401(k), 403(b), TSP and/or Pension Advice
There are many different types of employer sponsored retirement savings plans so it is important that you carefully read and understand the plan documents for your plan. Hunt Country Wealth Management will assist you with understanding the details and often complex language used in plan documents.
Employer-sponsored retirement plans are generally categorized as Defined Benefit Plans or Defined Contribution Plans
Defined Contribution Plan
Because Defined Benefit Plans are more costly to the employer most have scaled back dramatically or switched to a Defined Contribution Plan over the years. The Defined Contribution Plan specifies how much money will go into a retirement plan today. The amount is typically a percentage of the employees salary or a specific dollar amount then those funds are typically invested into a mutual fund available inside the retirement plan. The amount the employee has at retirement depends on how much employer contributed to plan, how much the employee contributed and saved in the plan, how long those funds are invested, and how well the investments perform inside the participants selected plan. Although the term Defined Benefit Plan may be unfamiliar, they come in many familiar forms such as 401(k), 403(b), or TSP Federal/Military Pension Plans.
These plans are offered by many private or for profit employers as a retirement savings plan for their employees. In these plans the employee saves money toward retirement on a tax-deferred basis meaning that they don’t pay taxes on their savings or their investment earnings until they withdraw the money at retirement. The contribution limits, vesting schedule for employer matches, investment options and many other details can differ depending on how the employer setup the 401(k) plan. Your 401(k) can be a cornerstone of your retirement planning strategy so it is important that you read an understand the plan documents for your particular plan carefully. Hunt Country Wealth Management can assist you with understanding and optimizing your 401(K). Upon an employment change you can rollover your 401(k) to other IRAs or 401(k) plans.
Defined Benefit Plan
Defined Benefit Plans are often referred to as pension plans. A defined-benefit plan is considered “defined benefit” because it guarantees a specific benefit or payout upon retirement. The benefit may be a set amount or may be calculated according to a formula that factors in years of service, age and average salary. The employer typically funds the plan in a tax-deferred account by contributing a regular amount to the plan, usually a percentage of the employee’s pay.
Benefits from the plan may be given as monthly payments throughout the employee’s lifetime or a lump sum payment upon retirement. In addition, some plans distribute benefits to the employee’s beneficiaries upon the passing of the employee.
Payment options commonly include a single life annuity that provides a fixed monthly benefit until death; a qualified joint and survivor annuity that offers a fixed monthly benefit until death and allows the surviving spouse to continue to receive benefits until her death; or the entire value of the plan given as a lump sum payment.
Selecting the right payment option is important, because the option you choose can affect the benefit amount you receive. Hunt Country Wealth Management can review your options with you to make sure that you make the optimal choice for you and your family.
These plan are offered to employees of tax-exempt or non-profit organizations such as public school teachers, colleges, hospitals, colleges and churches. 403(B) Accounts generally fall into one of 3 categories.
- Tax Deferred Annuities or Tax-Sheltered Annuities. These are simply a type of annuity contract provided by insurance companies as a type of 403(b) investment to provide income later in life.
- A custodial account at an appropriate financial institution such as a brokerage firm that holds the securities of registered investment companies such as mutual funds. This has become the most common type of 403(b) retirement plan.
- A retirement income account that lists either type of investment option as a choice for the owners of the 403(b) accounts; that is, they can invest either in securities such as mutual funds or eligible annuities.
Your 403(B) can be an important part of your overall retirement plan and it is important that you carefully read and understand the plan documents for your 403(B) plan. Hunt Country Wealth Management can review 403(B) plan and plan documents with you to make sure that you take full advantage of this tax advantaged retirement savings tool.
As with most employer sponsored plans upon an employment change you can rollover your 401(k) to other IRAs or 401(k) plans.
TSP, Pension Plans
The Thrift Savings Plan (TSP) is a defined contribution plan for United States civil service government employees and retirees as well as for members of the uniformed services. Similar in many ways to the 401(k) plans that private employers offer, the Thrift Savings Plan, or TSP for short, gives federal employees the ability to set aside pre-tax money for retirement through a defined list of available investment options.
The thrift savings plan offers six different funds (government security fund, fixed-income fund, common stock fund, small cap stock fund, international stock fund and a life cycle fund) in which employees can invest.
Because the thrift savings plan is based on tax-deferred contributions, any contributions made into it will not be taxed until the money is withdrawn, which can be deferred until retirement.
Similar to standard retirement plans, employees can easily move non-government related IRAs and 401(k) plans into the thrift savings plan and vice versa upon employment changes.