How to Prepare Your Retirement Plan?(2)

2. Traditional IRA

Some companies do not have a retirement plan and some IT practitioners serve as consultants, but they have W-2 forms and employers do not have a retirement plan. These people can first open a traditional IRA account. You can invest $ 6,000 a year, if you are over 50, you can invest $ 7,000. The money invested in traditional IRA is the same as 401K, which can be deducted or deferred. Both spouses are working and one is not working, and the task force can also open a traditional IRA for a spouse who is not working. If the husband and wife's AGI (adjusted gross income) is less than $ 98,000, the $ 6,000 is also tax deductible. Don't watch that $ 6,000 a year. If you put $ 6,000 a year, it will last 30 years and after 30 years, there will be about $ 800,000 (assuming an 8% return).

3. SEP Plan

The full name is SimplifiedEmployee Pension plan, primarily for the self-employed (self-employed), such as the small business owner or the person who receives Form 1099, some people receive both Form W2 and Form 1099, and then Form 1099 Income can also be used to open the SEP. You can use 25% of your annual net income to open a PES, and it cannot exceed $ 54,000 (2017). For example, if you are a doctor or freelance consultant, the annual income is $ 200,000 and the relevant expenses, social security tax, health care tax, etc. are deleted. Your net income is $ 150,000. You can withdraw $ 30,000 (150,000 x 20%) to open a SEP. If you file an income tax return, you will report it at $ 120,000 (150,000 to 30,000). The $ 30,000 invested in the PES is not taxable. If you can add $ 30,000 to the PSE each year, it will add up to $ 3.39 million after 30 years (if 8% annual return). You can consider taking early retirement and enjoying retirement.

4. Roth IRA

Roth IRA is a retirement plan that has only been launched for over a decade. It states that individual taxpayers with annual income (AGI) less than $ 137,000 and joint taxpayers with annual income (AGI) less than $ 203,000 can open a Roth IRA retirement account, which can invest $ 6,000 per year, and if they exceed 50, they can invest $ 7,000. Like Roth401K, money invested in RothIRA is not tax deductible, but income generated by the investment process is not taxable when purchased after retirement. As for the choice between traditional IRA and RothIRA, you can refer to the comparison between 401K and Roth 401K above. If you already have other qualified retirement plans, the opportunity to open Roth IRAs should take into account the family's overall financial planning, the balance of the children's retirement plan and education fund, and the CashFlow current, you should consult a professional financial planner.

5. Annuity

The annuity (annuity) is also a retirement plan, but most people don't know much about it. The annuity is not tax deductible, but it can be deferred. There is no upper limit on the amount you put. The money paid into the annuity will not be taxed until it is withdrawn for 20 or 30 years. Do not underestimate the tax deferral, it is very powerful in the long run. As a simple example, if you invest $ 10,000 and generate a profit of $ 1,000, if you are in a mutual fund, that $ 1,000 is taxable. Assuming a 20% tax, you still have $ 800 to reinvest, if you are in cash. This $ 1,000 does not have to pay taxes in the year, and that $ 1,000 can be reinvested. Of course, the income generated by a reinvestment of $ 1,000 exceeds $ 800.

There are two main types of annuities. The first is the fixed annuity. Insurance companies guarantee that you will receive at least 3% interest per year. It can also reach 5%, 6% or even 7%, but generally it will not reach 10%. The other is the variable annuity, which is invested in mutual funds. Now, a new type of index annuity can grow exponentially without losing money and lock in the highest value when withdrawing money. Who should open an annuity? The first is for those who started the pension plan relatively late and the tax-deductible pension plans (401K, SEP) are not enough to accumulate enough retirement funds. Second, those who have a large amount of money that is not needed in the short term, and third, those who want to retire early.

6. Life insurance

Life insurance is not strictly a pension plan, but all kinds of permanent insurance (WL, UL, VUL, IUL) have a cash value. Over time, 10 years, 20 years, you can accumulate a considerable cash value (depends on how much premium, how long and how long the rate of return). After retirement, you can use the withdrawal or loan to purchase part or most of the cash surrender value in addition to the pension fund. When life insurance is valid, there is no tax to withdraw the cash value. If it is a loan, there may be interest. You died and the insurance company paid your family some money, you live well and you can use the cash value.

The various pension plans mentioned above have their own advantages and disadvantages. Qualified plans may be tax deductible, but there is a limit on the amount that can be invested and the annuity cannot be deducted, but there is no limit on the amount. As long as it's a retirement plan, you have to wait until you're 59 and a half (with a few exceptions). Life insurance is not a retirement plan and there are no restrictions on waiting until age 59 and a half to get money.

No matter the traditional IRA, Roth IRA, SEP must be opened before April 15, there is no time limit for the annuity, life insurance is the sooner the better, the sooner the cheaper, money can be earned longer.