{"id":14011,"date":"2021-04-22T08:00:24","date_gmt":"2021-04-22T14:00:24","guid":{"rendered":"https:\/\/www.lexingtonlaw.com\/blog\/?p=14011"},"modified":"2022-08-09T11:05:02","modified_gmt":"2022-08-09T17:05:02","slug":"guide-to-retirement-plans","status":"publish","type":"post","link":"https:\/\/www.lexingtonlaw.com\/blog\/life-events\/guide-to-retirement-plans.html","title":{"rendered":"Guide to retirement plans"},"content":{"rendered":"\n
\"Couple<\/figure>\n\n\n\n

Note: If you are\nconsidering retirement or beginning your financial planning for retirement,\nplease talk to a financial adviser for information fitting your particular\ncircumstances and needs.<\/em><\/p>\n\n\n\n

According to a 2019 study from Northwestern Mutual, around 1 in 5 Americans<\/a> have $5,000 or less in retirement savings, and close to half believe they\u2019ll outlive their savings. Even so, only around 45% say they\u2019ve acted to solve this issue. <\/p>\n\n\n\n

One reason many people may avoid planning for retirement<\/a> is that the sheer number of retirement plans and options can be daunting.<\/p>\n\n\n\n

Differentiating Between Retirement Plans<\/h2>\n\n\n\n

There are a variety of retirement plans available, each\nwith their own benefits and potential drawbacks. You might consider working\nwith a financial advisor to get started. Whether retirement is close at hand or\ndecades away, take some time to create a retirement savings plan to support\nyour future goals.<\/p>\n\n\n\n

Defined Contribution Plans<\/h2>\n\n\n\n

Defined contribution plans are employer- or organization-sponsored. That means they\u2019re offered as a benefit to employees who can contribute pretax dollars from each paycheck into the account. Employers may match those contributions up to a certain amount, which can lead to greater savings.<\/p>\n\n\n\n

\"Defined<\/figure>\n\n\n\n

401(k)<\/h3>\n\n\n\n

401(k) plans are defined contribution plans offered by employers in the private sector. The IRS limits how much can be contributed to 401(k) plans each year. As of 2020, the maximum amount is $19,500<\/a> for most people.<\/p>\n\n\n\n

Money in a 401(k) may be available for use through a 401(k) loan prior to retirement. Ordinarily, individuals who take money out of their 401(k) early would pay a 10% tax penalty. With the passage of the CARES Act, however, penalty fees on 401(k) retirement accounts and other employee-sponsored accounts and personal retirement accounts have been changed.<\/a> <\/p>\n\n\n\n

403(b)<\/h3>\n\n\n\n

A 403(b) plan is similar to a 401(k), but it\u2019s for employees in the public sector and those working for tax-exempt organizations, such as teachers or clergy members. Annual contribution limits for 403(b) are also $19,500 as of 2020<\/a>.<\/p>\n\n\n\n

457(b)<\/h3>\n\n\n\n

A 457(b) plan is also similar to a 401(k), but it\u2019s for people who work for local and state governments, such as police officers. The annual contribution limit for 457(b) plans<\/a> is also $19,500 as of 2020 for most people.<\/p>\n\n\n\n

IRA Plans<\/h2>\n\n\n\n

While 401(k) plans are commonly known, they\u2019re not the only option for saving for retirement. IRA plans are individual retirement plans. These are plans that individuals can contribute pretax dollars to, but employers are not involved and there isn\u2019t a match.<\/p>\n\n\n\n

Traditional<\/h3>\n\n\n\n

As of 2020, individuals can invest up to $6,000 a year in pretax dollars into this retirement account. Those over the age of 50 can make an extra $1,000 in annual contributions for the purpose of catching up on retirement savings.<\/p>\n\n\n\n

Taxes aren\u2019t paid on IRA funds until they\u2019re withdrawn as income during retirement. Individuals must begin taking minimum required deductions<\/a> from IRA funds at age 70.5 if they were born before July 1, 1949, and at age 72 if they were born after June 30, 1949. Taking withdrawals before retirement age can result in penalties.<\/p>\n\n\n\n

