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Retirement
Prepare That Nest Egg
By Jeff Moore
When the time comes for retirement, your quality of life is much better when you have a nest egg to supplement social security. Retirement living is much more enjoyable when you are able to travel, visit relatives, and see those places that you have always wanted visit. The best approach in planning for retirement is with a company matched 401K plan. The primary benefit is the ability to transfer a 401K to a new employer if and when you change jobs, a key flexibility if this program. Also employers match up to a certain percentage of your investment unlike an IRA.
One benefit of a 401K is the tax advantage that comes with pre-tax withdrawals from your payroll. Employers that participate in the 401K program allow you to take advantage of this tax savings by deducting a set percentage of your income prior to taking out all those payroll taxes. The other advantage is that you will never have to pay taxes on this money if you wait until you retire to withdraw the money. Which leads to the fact that early withdrawal comes with taxes and a 10 percent penalty. So avoid early withdrawal and avoid the taxes.
Another benefit when planning for retirement living is that you can tailor your 401K plan investments based on the level of risk you are willing take. Risky portfolio investments are in the stock market and low risks are in bonds. The best approach is to select an assortment of investments for your portfolio. Your company provides a selection guide of portfolio investment that is tailored to their 401K plan. The earlier you begin to participate in 401K investment, the riskier your portfolio can be. If your portfolio takes a turn for the worse you have plenty of time to recover. If close to retirement it is best to select a less risky portfolio.
Another benefit of 401Ks is that they are protected from garnishment and creditors, except divorce decrees. The IRS has determined that the maximum contribution is $15,500.00 a year. You need to take this limit into account when setting up your 401K program with your employer. This is much better than IRAs, because their contribution limits are much lower. As you can see that 401Ks will prepare you a nice nest egg for retirement living, especially when if you start young. Most company plans have provisions for contributing to your plan if you need to catch up to certain levels and the IRS limit is $5,000.00 a year.
You should avoid withdrawing your money if at all possible, but sometimes a critical point in life requires financial assistance. You can withdraw up to 50 percent of your vested earnings as a loan. You pay interest on that loan, just like any other loan even though it’s your money. There are provisions for hardship loans that do not require interest. The approved reasons for hardship loans are: purchasing a primary home, education expenses, avoid eviction, and severe financial problems. But always remember that your quality of retirement living is based on the size of your nest egg, avoid early withdrawals and loans.
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