Retirement Saving Strategies

There are many ways for you to save money for your retirement. Most retirement plans fall under three general categories:

Qualified Plans
Qualified retirement plans are set up by employers to give employees retirement saving opportunities. A self-employed person or small business owner can also set up some of these plans.

Qualified plans are allowed favorable tax treatment under the IRS Code. If employers and self-employed individuals meet the requirements for maintaining such plans, they may deduct their plan contributions. Also, employees are not immediately taxed on the contributions made on their behalf, they can often make additional contributions on a pre-tax basis, and earnings on their retirement plan funds get to accrue on a tax-deferred basis. If you are an employee, chances are pretty good that your employer offers a qualified retirement plan as part of your compensation package.

Individual Retirement Accounts (IRA)
An IRA is a personal savings plan that provides tax advantages. The three main advantages of an individual retirement arrangement are:

• You may be able to deduct your contributions in whole or in part during the tax year that you make a contribution.
• Contributions, including related earnings and gains, are generally not taxed until distributed.
• An IRA fills in the gaps in other tax-favored ways to save for retirement. They may supplement other retirement savings plans.

An IRA is easy to set up. It can be set up with a bank, savings and loan, credit union, investment firm, or insurance company. They fill out the paperwork to set up an account for you. You choose how your money is invested, and select the type of IRA you want.

Nonqualified Plans
Sometimes employers use a nonqualified plan to provide added incentives to attract and retain key executives and employees.

A nonqualified plan is an employer-sponsored retirement or other deferred compensation plan that does not meet the tax-qualification requirements under Internal Revenue Code Sec. 401 (i.e. qualified plan requirements).

A nonqualified plan allows an employee to defer the receipt of taxable wages or bonuses until some future year when (hopefully) the employee is in a lower tax bracket, thereby paying less in taxes when the compensation is received. Although nonqualified plans are easier to set up than qualified plans, there are specific rules that must be followed to achieve the objective of deferring an employee's taxable compensation. All nonqualified plans must satisfy the following three requirements:

• The deferred compensation arrangement between the employer and the employee must be entered into before the compensation is earned by the employee.
• The deferred compensation cannot be available to the employee until a previously agreed upon future date or event.
• The amount of the deferred compensation cannot be secured (i.e., it must remain available to the employer's creditors).

For more information about saving for retirement, talk to your Johnson Bank representative.

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