\"As<\/figure>\n\n\n\n

Roth IRA<\/h3>\n\n\n\n

Roth IRAs are similar to traditional IRAs and come with\nthe same contribution limits. However, contributions are not pretax, and there\nare no taxes on withdrawals made in retirement. Roth IRAs also don\u2019t come with\nminimum required deductions in retirement, which can allow people to hang on to\ninvestments longer.<\/p>\n\n\n\n

SIMPLE IRA<\/h3>\n\n\n\n

SIMPLE stands for Savings Incentive Match Plan for\nEmployers. These plans combine some features of 401(k) and IRA plans to create\nan option for very small businesses or self-employed individuals.<\/p>\n\n\n\n

Contribution limits are $13,500 annually as of 2020<\/a>, with catch-up contributions capped at $3,000 each year. Employers are typically required to make at least a small match of up to 3%. SIMPLE IRAs do come with a hefty tax penalty of up to 25% if someone makes a withdrawal within two years of setting up the plan.<\/p>\n\n\n\n

SEP<\/h3>\n\n\n\n

SEP stands for Simplified Employee Pension. It\u2019s an IRA that\u2019s set up and funded by an employer. Employers can contribute up to 25% of an employee\u2019s compensation or $57,000 max annually.<\/p>\n\n\n\n

Spousal IRA<\/h3>\n\n\n\n

To contribute to an IRA, someone must earn an income.\nBut the IRS provides a provision for spouses who don\u2019t work via a spousal IRA.\nIf one spouse is drawing an income and the couple files federal returns as\nmarried, filing jointly, the other spouse can have their own IRA. All the\nstandard rules for the IRA type\u2014whether traditional or Roth\u2014apply.<\/p>\n\n\n\n

Rollover IRA<\/h3>\n\n\n\n

A rollover IRA is simply a traditional or Roth IRA that\nreceives the funds from an employer-sponsored plan in a rollover. It allows\nindividuals to move funds from a 401(k) or another sponsored plan into a\ndifferent investment vehicle should the person leave employment or otherwise\nwant to migrate their funds. Typically, once you open a rollover IRA, the rules\nfor the IRA type take over as far as contributions and withdrawals are\nconcerned.<\/p>\n\n\n\n

Defined Benefit Plans<\/h2>\n\n\n\n

A defined benefit plan is typically a pension plan. It\u2019s\nemployer-sponsored, and the company manages any investments related to it. The\ncompany makes a promise to provide pension payments to retirees after their\nemployment service is over. Pension payment amounts and lengths can be based on\na variety of factors, including length of work service, level of service and\nsalary history.<\/p>\n\n\n\n

Cash-Balance Plans<\/h3>\n\n\n\n

Cash-balance plans offer an option for lifetime\nbenefits once retired. During employment years, the employer adds a certain\namount each year to a fund, which is typically calculated as a percentage of\nsomeone\u2019s salary. The company manages the investment and any profits or losses.<\/p>\n\n\n\n

Upon retirement, the former employee receives a pension benefit as agreed upon under the plan. Participants can typically take an annuity option, which pays benefits out over time, or a lump sum that can be reinvested in an IRA.<\/p>\n\n\n\n

Pension Plans<\/h3>\n\n\n\n

Pension plans can work somewhat like 401(k) plans, with\nboth an employer and an employee making contributions. However, the employee does\nnot have any risk in the investment. They are guaranteed a pension payout\naccording to their benefits contract regardless of whether the investment gains\nor loses. The risk to the employee is that the company\u2019s portfolio might perform\nso badly that all pensions must be diminished or that the company files for\nbankruptcy.<\/p>\n\n\n\n

Money Purchase Plans<\/h3>\n\n\n\n

A money purchase plan is a pension plan that allows the\nemployee to make investment choices based on options set up by the employer.\nOnly employers contribute to the plan.<\/p>\n\n\n\n

Guaranteed Income Annuities<\/h2>\n\n\n\n

Annuities are similar to insurance in how you buy and\npay for them. You pay a premium for a set period of time. Your premium payments\nare invested by the insurance company.<\/p>\n\n\n\n

