Employee Retirement

An employee retirement plan is something that most people, including small business owners, will likely think about at some point as they plan their financial futures. An employee of the private sector, such as an accountant, might think about starting a 401k plan or an Individual Retirement Account to supplement his social security, while a nonprofit employee might start researching 403b account options. Small business owners and human resource directors must become well versed in employee retirement accounts because they are responsible for creating and managing these programs for their employers. A professional financial advisor can help people in each of these sectors to find the best employee retirement accounts for their unique situations.

Regular Retirement Accounts

There are many types of retirement accounts available to an employee in the private sector. Two of the most popular are 401k plans and IRA accounts. A 401k plan is an employee retirement account offered through regular for-profit companies. These plans are available at all types of companies, ranging from small firms of 100 full-time employees to large corporations. No company is required to offer this plan, but doing so can help raise the quality of applicants. In some cases, employers elect to match contributions up to 100 percent, making these accounts even more attractive.

Contributions to 401k accounts are deducted monthly from employee salaries to create an investment account based on a risk level chosen by the employee. Lower-risk portfolios, for example, contain a greater percentage of slow and steady investments like bonds and Treasury bills, while more aggressive portfolios include a higher mix of stocks, foreign investments and other high-risk, potentially high yield investments. Many employees choose a mutual fund or other option that includes a varied mix of investments.

If your company doesn't offer a 401k plan, another good basic retirement plan is an IRA. This private account allows you to contribute tax-free up to a $5,000 annually. Your money grows with interest until you retire, at which point your earnings are taxed. To withdraw tax-free by having your contributions taxed as you contribute, you can choose a Roth IRA. If you work for a company with 100 or fewer employees, your employer might offer a SIMPLE IRA plan, which works somewhat differently than a regular IRA. Your maximum annual contribution is still $5,000, but your employer must match your contribution up to 3 percent of compensation or contribute an amount equal to 2 percent of your annual compensation whether you personally contribute or not. A personal finance expert can explain the advantages and disadvantages of both different employee retirement plans to help you make the right decision.

Accounts for Nonprofit Employees

Options for planning your financial future will be somewhat different if you work for a nonprofit or government organization versus the private sector. Rather than a 401k plan, you will have the option of a 403b fund. This employee retirement account allows you to contribute the same amount annually as a 401k, or a maximum of $16,500. Your employer may match your contribution up to 100 percent, or $49,000 total. As with a 401k plan, when you reach age 50 you may contribute up to $5,500 in "catch up" funds, for a total of $22,000 a year. You must enroll in a 403b account through your employer, and you must go through your employer to make any changes to your contribution amount. So to take advantage of "catch up" funds, you must set up those contributions through your organization's human resources department.

Advanced Retirement Investments

A financial advisor can help you choose an array of investments beyond simple employee retirement accounts no matter what industry you work in. Based on your age, income and retirement goals, your advisor can determine what type of portfolio, whether aggressive or moderate, will best help you reach your long-term goals. Since few people can live on social security income alone, most will need to create an employee retirement strategy that revolves around a well diversified investment plan. If you are young, this will likely include a healthy mix of stocks or mutual funds. As you become ready to retire, your portfolio will have more short-term bonds and may even include more cash and other liquid accounts. A personal finance advisor can help you determine the best times to make changes to your investments.

Whether you are an employee of a small company or an executive at a corporation, there are several employee retirement options that will allow you to live on a comfortable budget once you retire. The key is to set up a plan that you can easily follow and maintain. Finding a local financial advisor who is willing to talk through your overall situation and needs is a great first step toward reaching your long-term goals.

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