May 22

Why a 401k is Better Than a Pension

“It’s clear that most Americans aren’t saving enough for retirement, and it’s easy to put the blame on the current 401(k) and IRA retirement system. After all, the good old days when a traditional pension plan was much more popular seemed wonderful: You could quit your job, sit back and still get monthly income like clockwork.  But blindly claiming that the pre-401(k) days are better is just inaccurate, because there are plenty of reasons the do-it-yourself system is better,” says USNews.com contributor, David Ning.

First off, not everyone had a pension available to them.  Only about 40% of Americans were able to utilize this retirement plan.  The majority of workers did not have a great way to save for retirement.  Today, most large companies offer a 401k plan.  Even if one is not available to you, anyone can open and fund his or her own IRA plan.

Next, pensions take much longer to vest.  Normally, you need to stay with an employer for at least a decade to take full advantage of a pension.  If a better job opportunity arises, you are less to leave your current place of business since you will lose your pension and be stuck starting from scratch.  401k plans, on the other hand, are much easier to take with you.  Money you contribute is yours…no one can take it from you.  If you receive a employer match on those contributions, usually the vesting period is much, much sooner.

401k and IRA plans are better than pensionsTaxes are better controlled with a 401k or IRA.  When figuring out your taxes, you must include all monthly pension money.  This income, whether you need it or not, may force you to pay higher taxes than with other types of plans.  With a 401k, you can wait on distributions or only withdraw what you need.  You may even be able to convert money into a Roth option without ever paying taxes on that money.

When an emergency arises, you can utilize your 401k or IRA to pay for the expenses.  It’s never recommended to take money from your retirement savings, but you have that option if you need it.  Roth IRA contributions can be taken tax-free after five years.  You can take a loan out of your 401k at anytime.  You cannot do this with a pension and if you’re forced to leave a job for an emergency, you might lose your pension entirely.

A pension provides for you (and you alone) until you pass away.  If you’re smart and don’t need all of your retirement funds, you can usually leave your plan to a beneficiary.  Therefore, not only do you benefit from the plan, but so may your heir(s).

Finally, you can invest your 401k the way you want.  If you take the time to research, you can earn significantly more than you could ever make with a pension.  The onus is on you to make smart financial decisions.  It’s best to contact a financial adviser to help you invest your money smartly.  Afterall, future you is counting on present you!

If you have any questions or are looking to better understand your financial freedoms that 401k and IRA plans provide for you, contact the tax experts at the IRA Financial Group today!

Sep 10

401(k) Plan Benefits at heart of NFL Referee Labor Dispute

NFL officials are part-time employees. The majority of NFL referees have jobs outside the NFL. A NFL referee that earns self-employment income outside of the NFL would be able to adopt a Solo 401(k) Plan which could be used as a personal 401(k) pension plan. A major source of the ongoing labor dispute between the NFL referees and the league is largely based on referee compensation and pension benefit issues. The NFL officials are claiming that the NFL is seeking to freeze or reduce referee compensation, and then eliminate referee pension plans.

“Because NFL officials are part-time employees of the NFL a large number of these individuals may have other sources of income which would allow them to adopt their own solo 401(k) retirement plan, “ stated Adam Bergman, a tax attorney with the IRA Financial Group. “If a significant number of the NFL officials were able to adopt their own solo 401(k) plan and defer their other sources of income into their own retirement plan, that may persuade NFL referees from dropping their demand of having the NFL offer referee pension benefits, “ stated Mr. Bergman. “Although, the NFL referees would not be able to defer their NFL compensation into their solo 401(k) plan, having the opportunity to defer other sources of income into the plan could allow the NFL officials to still maximize their retirement benefits without being offered NFL pension benefits, stated Mr. Bergman.

A self-employed 401K Plan, also known as a solo 401K Plan or self-directed 401(k) plan was created to offer self-employed individuals and small business owners with no full-time employees other than the owner(s), the ability to have a qualified retirement plan but without the administrative burdens of having a traditional 401(k) Plan.

There are many features of the IRA Financial Group’s Solo 401K plan that could make it so appealing for NFL officials with self-employment income sources.  Read the entire article here and be sure to contact the IRA Financial Group to see if investing in a Solo 401(k) Plan is right for you!

Jul 25

401k Plans Finally Working

When employers began switching their pension programs to 401k plans in the 1980s, employees were the ones who suffered.  Since the plans were optional, many didn’t participate and those that did had little knowledge in how to invest their money.

One of the major reforms that employers use with today’s 401K plans is automatic enrollment.  Money is automatically deducted from the employee’s paycheck unless he/she decides to opt out.  A Vanguard study shows that 72% of employee under 25 save under this reform (as opposed to only 18% where automatic enrollment wasn’t there).

For more details on this and other reforms such as target funds, click here.

Need advice in managing your own 401k?  Contact the tax experts at the IRA Financial Group.