When you reach retirement, you receive a guaranteed annual\nincome according to your annuity plan. Annuity payments can be made monthly,\nquarterly or annually, and with a lifetime annuity, they continue throughout\nyour retirement.<\/p>\n\n\n\n

Cash Value Life Insurance Plan<\/h2>\n\n\n\n

A cash value life insurance plan is a type of life\ninsurance that builds cash value over time as you pay premiums. Once you meet\nall your premium obligations\u2014which might require you to pay premiums for a long\nperiod of time, such as 20 years\u2014you are guaranteed the life insurance coverage\nfor the rest of your life. You can also draw on any cash value that the plan\nhas accrued to pay for retirement expenses or other needs.<\/p>\n\n\n\n

Nonqualified Deferred Compensation Plans<\/h2>\n\n\n\n

Nonqualified deferred compensation plans let employees\nearn compensation but not receive it\u2014or pay taxes on it\u2014in the year that the\nservice was provided. Instead, they elect to receive the compensation at a\nlater time and can delay it even until retirement.<\/p>\n\n\n\n

Retirement Resources<\/h2>\n\n\n\n

The sheer number of retirement plans can make it confusing to choose one, and that doesn\u2019t even account for questions such as how much you need for retirement or when you can retire. Educating yourself about your retirement<\/a> is the first step in protecting it.<\/p>\n\n\n\n

Start your retirement planning<\/a> with some resources, such as AARP\u2019s retirement calculator<\/a>. It helps you understand how much more you need to save and when you can potentially reach that goal.<\/p>\n\n\n\n

The government also provides a basic primer for money management and retirement<\/a>, which can be a good starting point. Talking to a financial advisor, a CPA or an attorney who normally handles retirement planning can also be a good idea.<\/p>\n","protected":false},"excerpt":{"rendered":"

