Private Retirement Plans VS Employer Sponsored Retirement Plan Options?

War On Wealth Series – Asset Growth

Most of your employer retirement plan options are very complex and will generally fall into two categories, defined benefit or defined contribution.

When the employer takes on the responsibility of managing the plan, that is called a defined benefit plan where the benefit is based on what’s in the plan when you retire. In this situation an employer can define a plan that requires the company to deposit a fixed annual sum of money into the plan for each eligible employee. When the employee retires, he is then entitled to the money that was deposited on his behalf.

A defined contribution plan outlines what the employer’s contribution will be, not the benefit to the employee. Typically these plans will be profit-sharing and/or the salary reduction type. Defined contribution plans also allow employees to set aside income on a pretax basis, such as into a 401(k) plan.

Types of retirement plans include:

401(k) – Up to 15% of salary or $9,500, whichever is less.

SEP – Up to 13% of self-employment income or $22,500, whichever is less.

IRA – Up to $5,000 depending on your age.

403(b) – Up to 20% of salary or $9,500, whichever is less.

Profit-sharing Keogh – Up to 13% of sel-employment income or $22,500, whichever is less.

Defined-Purchase Keogh – Max. benefit needed to fund is $120,000 or 3 years’ average income, whichever is less.

Money-Purchase Keogh – 20% of net self-employment income or $30,000, whichever is less.

Variable Annuity – No limits.

Fixed Annuity – No limits.

Besides all of the restrictions, rules and regulations on employer sponsored retirement plans at some point you have to pay the piper and the tax man does cometh. where the retirement plan allows you to put money in tax free you generally end up paying tax on it while taking it out. The question you need to ask yourself is would you rather pay tax on the “seed” or the “harvest”? If you pay it on the harvest you will pay much more tax and that tax in a lot of instances negates most of your investment returns over the previous years. This is however a wonderful plan for the Federal Government.

You might have noticed Variable annuities and fixed annuities have no limits to what you can contribute, however you do pay the tax at withdrawal. A better form of this would be Equity Indexed Annuities which give you the best of both worlds (variable and fixed). Equity Indexed allows you ride the gains of the stock market without participating in the losses. Keep in mind that you still pay the tax at withdrawals, but the safety of the Equity Indexed options makes this a great choice in certain situations.

If you want to really turbo charge your retirement even more you use Equity Indexed with Over Funded Life Insurance Policies. Over Funded Life Insurance Policies allow you to super tweak the traditional life insurance policy so that it performs like a superior investment but gives you the protection of life insurance and heavily regulated life insurance company thats behind it. You also have the ability to take the money out tax-free. It doesn’t get much better than that.

Other Posts In This Series are:

War On Wealth – A Primer (Introduction)
The Accidental Philanthropist; but Uncle Sam! How Many Times Can You Tax The Same @#$% dollar?
How Not To Turn $20 Into A $75,000 Disaster
Maximizing The “Bank Of You Concept”; Setting Up Your Own Private Bank
Life Insurance As An Estate Planning Tool
Private Retirement Plans Vs. Employer Sponsored Retirement Plan Options
Special Valuations For Intra-Family Transfers, Gift Taxes And Lifetime Transfers
Why You Should Start A Personal Business?
Advantages And Disadvantages Of Investing In Annuities
How Owning Real Estate Can Help Me Save Taxes
How To Reduce Your Real Estate Taxes
Annuities, How They Work And Their Tax Advantages
The Three Proactive Strategies Of Asset Protection
Trusts – A Basic Foundation

Webinar Opportunity – Minimize Taxes, Empower your Retirement, etc..

We have a webinar on Wednesday from 12:00pm-1:00pm called: “Isn’t It Time You Became Wealthy”, in which we will teach how to minimize taxes, how to make money even in a down market, and how to empower your retirement. Register for the webinar by going to http://becomewealthy.info/leon/Webinars.html

Leon C. Williams
Financial Strategist
LUCA Financial Services
leon@lucafinancial.com
blog: http://leonsblog.leonwilliams.me
Online Business Card: http://bizcard.leonwilliams.me

Popularity: 12% [?]

Tagged with: asset optimization • defined benefit plan • defined contribution plan • equity indexed • over funded life insurance • retirement • wealth accumulation

Filed under: Financial Services • Insurance

Like this post? Subscribe to my RSS feed and get loads more!