Like a k , a b account enables you to defer a portion of each paycheck for your retirement, and your employer may match some of your contributions if it chooses. A b may be either tax-deferred, meaning your contributions reduce your taxable income this year and you pay taxes on distributions in retirement, or a Roth b , meaning you pay taxes on your contributions this year and your money grows tax-free afterward.
These limits are the same as the contribution limits for a k. Note that if your employer offers access to both a k and a b plan in the same year, the limit applies to your total contributions to both accounts. Of course, you're not required to contribute this much annually if you're unable to.
You may set your own savings rate and adjust it as often as necessary. Usually you choose what percentage of each paycheck you would like to go toward your retirement, and if your company matches some of your contributions, it will also base its contribution on a percentage of your annual income.
A b can be a useful retirement savings vehicle. Stay mindful of the rules and fees to help your retirement savings grow as quickly as possible and avoid unnecessary penalties. Investing Best Accounts. Stock Market Basics. Stock Market. Industries to Invest In. Getting Started.
Planning for Retirement. Retired: What Now? Personal Finance. Credit Cards. Your options are primarily focused on the practical application of the plan and the subsequent costs the plan will incur. Getting involved with any kind of provider is going to incur a cost of some kind. Additionally, employers need to worry about how the administration and investment options of the plan itself are going to fit into their likely already-stretched budget since b plans are for nonprofits.
Money is the primary cost to consider, but control also matters. Consider how many assets the provider will manage in the b plans they offer. Given the complex nature of these plans, you should also use customer service as a barometer for evaluating the best b plan providers. How far is the provider willing to go to help with the setup, the administration, and answering questions?
Most b vendors are happy to help since a successful implementation of any plan is beneficial for them, but your evaluation needs to go a step further. Consider how much the provider is willing to do to help you. Look through the additional services they offer that may be helpful. Finally, make sure the plan itself works. Given the three options, a provider should be flexible enough to provide options for all three in some form or another should you need it.
Be aware that many providers also hide these fees deep within their oddly worded annuity contracts, so be on the lookout for hidden fees when evaluating plans. Insurance accounts typically have these types of fees. Just keep in mind that brokerage firms typically manage whole investment accounts. So if your b plan has a range of low cost investment options, it may be a tax-efficient way to save. If it's annuities and insurance offered by salespeople, then it may make more sense to skip it.
If your plan is covered by ERISA, then that's a bonus, if it's not then you probably want to do a little more homework on whether it's a quality plan. There is no one size fits all way to invest. Generally picking lower cost funds that diversify across different countries and industries is a good idea, as is having some bond and stock representation, since these two assets can move in different directions over time depending on the economic situation, helping smooth performance.
Good asset classes to consider within a fund portfolio can include diversified U. Also, how you want to weight your exposure between these and other options will depend on things such as your age, risk tolerance and when you expect to retire. One of the best deals going on b if your employer offers it, is the employer match. This is where your employer matches your contributions. For example, if you put in a dollar, you employer may add a dollar, or perhaps fifty cents, up to a certain level.
This is a really good deal, almost like extra salary. It's not quite free money, but close, and if you're not putting money into your b and there's a match, then you may be leaving money on the table. Of course, if you have high interest debt think credit cards you don't pay off each month , or other pressing needs for the money, then maybe you have priorities for your money that are more important than retirement saving for now.
Nonetheless, contributing up to the level of your employer's match, can be a good idea, even if the plan wouldn't otherwise be that desirable. Note that not all employers offer a match and even if they do, then the level and the amount of matching changes on a plan-by-plan basis.
Another thing to flag is that your plan may set a savings level for you by default. This is a good idea, because many people don't save enough or, worse forget to set up their savings rate, and so making it easy to get started can be helpful. However, bear in mind that for many people to ensure a well-funded retirement, a low single digit savings rate may be too low.
If you're into your 40s or 50s and are behind on your savings, then you salary contribution may want to be even higher. So that's the overview, much like a k the tax structure is generally helpful, employer matching can be worth taking advantage of, but don't assume that the default savings rate is necessarily correct for your situation, it could make sense to save at a higher rate. Now let's review some of the differences.
If you're over 50, b plans enable you to contribute more in your retirement plan, just as a k would. However, also if you've been with your plan for 15 years, then you may be able to contribute even more in your plan.
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