What Are My Retirement Planning Options?
There is a wide variety of retirement planning options that can meet your needs. Your employer funds some; you fund some. Bear in mind that in most cases, withdrawals made before age 591/2 are subject to a 10 percent penalty, and withdrawals usually must begin by April 15 of the year after you turn age 701/2. Income taxes are also due upon withdrawal in most cases. This list describes some of the most common options.

If your employer funds a profit-sharing plan; employee contributions are usually optional. Upon your retirement, you will normally receive your benefit as a lump sum. The company’s contributions — and thus your retirement benefit — may depend on the company’s profits. If a profit-sharing plan is set up as a 401(k) plan, employee contributions may be tax deductible.

A savings plan provides a lump sum payment upon your retirement. The employee funds savings plans, although employers may also contribute. Employees may be permitted to borrow a portion of vested benefits. If a savings plan is set up as a 401(k) plan, employee contributions may be tax deductible.

Under an employee stock ownership plan (ESOP), an employer periodically contributes company stock toward an employee’s retirement plan. Upon retirement, employee stock ownership plans may provide a single payment of stock shares. Upon reaching age 55, with 10 or more years of plan participation, you must be given the option of diversifying your ESOP account up to 25 percent of the value. This option continues until age 60, at which time you have a one-time option to diversify up to 50 percent of the account.

Tax-sheltered annuities or 403(b) plans are offered by tax-exempt and educational organizations for the benefit of their employees. Upon retirement they provide the employee’s choice of a lump sum or a series of monthly payments. These plans are funded by employee contributions, and those contributions are tax deductible.

Individual retirement accounts are available to virtually any salary or wage earner. They are funded completely by employee contributions. IRAs are usually held in an account with a bank, brokerage, insurance company, mutual fund company, credit union, or savings and loan. They provide either a lump sum payment or periodic withdrawals upon retirement. There are two basic types of IRAs: traditional and Roth. Contributions to traditional IRAs may be tax deductible, while qualified withdrawals from a Roth IRA are tax-free.

Simplified employee pensions, or SEPs, were designed for small businesses. Like IRAs, they can provide either a lump sum payment or periodic withdrawals upon retirement. Unlike an IRA, the employer primarily funds them, although some simplified employee pensions do allow employee contributions. SEPs are usually held in the same types of accounts that hold IRAs. Employee contributions — in those SEPs that allow them — may be tax deductible.

Savings Incentive Match Plans for Employees, or SIMPLE plans, were designed for small businesses. They can be set up either as IRAs or as deferred arrangements — 401(k)s. The employee funds them on a pre-tax basis, and employers are required to make matching contributions. Principal and interest grow tax deferred.

Strictly speaking, annuity contracts are not qualified retirement plans. But they do provide tax-deferred growth like qualified retirement plans. They are also subject to withdrawal conditions very similar to qualified retirement plans, but there are no contribution limits. They can be used very effectively to supplement your employer-provided retirement plan & annuity contracts should be used as a long term investment.