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What
Are My Options?
First,
an overall comment: Think of retirement plans in terms
of a roll-top desk with a lot of different types of desk
drawers!� Basically,
you can put money in this drawer or that drawer, but the
drawers have different sizes and shapes.�
It�s really the same thing with a retirement
plan�they all involve money (or stock, bonds, gold,
etc) that you put into a �drawer� �but the IRS
determines how the �drawer� is shaped�and how BIG
the drawer is�and how often you will �open� and
�put stuff in� the drawer.�
Second,
this article is talking about tax deferred
retirement options only�which means that these options
allow you to either deduct the allowed amounts from your
taxes or exclude it altogether from your gross income!�
There are many other smart �after tax�
opportunities that you can get involved in (such as the
Roth IRA).� However,
we just don�t have time to talk about them right now.
Third,
as far as we are concerned, all retirement plans can
basically be grouped into 2
�categories:�
- Defined
Benefit
- Defined
Contribution
A
Defined Benefit plan guarantees a particular
amount (benefit) that the employee will receive
during retirement.�
What this means is that you will have to do some
intense calculating and maintaining, complete with
hiring a pension consultant and/or an actuary.�
Believe us, you don�t want to mess with the
Defined Benefit plan�they are the most complex to
establish and administer (including their IRS
paperwork)!�� In
our opinion, we only recommend even considering this
type of plan if you have started late in life as far as
investing and you want a massive headache!
Defined
Contribution
plans are ones in which you (as the owner) specify the
yearly contribution made to your employee (again,
YOU if you are self-employed).�
These types of plans focus on the amount that you
contribute�but don�t guarantee any particular amount
for the employee at retirement.�
Overall
the Defined Contribution plans are not as hard to
administer and set up as a defined benefit plan.� Many of what we are calling Defined Benefit plans are
also called �Qualified� plans because they
are �qualified� by the IRS.�
Translate �qualified� to mean that you
have to deal a lot more with the IRS in starting and
maintaining a plan.�
(Not exactly what you might think of when you
think of the term �quality time.�)�
We will explain some of the other benefits below.
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