A Guide to Understanding IRAs and 401(k) Plans

A Guide to Understanding IRAs and 401(k) Plans
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Retirement Plan Basics

Most of us think that retirement just happens. The reality is that planning for retirement should start the day you land your first job. From the date you begin working, the countdown to retirement begins. Financial security should never be left to chance and planning for retirement is one aspect of financial planning that none of us can afford to ignore. The more it appears that Social Security rules will be changed, the more important planning for retirement becomes. There may be a much smaller safety net available to those who are currently beginning work than there was for their parents or grandparents.

Whether you are close to or nearing retirement, you’ll need to understand some of the basics of retirement planning. This may include not only an understanding of what investment options you have, but also have a basic understanding of the risks and rewards associated with investing. You’ll also need information about the various plans that are available through your employer and how to go about planning for your retirement. Whether you are interested in early retirement or simply planning to retire at a ripe old age, you’ll want to make sure that you fully understand how to meet those needs.

Retirement Plan Options


IRAs, 401(k) plans, SEPS and other retirement plan options should be carefully investigated before deciding which plan or combination of plans is right for your individual needs. While some plans are available only to those who are self-employed, some people find that they have overlooked some great options that were available to them when they began their retirement planning. Let’s explore some of the various types of plans that can be selected from and what each offers as well as the types of investments available.

Traditional IRA plans, variable annuities, plans for those who are self-employed and various company sponsored plans are all available options to consider when planning your retirement. Having a complete understanding of what each type of plan offers and what limitations are placed on each can help you determine which of the available choices is best for your individual needs. Not everyone needs the same type of plan, deciding which plan is best for you can only occur once you have reviewed each option and weigh the pros and cons. Some of the basic types of plans to compare include:

Age, Taxes and Rollovers

tax money

People are often surprised by some of the limitations that are placed on retirement accounts. In addition to restrictions on deposits and withdrawals at certain ages, rolling retirement plans from one employer to another and how taxation works on retirement plans. These considerations are important at all stages of retirement planning and should be carefully weighed and considered when creating a retirement investment plan.

There are tax considerations that must be part of your retirement planning. The tax rules that apply to early withdrawals, investing in your retirement plan after you have reached usual retirement age and the rules that apply to transferring your retirement accounts when you change jobs. There are also rules that apply to inherited retirement plans that can have an impact on your income and on your tax status. Make sure that you thoroughly investigate the potential problems that could occur.

Non-Retirement Distributions

money hand

Sometimes regardless of how carefully you plan, there comes a time when you may need to consider borrowing money from your retirement plans. There are numerous reasons including medical bills, divorce, home purchases and business purchases are only a few reasons why this may be a consideration. Before you consider taking a distribution from your IRA or 401(k) plan, make sure that you understand the rules for withdrawal and what the tax implications are of the withdrawal.

Reasons for distributions can vary from person to person and none of these withdrawals is without pitfalls. The issues with distributions range from whether they can be redeposited to your retirement plan, what limitations exist on withdrawals. Not all retirement plan withdrawals are a good idea, it is helpful to understand what can be done and what limitations are in place before you make a withdrawal. This group of titles will help you understand when you can borrow from your retirement plan and what the limitations on those withdrawals may be.

Additional Considerations for Retirement Planning

There are numerous legal issues that can impact your retirement planning. Some investors find that their health care spending accounts have excess funds at year end. These funds cannot be co-mingled with a retirement plan as they are not eligible. Other things that must be taken into consideration is control of retirement funds if you become incapacitated or unable to make decisions for yourself.

While not everyone will have to deal with these issues, it does not hurt to consider them before you have to be concerned about them. This grouping of titles will help those investing for retirement be aware of some potential issues before they become problematic.