Acclaro Blog

Archive for January, 2011

A Great Investment Opportunity

Wednesday, January 19th, 2011

It’s that time of the year when we start thinking about tax season and wishing we had ways to reduce our tax debt. Participating in your company sponsored retirement plan will help for next year. So be proactive in 2011, get started in your plan or look at increasing your contributions. Here are three reasons to participate in these plans:

1.  Social Security Alone Will Not Do The Job
Don’t plan on Social Security to pay your retirement bills. The rule of thumb is that Social Security probably represents only 40% of your retirement needs. In 2010, the average monthly benefit for a retired worker was about $1,164. This won’t buy the kind of retirement most Americans dream about. When you participate in your retirement plan, you take control of supplementing Social Security.

Visit the Social Security Administration website for more information about the retirement benefit you can expect.

2.  Tax Savings
There are two basic types of retirement plans offered by companies:

  • Before-Tax Contributions:  You save money today when you contribute because the money going into your account has not been taxed.You are taxed when you withdraw your money in retirement, when your tax bracket should be lower. By postponing taxes until you take withdrawals, you have more money working for you.
  • After-Tax Contributions:  Commonly called Roth accounts, these contributions are taxed before you invest them. However, they are not taxed when they are taken as qualified withdrawals

In addition, retirement plan earnings aren’t taxed every year, so you could benefit from having more money in your account growing through compounding. Check with your employer to find out which contribution types your plan offers.

3.  Your Employer May Help
Does your company offer matching funds as an incentive to encourage employees to contribute? If your employer does, take it! It’s free money. Try to contribute at least enough to get the full match.

If you do not have access to a company sponsored plan you can make contributions to IRA’s. If you are self-employed consider setting up a SEP or an individual 401k.