Retirement Planning Made Easy

Retirement planning works to the benefit of both the employer and the employee. A good retirement plan is an important job incentive. By making a retirement plan available employers are able to satisfy the needs of good workers and those workers are happy to continue performing well for their employer. The employees benefit from having a tax deferred savings for their future. This is how a simple retirement plan works.

What is Involved

For small businesses or less than 100 employees a simple plan allows them to offer 401k or IRA benefits to their employees as a retirement plan. To take advantage of this plan employees cannot be participants of any other retirement plan. Since 1996 the simple plan has operated under the laws of the Small Business Jobs Protection Act.

Another benefit to the simple retirement plan is that it allows the contributor to determine how much he will contribute, up to $6,000.00. The employer matches the contributions of the employee, not in excess of 3% of the employee's earnings. This way the employee can control how much he wants to put toward his retirement each month. It is in the best interest of the employee to contribute as much as possible since his contribution is being matched 100% by his employer. Of course there is a limit on how much the employer can contribute as well - no more than 3% of the employee's income.

The employee is not required to contribute any funds toward retirement. The plan can be set up so that the employer contributes an amount equal to 2% of the employee's salary into the plan and the employee makes no contribution. If employees no longer want to be a part of the plan they can cease participating at any time.

If you have a simple retirement plan and would like to opt out of it you should consider this carefully. Early withdrawals are subject to high penalties, up to 25%. Also taxes are imposed on the earnings at the time the funds are withdrawn. It is very expensive to terminate a retirement plan prematurely so serious thought should be given before doing so.

You might even be better off to borrow money, using the retirement fund as security, if you can find a lender that will allow you to. Leaving the money in your retirement fund lets it compound tax-free, which can balance off the interest you pay on the loan, or might even work out to your advantage in some cases.

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