Redirecting to cart, please wait...
You have items(s) in your cart.
Sign up for your company-sponsored retirement plan and watch as automatic payments deducted from your paycheck add up to a hefty nest egg over the months or years. Try to donate at least as much as required to qualify for the matching donation from your employer, if one exists. That employer match is like an added bonus, and along with your own contributions it will grow over time as it earns dividends and interest.
Remember, too, that your contribution is excluded from your taxable income, which helps lower your tax bite.
This is particularly tempting when you switch jobs and have access to money you may have accumulated in a 401(k) or other company-sponsored retirement vehicle. Your options typically include leaving the money in your old employer’s plan, rolling it into an IRA or into your new employer’s program or receiving a check from the old plan.
There are several good reasons to resist simply asking for that check and spending it. First, your old employer will withhold 20 percent of the money for income taxes, and you may end up owing more in taxes depending on your bracket. If your service with the company ends before you turn 55, you’ll also face a 10 percent early-withdrawal penalty, which means one-third of your money is gone before you even cash the check.
Tapping into Social Security as soon as possible may sound like a great idea, but remember that you won’t qualify for your entire Social Security retirement benefit until you hit full retirement age, which will vary based on the year you were born.
If you start receiving payments before that age, they will be less than you would have gotten if you’d waited. If you postpone retirement until age 70, your benefits will rise even more.
CPAs help clients tackle a wide variety of financial challenges every day, including retirement planning. Turn to your local CPA for advice on all your financial concerns. He or she has the experience you can count on for your important financial decisions.
Copyright 2014 American Institute of Certified Public Accountants.