Putting It All Together

Financial Education Center > Investing For Retirement

Retirement Investments

Saving for your future is a process, not an event. It is not something that you do once and forget about; it is a continual process of taking action: planning and doing, maintaining and balancing your priorities, and re-evaluating and making changes.

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The bottom line is that it is up to you to plan for your retirement. Company plans are a great start, but it is up to you to build a retirement fund to live the lifestyle of your dreams. If you or your spouse has a business, it is up to you both to provide for your retirement by setting up your own retirement plans.

Following is a review of various retirement plans and strategies. [Note: For all Keogh plans listed below, they are qualified plans, so unless it is a profit sharing plan that allows for in service distributions, hardship or loans, the only distributable events are termination of employment, retirement, death, or disability].

Plan/Strategy	Best for	Early Withdrawal
401(k)'Profit Sharing	Employees who qualify^3,7	Depends on the plan2,4
IRA	Those who don't have company pension plans or who have put the pre-tax maximum into their company plans	Always permitted^2,5
SEP	Self-employed person who is a sole proprietor^1,7	Always permitted^2,5
SIMPLE PLAN	Employers with 100 or fewer employees who earned $5,000 during the preceding year^{7, 10}	Depends on plan
PROFIT-SHARING KEOGH	Small-business owner who is funding a plan for himself and employees. Contributions are discretionary.^1,7	Depends on plan2,6
MONEY-PURCHASE KEOGH	Small business owner who is funding a plan for himself and employees. Contributions are required to be made each year.^1,7	Depends on plan2,6
DEFINED BENEFIT KEOGH	Self-employed person nearing retirement who needs to fund a larger retirement benefit^1,7	^{Depends on plan2,6}
VARIABLE ANNUITY	Someone who has put the maximum into other plans and who won't need the money for at least 10 years⁸	Always permitted^2,5
FIXED ANNUITY	Someone who has put the maximum into other plans, prefers a fixed rate of return and who won't need the money for at least 10 years⁸	Always permitted^2,5
CASH-VALUE LIFE INSURANCE	Someone who has put the maximum into other plans, needs additional insurance coverage, and who won't need the money for at least 10–12 years⁸	Permitted by surrendering your policy⁴
NONQUALIFIED DEFERRED COMPENSATION	Everyone who qualifies⁹	Generally, only for hardship, but depends on plan
TAX EXEMPT INVESTING	Individuals who are in at least the 25% federal marginal income tax bracket	Always permitted
Notes: Small-business owners fund the SEPs and Keoghs of their employees. Amount of withdrawal is subject to 10% income tax penalty (if applicable), except in case of death or disability. Matching contributions—Anywhere from 0% to 100% of percentage of employee's contribution, but typically anywhere up to 6% of salary. Loans may be permitted. Loans not permitted. Loans may be permitted. Tax break on contributions and earnings. No tax break on contribution, earnings grow tax-deferred. Taxes postponed on deferred earnings. Matching contributions required—up to 3% of employee's wages or $6,000, whichever is less.

Not FDIC Insured	Not Bank Guaranteed	May Lose Value
Not a Bank Deposit	Not Insured by Any Federal Government Agency

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