Employee Benefits

At-A-Glance: Retirement Planning

  1. Individuals planning for an adequate retirement face challenges that include providing for unexpected or major expenses during their working years and continuing to live in the same lifestyle, or better, in their retirement years.     
  2. Self-employed professionals and business owners without employees can set up self-employed pension plans. Business owners may find the costs and administrative obligations of company-sponsored pension plans prohibitive.     
  3. A pension plan is a plan designed to provide for the livelihood of employees and their beneficiaries after retirement.
  4. An employer can offer several types of pension plans, including money-purchase pension plans, profit sharing plans, and 401(k) plans.     
  5. Most plans are qualified plans. Qualified plans provide for tax deferral and other tax benefits but must comply with a complex set of rules.     
  6. Defined contribution plans promise that certain contributions will be credited to the employee's account and that the employee will be entitled to all or part of the value of this account at retirement. Defined benefit plans are qualified retirement plans that promise specific benefits at retirement.     
  7. A qualified plan is tax exempt, and therefore any earnings on plan assets are not subject to taxation until distributed. A deferred compensation plan that is qualified enjoys special tax treatment.     
  8. There are limits on the amount of allocations that can be made annually to a participant's account in defined contribution plans, and on the amount of benefits that can be accrued in a defined benefit plan.
  9. There is a type of tax-favored deferred compensation arrangement that is considerably simpler and less expensive to administer. These arrangements are referred to as simplified employee plans, or SEPs.
  10. Early withdrawals may be taken from a plan, but they may be subject to a penalty.     
  11. How much an individual will receive from social security benefits will be determined by such factors as age of retirement.     
  12. Social security may pay benefits to family members who are children, surviving spouses, or, in some cases, parents.     
  13. Social security pays four types of benefits: retirement insurance, survivor's insurance, disability insurance, and Medicare.     
  14. Self-employed individuals pay social security through an annual self-employment tax. Although the rates are the same as for employees, self-employeds must pay the entire 15.3%.     
  15. All, or a portion, of an individual's retirement benefits may be subject to taxation— either income tax at the time of receipt or estate tax at death. There are some options available that can reduce, postpone, or in some cases eliminate the tax burden....

 

 

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