Retirement plans

squeezeA dear(p) privacy image should be one that would issue retirees with the intimately benefits. These benefits should ide eithery grant tax advantages. r even upue enhancement savings place be realized in the sententious run or in the long run depending on the figure of scheme selected. It should in any case win a secure investment that carrys attr performive returns. This paper looks into the lone runss programs foreground the advantages of these schemes to different players. This paper opines that despite the few disadvantages of these schemes, They provide an great pathway through which employees stinker computer programme their futur.DefinitionThese be a programs naturalized by employer or employee or both aimed at providing the retirees with a outset of income when they atomic number 18 no longer in employment.Retirement figures basic aloney atomic number 18 set up as a cook of savings externalise to cater for the future i.e. by providing some f orm of income when a psyche has retired.Types of seclusion plans in that location are several hideaway plans available in the market today. The employees should so select a plan that meets their expectation and suits their necessitate. d takestairs is a list and explanation of some of the available privacy plans.i) man-to-man Retirement Accounts plansIt is one of the simplest retirement programs that brush aside be set by an individual. It is alike worthwhile to note that IRAs be established by employers. hence IRAs can be established with little employers involvement to those that they establish and precede to the scheme.The retirement benefits depend on the contributions and subsequently the income bring in by these funds. in that respect are four IRA plansPayroll Deduction IRA- formed by the employee either infra traditional or Roth IRA in coalition with a financial institution.The financial institution (banks, insurance companies) then deducts the contributions tow ards the plan under the authority of the employee.Traditional IRA contributions are partly or wholly tax deductible and indeed present tax savings to the employee. The separate advantage is that the earnings on the plan are not taxed unless distributed. The selfsame(prenominal) applies to the contributions to the plan.Roth IRA deductions are not tax deductible and besides distributions are not part of the income (Internal Revenue Service 2008)Salary reduction Simplified Employee Pension Plan (SARSEP) It is a simple plan that involves profits reduction agreement which enables the employers to go to the IRAs set by them and withal to the employees IRAs. There contributions are subject to a strangu later(a).Simplified Employee Pension Plan (SEP)-Employers contribute towards the planSavings Incentive Match Plan for Employees (SIMPLE IRA) employers marque contributions towards their own retirement plan and also that of the employees.The employees reduce their salaries with th e employers making similar contributions.ii) IRC 401 (K) Plans. discharge involve employees delaying their salaries and these money is taken to 401(k) plan supported by their employers. The deferred payment is not taxed unless distributed.The benefit of having a 401(k) plan is that one can stupefy other plans as wellThe employee/employer contribution is subject to a limit with withdrawals creation permitted but subject to taxes.iii) TRC 403(b)- evaluate sheltered Annuity PlansThis plan are operated by public schools and authentic tax exempt organizations.This plan is same as 401(k) in the sense that contributions are in form of requital delays with the employers sponsoring the plan.The potential benefits of this plan are that the contributions and earnings on retirement are tax deferred with annuities being carried by the employee on retirement or diversity of employers (IRS 2008)iv) IRC 457(b) Deferred Compensation PlansEstablished by state or local government or tax exempt organization under IRA (501(c). Employees or employers contribute to the plan through salary reductions up to a reliable set limit under IRC 402(g)These plans can be eligible under IRC 457 (b) or illegible under IRC 457(f). Eligible plan allows tax recession on contributions and earnings on the retirement funds (Ryterband &Alpem 2005)v) Designated Roth Accounts in 401(k) or 403(b) plans401(k) and 403(b) can be designated as Roth plans since 2006. These plans are allowed under Code class 402 A added by the Economic Growth and Tax Relief atonement Act 2001.Designated Roth contributions are included in the gross income and are also elective. A designated Roth account is where with contributions is made with separate accounting of contributions, gains and losses being maintained (IRS 2008)Designated Roth contributions are subject to limit with employee and employers contributing up to certain de destinationinable limit.Advantages and Disadvantages of good retirement planAs discussed above, there are different types of retirement plans that employees and employers can chose from. The plan to be selected should provide the more or less benefits to both the employer and employee and most importantly suit the needs of both the employee and employers (Scotto, D., J et al 2008) thereof, in discussing the advantages and disadvantages of retirement plans, it important to approach it from the employees and employers point view.Advantages-EmployeesTax saving-A good retirement plan should be able to provide the most tax savings and advantages. Tax advantages can be in the form of tax-exempt and tax deferrals.A good number of retirement plans offer up these tax advantages and therefore employees and employers can select a plan that meets their needs (Maddock J, 2007)The tax savings can be realized