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[R285]Retirement Plans Small Business

by David Gass, Dav

If your company offers a 401K retirement plan, you have the option to select the funds you desire to invest. Your choice must be from a list of funds provided in the 401K plan. Each employee can contribute up to a certain percentage of their pay, which is deducted directly from the salary before taxes into a 401K. Some employers match a certain percentage of your contribution, which is then invested. These funds grow without being taxed. They can be withdrawn only when you reach the age of fifty-nine and a half. You must pay income tax at the time of withdrawal. The funds in the account can be invested in different stocks, bonds, mutual funds or other assets, and are not taxed on any capital gains, dividends or interest until their final withdrawal.

What is a 401K?
A 401K is an employer-sponsored retirement plan and is grouped into two categories.

1. Defined Benefit Plan: The employer promises to pay a defined amount to retirees who meet certain eligibility requirements. It usually links the benefit to the amount of service and final average salary. Employees can either receive it as monthly retirement income or as a lump sum on retirement.

2. Defined Contribution Plan: This is a contribution that an employer makes, and not the benefit that the employee will receive at retirement. Since it is not a monthly income, an employee receives the amount in a current, deferred lump sum, or annuity on leaving the company. Laws prohibit companies from utilizing the 401K money, but they can invest 401K money in stock funds. If the company goes bankrupt then you lose that money.

Benefits of 401K Plans

There are five key benefits.

1.Tax advantage

2.Employer match programs

3.Investment customization and flexibility

4.Portability

5.Loan and hardship withdrawals

How to Balance 401K Funds
Do not invest heavily in the stock of your company. Instead, diversify your investments. Contribute the maximum tax deferred amount to your 401K each year. You can also make additional, non tax-deferred contributions of less than $35,000 or 25 percent of your annual income. Your age and company's policy plan are the deciding factors in rebuilding your 401K balances. A younger person will have a longer time to rebuild, than a person who is over 50 years of age.

The suggested allocation for balancing 401K at the three life stages is:

1.Aggressive: For those with 35 or more years until retirement.

50%-large cap stocks

15%-mid cap stocks

15%-bonds

10%-small cap stocks

10%-international stocks

2.Moderate: For those with 20 years until retirement.

35%-large cap stocks

35%-bonds

10%-mid cap stocks

10%-small cap stocks

10%-international stocks

3.Conservative: For those within 10 years of retirement.

40%-bonds

30%-large cap stocks

10%-mid cap stocks

10%-international stocks

10%-cash

You can derive the maximum benefits from your 401K plan, if you make wise investment choices and build your portfolio carefully. 401K plans are the best way to plan for your retirement.

As you're going through your divorce, you will be dividing your property and assets with your spouse. The things you've accumulated during your marriage, such as your home, your vehicles, savings accounts and more will all need to be divided. One thing that many people don't stop to think about is their retirement plans. This will need to be divided as well, in order to be fair. This article discusses what you need to know about dividing retirement plans after a divorce.

Determine What Type of Retirement Plan You Have -

There are many different types of retirement funds, including the most popular - IRAs. Why is it important to determine the type of plan you have? Attorneys and the courts will use a certain terminology to describe the division of the retirement plan. In order to ensure that the right terminology is used and therefore the documents are binding and legal, they must first know exactly what type of retirement plan you hold. This will ensure that the retirement plan is thoroughly divided and that everything is on the up and up.

Checking with the Financial Institution Which Holds the Retirement Plan Policy -

This is also important. Different institutions will require the policies to be divided in different ways. For instance, for some documents dividing retirement policies, the retirement account number as well as the custodian's full name must be included. For others, there may be different requirements. Check with the institution your policy is held by and make sure you know exactly what must be included in the divorce documents in order for the policy to be legally and appropriately divided.

Ensure That All Details Are Covered -

Another thing you want to do is make sure that all the details are covered as far as the policy goes. How will it be divided? Will it be split down the middle or will there be a percentage division? Map out exactly how the retirement plan will be divided so that there are no questions down the line. Your attorney can help you with the proper wording or drafting up the documents, but you need to be certain that the documents are correct and that they are clear and concise when it comes to dividing the assets. There is a danger that if the documents are not worded correctly and are determined as not legally binding, you could lose all ownership to the retirement plan. This is definitely not a good situation so do your due diligence.

If you can't agree with your spouse on how the retirement plan should be divided, the judge will decide for you, based on your situation and needs. It's usually a better idea to decide for yourselves how the plan will be divided. While many couples are able to do this, some are hostile and bitter to the point that they are unable to agree on anything. It depends on your situation, but if at all possible, determine with your spouse the percentages you will receive. By knowing this information, you can ensure that the retirement policy is divided accurately and fairly.

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Both David Gass & Dani Taylor are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

David Gass has sinced written about articles on various topics from Accounting Guide, Finances and Network Marketing. David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their