So you’ve been considering making the switch from a defined benefit (DB) pension to a defined contribution (DC) retirement plan? If so, then you are on the way to a solid financial future. You’ve probably heard of the term “qualified retirement plan” and how it relates to a retirement income you can count on.
In simple terms, a qualified retirement plan is one that allows its members to invest in an amount that matches their contributions up to a certain level. The amount you can invest is based on a number of factors, such as the age of your spouse, the current market, the length of your career, how long you will live, your current health status, your expected earnings and expenses and the overall size of your retirement funds. Qualified plans usually include 401(k) s, 403(b) s, profit-sharing schemes, and even Keogh (HL-7) plan (also known as deferred compensation plans). Nonqualified plans typically include deferred-payments plans, executive-bonus plans and split-dollar plans that require the immediate payment of money.
The most important qualification you must meet for retirement is that you are at least sixty-five years of age. This requirement only applies to those who are eligible for Social Security retirement benefits. Those who are not eligible for Social Security retirement benefits may still qualify if they are retired to a defined term life or annuity plan that pays at least the initial cost of their benefits. Another qualification is that you must have worked for a company for at least ten years as an employee and have worked enough hours to be credited with a retirement account.
If you have not yet accumulated any retirement accounts and plan to do so, you may want to consider taking part in a financial planner’s plan. A financial planner has the ability to analyze your financial situation and recommend changes to improve your financial position. These professionals have experience in financial planning for individuals and are usually paid to guide you through the process. They help you determine your retirement income tax status, the retirement fund you will invest in, how to choose a defined retirement plan, how to set the amount and more. All of these questions can be answered by the financial planner.
There are also options besides investments you can use to help your retirement reach its maximum potential. Options include investing in a Roth IRA, HSA or a Health Savings Account, or other tax-deferred investment accounts.
An IRA is a tax-deferred account. In this account you deposit money until you begin receiving a regular withdrawal, at which time you pay taxes on the amount of money deposited. Unlike a traditional retirement plan, the money in an IRA grows tax-free and tax-deferred. Also, unlike a 401(k), there are no restrictions as to how much money can be deposited and it is completely possible to withdraw the money without any taxes being owed.
An HSA or Health Savings Account is a Health Care-First retirement account. HSA’s offer a higher interest rate than traditional retirement plans while providing you access to the same level of funds. The funds are invested and rolled over in case you are not able to get the retirement benefits from your retirement savings.
In addition to investments, these types of retirement plans also provide health insurance coverage for you and/or your family. Health savings account can help replace medical bills and help cover prescriptions. when you are not covered. It is important to remember that once you retire, it is essential that you have adequate health coverage for yourself and your loved ones.