some limits to the 401(k) plan, including maximum contribution limits. An employee can only defer a certain amount of their entire salary to their 401(k) each year, with the maximum amount being higher for those employees over the age of 50. There is also a maximum joint contribution limit for employers and employees.

Once you start deferring a specified amount of your pre-tax dollars into your 401(k), some conditions are set on withdrawing this money. If you withdraw the money before you are 59 1/2 years old, you will likely incur a 10% tax penalty in addition to the taxes due on the amount withdrawn.

To avoid the taxes upon withdrawal, many employers are offering the option of a Roth 401(k). This version requires the employee to pay income tax on all contributions when placed in the Roth 401(k) account; this allows the money to be withdrawn upon retirement with no additional taxes due on the contributions or the investment earnings. Keep in mind that employer contributions can currently only be placed in a traditional 401(k), not a Roth 401(k).

Benefits of a 401(k) Planner

Now that you have a better idea of the basics of 401(k) retirement options, it's essential to manage it effectively. It is wise to partner with a knowledgeable 401(k) professional to help you make the right financial decisions. These decisions take time, effort, and education.

Many people try the "one and done" approach to managing their 401(k). They do a little research, set up their options, and then never log in to their account again. However, for the right financial goals to be met, it's imperative to pay attention to your account as it might need to be periodically rebalanced. Plus, as your investments grow, you might find that you could benefit from a more personalized mix of investments.

Another benefit to working with a professional to manage your 401(k) is the reduced risk of mistakes like blank beneficiary designations, match mistakes, and staying up-to-date with the ever-changing IRS funding limits.

The best reason to work with a 401(k) professional is the personalized, real-time guidance for your specific situation. You don't want to do what is best for your neighbor or your parents; you want detailed and tailored input relevant to your age, the amount of contribution you are making, and your comprehensive retirement goals.

If you don't want to go it on your own, no matter the reason why, whether you lack the knowledge, the time, or the desire, you can be sure to find that working with a 401(k) planner near Wildwood, FL will be of great benefit to your comprehensive retirement planning strategy and peace of mind.