RETIREMENT PLANNING

Retirement Planning

Retirement marks a significant milestone in life’s journey, a time to reap the rewards of decades of hard work and dedication. Yet, achieving a fulfilling retirement requires careful planning and strategic decision-making to ensure financial security and peace of mind in your golden years

Individual Retirement Accounts (IRAs)

Individual Retirement Accounts (IRAs) offer valuable tools to help individuals save for their golden years. IRAs are popular retirement savings option to individuals whose employer does not offer a retirement plan. IRAs are available in both Traditional and ROTH versions.

TRADITIONAL

  • Contributions may be tax-deductible, providing an immediate tax benefit.
  • Earnings within the account grow tax-deferred until withdrawals are made in retirement.
  • For the 2024 tax year, the contribution limit is $7,000 for individuals under 50 years old and $8,000 for those aged 50 and older.
  • Required Minimum Distributions must be taken starting at age 73 (age 75 starting in 2033). Late or insufficient distributions incur a 25% penalty from the IRS.
  • Distributions generally subject to ordinary income tax, and withdrawals made before age 59½ may incur a 10% early withdrawal penalty.
  • Exceptions to the early withdrawal penalty: distributions for first-time home purchases, qualified higher education expenses, disability, and certain medical expenses.

ROTH

  • Contributions to Roth IRAs are made with after-tax dollars, meaning there is no immediate tax deduction.
  • Earnings within the account grow tax-free, and qualified withdrawals in retirement are also tax-free.
  • For the 2024 tax year, the contribution limit for Roth IRAs is $7,000 for individuals under 50 years old and $8,000 for those aged 50 and older, with catch-up contributions allowed.
  • Do not have required minimum distributions (RMDs) during the account owner’s lifetime.
  • Contributions can be withdrawn at any time without tax or penalty.
  • No taxes or penalties on withdrawals of earnings if taken after age 59½ and account is owned for at least 5 years.
  • Similar to traditional IRAs, there are exceptions to the early withdrawal penalty for Roth IRAs, including first-time home purchases, qualified higher education expenses, disability, and certain medical expenses.

403b

A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan or tax-deferred annuity (TDA) plan, is a retirement savings account available to employees of certain tax-exempt organizations, such as public schools, hospitals, and non-profit organizations. It operates similarly to a 401(k) plan but is tailored to the unique needs of employees in the nonprofit sector.

  • Tax Advantages: Contributions to a 403(b) plan are made on a pre-tax basis, reducing the employee’s taxable income for the year. This means that contributions are deducted from the employee’s gross income before taxes are calculated, potentially lowering their overall tax liability. Additionally, earnings within the 403(b) account grow tax-deferred until withdrawal, allowing investments to compound over time without being subject to annual taxation.
  • Contribution Limits: For the 2024 tax year, the contribution limit is $23,000 for individuals under 50 years old. Age 50 or over at the end of the calendar year can also make catch-up contributions of $7,500 in 2024, beyond the basic limit on elective deferrals.
  • Retirement Savings: The 403(b) plan provides employees with a convenient way to save for retirement, offering a range of investment options to suit individual preferences and risk tolerances.
  • Employer Contributions: Many employers offer matching contributions to 403(b) plans, providing an additional incentive for employees to save for retirement.

Annuity Options

Deferred annuities are valuable tools for retirement planning, offering individuals the opportunity to accumulate savings over time and receive a stream of income in retirement. Here’s a breakdown of the different types of deferred annuities:

  • Single Premium Deferred Annuities (SPDAs) require a one-time lump sum payment upfront, which grows tax-deferred until withdrawals begin. These annuities offer simplicity and predictability, making them suitable for individuals with a large sum of money to invest.
  • Flexible Premium Deferred Annuities (FPDAs) allow individuals to make periodic contributions over time, providing flexibility in saving for retirement. These annuities offer the convenience of regular contributions while still benefiting from tax-deferred growth.
  • Accumulation-focused Deferred Annuities: These annuities are designed to maximize accumulation potential, often offering a variety of investment options to suit different risk tolerances and investment objectives. Accumulation-focused annuities aim to grow the principal investment over time to generate a larger income stream in retirement.
  • Income-focused Deferred Annuities: Income-focused annuities prioritize generating a reliable stream of income in retirement, offering various payout options such as fixed or variable annuitization. These annuities provide peace of mind by ensuring a steady income stream to cover living expenses in retirement.

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