When it comes to retirement savings, you have a lot of options. Learn more about different types of retirement plans and which makes the most sense for your situation.<\/p>\n","protected":false},"author":63,"featured_media":14014,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[527],"tags":[575,331],"yoast_head":"\nGuide to Retirement Planning - Lexington Law<\/title>\n<meta name=\"description\" content=\"When it comes to retirement savings, you have a lot of options. Learn more about different types of retirement plans and which makes the most sense for your situation.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.lexingtonlaw.com\/blog\/life-events\/guide-to-retirement-plans.html\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Guide to retirement plans\" \/>\n<meta property=\"og:description\" content=\"When it comes to retirement savings, you have a lot of options. Learn more about different types of retirement plans and which makes the most sense for your situation.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.lexingtonlaw.com\/blog\/life-events\/guide-to-retirement-plans.html\" \/>\n<meta property=\"og:site_name\" content=\"Lexington Law\" \/>\n<meta property=\"article:published_time\" content=\"2021-04-22T14:00:24+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-08-09T17:05:02+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.lexingtonlaw.com\/blog\/wp-content\/uploads\/2020\/05\/AdobeStock_279739465_thumbnail.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"640\" \/>\n\t<meta property=\"og:image:height\" content=\"420\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Lexington Law\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"7 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.lexingtonlaw.com\/blog\/#website\",\"url\":\"https:\/\/www.lexingtonlaw.com\/blog\/\",\"name\":\"Lexington Law\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/www.lexingtonlaw.com\/blog\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"ImageObject\",\"@id\":\"https:\/\/www.lexingtonlaw.com\/blog\/life-events\/guide-to-retirement-plans.html#primaryimage\",\"inLanguage\":\"en-US\",\"url\":\"https:\/\/www.lexingtonlaw.com\/blog\/wp-content\/uploads\/2020\/05\/AdobeStock_279739465_thumbnail.jpg\",\"contentUrl\":\"https:\/\/www.lexingtonlaw.com\/blog\/wp-content\/uploads\/2020\/05\/AdobeStock_279739465_thumbnail.jpg\",\"width\":640,\"height\":420,\"caption\":\"Couple using a calculator to budget.\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.lexingtonlaw.com\/blog\/life-events\/guide-to-retirement-plans.html#webpage\",\"url\":\"https:\/\/www.lexingtonlaw.com\/blog\/life-events\/guide-to-retirement-plans.html\",\"name\":\"Guide to Retirement Planning - Lexington Law\",\"isPartOf\":{\"@id\":\"https:\/\/www.lexingtonlaw.com\/blog\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.lexingtonlaw.com\/blog\/life-events\/guide-to-retirement-plans.html#primaryimage\"},\"datePublished\":\"2021-04-22T14:00:24+00:00\",\"dateModified\":\"2022-08-09T17:05:02+00:00\",\"author\":{\"@id\":\"https:\/\/www.lexingtonlaw.com\/blog\/#\/schema\/person\/3bdde08475ff103d98185ad2f04d0bcd\"},\"description\":\"When it comes to retirement savings, you have a lot of options. Learn more about different types of retirement plans and which makes the most sense for your situation.\",\"breadcrumb\":{\"@id\":\"https:\/\/www.lexingtonlaw.com\/blog\/life-events\/guide-to-retirement-plans.html#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.lexingtonlaw.com\/blog\/life-events\/guide-to-retirement-plans.html\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/www.lexingtonlaw.com\/blog\/life-events\/guide-to-retirement-plans.html#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"All Posts\",\"item\":\"https:\/\/www.lexingtonlaw.com\/blog\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Life Events\",\"item\":\"https:\/\/www.lexingtonlaw.com\/blog\/category\/life-events\"},{\"@type\":\"ListItem\",\"position\":3,\"name\":\"Guide to retirement plans\"}]},{\"@type\":\"Person\",\"@id\":\"https:\/\/www.lexingtonlaw.com\/blog\/#\/schema\/person\/3bdde08475ff103d98185ad2f04d0bcd\",\"name\":\"Lexington Law\",\"image\":{\"@type\":\"ImageObject\",\"@id\":\"https:\/\/www.lexingtonlaw.com\/blog\/#personlogo\",\"inLanguage\":\"en-US\",\"url\":\"https:\/\/www.lexingtonlaw.com\/blog\/wp-content\/uploads\/2024\/07\/cropped-wp-logo-1-96x96.png\",\"contentUrl\":\"https:\/\/www.lexingtonlaw.com\/blog\/wp-content\/uploads\/2024\/07\/cropped-wp-logo-1-96x96.png\",\"caption\":\"Lexington Law\"},\"url\":\"https:\/\/www.lexingtonlaw.com\/blog\/author\/lexington-law\"}]}<\/script>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"Guide to Retirement Planning - Lexington Law","description":"When it comes to retirement savings, you have a lot of options. Learn more about different types of retirement plans and which makes the most sense for your situation.