Even if you’re years away from having to think about retirement, it’s always closer than you think. You’ll need to start saving now in order to have a secure financial future when you are no longer working full-time. A defined contribution plan can definitely help you to do this, but you’ll need to know how this retirement plan works in order to receive the full benefits. Here is some information to get your started.
This type of plan offers a separate account for each participant, and the worth the account is based on the amount of money you deposit into the account, along with the funds that your employer will contribute. Income and expenses also factor into how much the defined contribution plan is worth. The most common type of plan that works this way is the 401k plan, which most people with full-time jobs are offered as part of their benefits package; the 403(b) is another defined contribution plan that may be offered.
The advantages of this type of retirement plan include the ability to directly manage your money, since you will have a say in how much you choose to save each pay period. The retirement plan is also very easy to understand, which is why most people prefer this type of plan, since they can keep up with how much money is in the account at any time. The retirement plan is also tax deferred, so you won’t have to take out a large sum of taxes for your IRA right away; you won’t have to pay taxes on the money until it is withdrawn in most cases. And, the money is usually taken directly from your paycheck,so you don’t have to worry about figuring how the savings percentages and taking the money to the bank yourself.
You will need to talk to your human resources department to find out when you will be able to participate in your company’s defined contribution plan, and when you are eligible, your company will give you a list of funds that you can invest in. There is always a maximum amount that you can invest, and this changes slightly each year, so be sure to check with your place of employment for details. The average amount you can deposit these days is around $14,000, and your place of employment will match this. If you are over 50, you can also invest a catch-up amount in addition to your maximum in your defined contribution plan.
If you want to know more about IRAs or how to structure your defined contribution plan, visit www.http://retirementplan.about.com.