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Income Sources... Below are general outlines of some typical
types of retirement plans. Keep in mind that tax-deferred contributions and earnings make up the best one-two punch in investing. Both
the contributions and investment earnings grow tax-deferred until withdrawal. One or more of these plans may very well be the most likely sources of your retirement income:
Pension and Profit-sharing Plans
It’s important to become familiar with your pension plan. You may even have more than one. Because it may be a major part of your retirement income, you need to know how it works. You don’t want to take it for granted, or gamble with your financial security.
Self-Employed Pensions
Anyone with income from work can set up an Individual Retirement Account (IRA). If you’re self-employed you can set up a do-it-yourself pension. There are several types of self-employment or personal retirement plans, and seemingly more each year. Your employer can even sponsor some. Review the following summaries to check your general knowledge. The more familiar you are with various retirement plan options, the better.
KEOGH PLAN: is a tax-deferred retirement plan designed to help the self-employed establish a retirement savings plan. There is more than one type of Keogh. You save money by reducing your taxable income by the amount you invest (depending on your gross income.) One of their advantages is they offer high levels of maximum tax-deferred contributions. Five basic types of IRAs (pending tax laws may even increase the number of plans):
1. TRADITIONAL IRA: You can contribute up to a minimum amount per year (as little as $2,000 but increases by law) into an IRA. The amount of the contribution deductible on your income tax return depends on your Adjusted Gross Income (AGI) and whether you’re covered under an employer sponsored qualified retirement plan. Thus, depending on your filing status (Single, Joint, etc), and your AGI, your contributions may range from fully deductible to totally non-deductible. So you need to get advice on whether or not this will be an advantage to you.
2. EDUCATION IRA: You can put away a varying amount up to a maximum per year into an education IRA, the money grows tax- free and has preferential tax treatment upon distribution to the beneficiary who uses it for authorized education expenses. These plans aren’t as common because they’re very restrictive on who can contribute to them, the amount of total contributions each year, and the limitations on what exact education expenses qualify. Your financial planner should be able to assist you in evaluating what savings plan you should use to prepare for higher education costs, and help you review the tax-sheltered savings plans now sponsored by the various states, even for benefits of non-state residents.
Create your own retirement plan
“Many college students can write home for money in four or five languages.”
~ Anonymous
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