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.lexingtonlaw.com\/blog\/life-events\/guide-to-retirement-plans.html","og_locale":"en_US","og_type":"article","og_title":"Guide to retirement plans","og_description":"When it comes to retirement savings, you have a lot of options. Learn more about different types of retirement plans and which makes the most sense for your situation.","og_url":"https:\/\/www.lexingtonlaw.com\/blog\/life-events\/guide-to-retirement-plans.html","og_site_name":"Lexington Law","article_published_time":"2021-04-22T14:00:24+00:00","article_modified_time":"2022-08-09T17:05:02+00:00","og_image":[{"width":640,"height":420,"url":"https:\/\/www.lexingtonlaw.com\/blog\/wp-content\/uploads\/2020\/05\/AdobeStock_279739465_thumbnail.jpg","type":"image\/jpeg"}],"twitter_card":"summary_large_image","twitter_misc":{"Written by":"Lexington Law","Est. reading time":"7 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebSite","@id":"https:\/\/www.lexingtonlaw.com\/blog\/#website","url":"https:\/\/www.lexingtonlaw.com\/blog\/","name":"Lexington Law","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/www.lexingtonlaw.com\/blog\/?s={search_term_string}"},"query-input":"required name=search_term_string"}],"inLanguage":"en-US"},{"@type":"ImageObject","@id":"https:\/\/www.lexingtonlaw.com\/blog\/life-events\/guide-to-retirement-plans.html#primaryimage","inLanguage":"en-US","url":"https:\/\/www.lexingtonlaw.com\/blog\/wp-content\/uploads\/2020\/05\/AdobeStock_279739465_thumbnail.jpg","contentUrl":"https:\/\/www.lexingtonlaw.com\/blog\/wp-content\/uploads\/2020\/05\/AdobeStock_279739465_thumbnail.jpg","width":640,"height":420,"caption":"Couple using a calculator to budget."},{"@type":"WebPage","@id":"https:\/\/www.lexingtonlaw.com\/blog\/life-events\/guide-to-retirement-plans.html#webpage","url":"https:\/\/www.lexingtonlaw.com\/blog\/life-events\/guide-to-retirement-plans.html","name":"Guide to Retirement Planning - Lexington Law","isPartOf":{"@id":"https:\/\/www.lexingtonlaw.com\/blog\/#website"},"primaryImageOfPage":{"@id":"https:\/\/www.lexingtonlaw.com\/blog\/life-events\/guide-to-retirement-plans.html#primaryimage"},"datePublished":"2021-04-22T14:00:24+00:00","dateModified":"2022-08-09T17:05:02+00:00","author":{"@id":"https:\/\/www.lexingtonlaw.com\/blog\/#\/schema\/person\/3bdde08475ff103d98185ad2f04d0bcd"},"description":"When it comes to retirement savings, you have a lot of options. Learn more about different types of retirement plans and which makes the most sense for your situation.","breadcrumb":{"@id":"https:\/\/www.lexingtonlaw.com\/blog\/life-events\/guide-to-retirement-plans.html#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/www.lexingtonlaw.com\/blog\/life-events\/guide-to-retirement-plans.html"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/www.lexingtonlaw.com\/blog\/life-events\/guide-to-retirement-plans.html#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"All Posts","item":"https:\/\/www.lexingtonlaw.com\/blog"},{"@type":"ListItem","position":2,"name":"Life Events","item":"https:\/\/www.lexingtonlaw.com\/blog\/category\/life-events"},{"@type":"ListItem","position":3,"name":"Guide to retirement plans"}]},{"@type":"Person","@id":"https:\/\/www.lexingtonlaw.com\/blog\/#\/schema\/person\/3bdde08475ff103d98185ad2f04d0bcd","name":"Lexington Law","image":{"@type":"ImageObject","@id":"https:\/\/www.lexingtonlaw.com\/blog\/#personlogo","inLanguage":"en-US","url":"https:\/\/www.lexingtonlaw.com\/blog\/wp-content\/uploads\/2024\/07\/cropped-wp-logo-1-96x96.png","contentUrl":"https:\/\/www.lexingtonlaw.com\/blog\/wp-content\/uploads\/2024\/07\/cropped-wp-logo-1-96x96.png","caption":"Lexington Law"},"url":"https:\/\/www.lexingtonlaw.com\/blog\/author\/lexington-law"}]}},"featured_media_src_url":"https:\/\/www.lexingtonlaw.com\/blog\/wp-content\/uploads\/2020\/05\/AdobeStock_279739465_thumbnail.jpg","_links":{"self":[{"href":"https:\/\/www.lexingtonlaw.com\/blog\/wp-json\/wp\/v2\/posts\/14011"}],"collection":[{"href":"https:\/\/www.lexingtonlaw.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lexingtonlaw.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lexingtonlaw.com\/blog\/wp-json\/wp\/v2\/users\/63"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lexingtonlaw.com\/blog\/wp-json\/wp\/v2\/comments?post=14011"}],"version-history":[{"count":7,"href":"https:\/\/www.lexingtonlaw.com\/blog\/wp-json\/wp\/v2\/posts\/14011\/revisions"}],"predecessor-version":[{"id":18794,"href":"https:\/\/www.lexingtonlaw.com\/blog\/wp-json\/wp\/v2\/posts\/14011\/revisions\/18794"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.lexingtonlaw.com\/blog\/wp-json\/wp\/v2\/media\/14014"}],"wp:attachment":[{"href":"https:\/\/www.lexingtonlaw.com\/blog\/wp-json\/wp\/v2\/media?parent=14011"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lexingtonlaw.com\/blog\/wp-json\/wp\/v2\/categories?post=14011"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lexingtonlaw.com\/blog\/wp-json\/wp\/v2\/tags?post=14011"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}