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Retirement Plans

If your employer offers a retirement-savings option, don’t pass it up. And start contributing as much as you can afford as soon as possible.

Retirement accounts such as 401(k)s are called ‘defined contribution plans’ because employees contribute to them.

Depending on where you work, you’ll hear this type of plan referred to as a 401(k), 403(b), 457, or Thrift Savings Plan. Each of these plans allows you to make pre-tax contributions toward your retirement. Some employers even make matching contributions up to a certain percentage or dollar amount of what you put in.

By choosing to invest in this type of saving plan, you are currently allowed to contribute up to $17,500 if you are under age 50, and up to $23,000 if your are 50 or older. And the good news is that this money is deducted from your income before taxes are taken out.

Once you decide to retire, however, your plan money will be taxed as income based on how much you withdraw each year.

Depending on where you work, your employer is likely to offer a list of investment options for you to choose from, usually in the form of mutual funds with different investment mixes and degrees of risk.

Investment mixes are likely to include things such as stocks, bonds, annuities or cash.

Research the options and select the ones that you feel meet your needs. You’ll be able to reallocate your investments as necessary, based on the risk levels you are comfortable with.

Defined contribution retirement-saving plans are administered by an outside firm chosen by your employer, and these businesses do the actual investing of the contributions.

Keep in mind that these plans are voluntary – there is nothing there for retirement unless you put money in. And there is no guarantee of a specific amount you’ll have at retirement – that all depends on how much and how long you contribute … and how well the investments you select do over time.

With these plans, be sure to check with your employee benefits department to see what your investment options are. And be sure to ask what your options are if you leave your job prior to retirement. At that point, it might be wise to consult a financial advisor for advice.