in the short run or in the long run depending on the type of scheme selected.Many investment options and opportunities-The contributions (funding) to the retirement plan are invested in various investment options. A good retirement plan should therefore put the money in investments that offer attractive returns while at the same time safeguarding the investors money.Retirement plans are long end point in nature and therefore the contributions should be invested in the long term also (Perlinger Financial Services 2008)Provides a nest egg-Retirement plans provide employees with an opportunity to slowly but constantly contribute towards their retirement. The benefit of this agreement is that it does not strain the employees financially and thus they are able to make contribution which they are comfortable with.All these contributions are invested in stocks, bonds and other investment opportunities which earn interest and appreciate in value and therefore the retirement benefits will accumulate and become substantial upon retirement.Employer contributions-Contribution to the retirement benefits plan can be by an individual or by the alliance or both depe nding on the type of plan.A good retirement benefit plan should allow both contribution of employee and employer. The employer contributions are usually elective in nature.Contributions by both employer and employee ensure that the fund accumulates immediate and thus on retirement the fund will be huge. slaying of the fund-The contributors to the retirement scheme should be able to monitor the proceeding of the fund. A good retirement benefits plan should provide regular updates on the performance of the fund so that any surplus or deficit can be appropriately dealt with.Advantages- EmployerEmployee retention-A good retirement plan can act as an incentive to the employees and also attract better employees. The friendship can retain its top employees by offering them a good retirement scheme and since it is for the long term, the company is able to retain them.The company is also able to attract employees who are better qualified in price of experience and skills and thus the co mpany will benefit (Business Owners Toolkit 2008)Financial bail system of employees-Employees is able to perform optimally if they know that their financial future is guaranteed. A retirement benefit plan that provides this perceived financial security is good Employee morale-Since most pension schemes are based on the salary earned by the employee, a good retirement plan therefore, serves to motivate and win all employees to melt down hard and hence earn more wages. high salaries subsequently subject matter handsome retirement package and this enhances staff morale. Tax savings-The contributions to the retirement scheme in most plans is tax allowable and this provides the company with the most tax efficient way of rewarding its employees. The contributions are deducted when astute the taxable income.Reduced recruitment be-As seen above, a good retirement plan helps the company retain most of its employees and therefore the costs associated with recruitment and replacing th e employees who left the company is minimized (Perlinger Financial Services2008) Disadvantages of retirement plans scorn all the numerous advantages of setting up a retirement plan, there are several disadvantages associated with it. Some of these are discussed below.Some of the retirement plans are time devour, expensive and complex to set up. The result of this is that the company incurs superfluous expenses and thereby squeezing the profit margins. The complexities in establishing the plan will also present more costs apart from being time consuming (Business Owners Toolkit 2008)The operations of the retirement plan needs professional expertise e.g. that of actuaries and accountant. These professionals offer their services at a fee which is usually expensive. The administrative costs of running a retirement plan may pose a challenge to the company in terms of extra costs.Early retirement by the employee could reduce the amount received. This in essence means that the employee h as to work his full employment term in order to receive all his retirement benefits. This could mean being trapped in employment even if one is not comfortable.Joining a retirement plan late on in ones employment i.e. when there are a few years till retirement may not accumulate a large amount enough to sustain the retiree. Therefore the retirement plan will not improve the financial security of the employee (Scotto, D., J et al 2008)In some of the retirement plans, the contributor has no role in deciding where to invest the funds money. This means that the money could be invested in assets that are not in line with ones investment strategies. This essentially means that the contributor has no control of his money.Employees are responsible for ensuring that they have enough savings for their retirement in some of the plans. This means that the employee is the one in charge of all the investment assets and therefore bears the responsibility of any losses incurred by these investments . audienceMaddock, J (2007) Advantages of Offering a Pension Plan to Your Employees Retrieved On29/1/2009Perlinger Financial Services Ltd (2008) Pension Plans Retrieved on 29/1/2008Internal Revenue Service (2008) Types of Retirement Plans Retrieved On 29/1/2008Business Owners Toolkit (2008) Pros and Cons of Retirement Plans Retrieved On 29/1/2008From http//www.toolkit.com/small_business_guide/sbg.aspx?nid=P05_4640Scotto, D., J. Maglio, V., T. & Maglio, M. (2008) Choosing a retirement plan that meets theneeds of employees and employer Retrieved on 29/1/2008 from Retrieved On Fromhttp//view.fdu.edu/default.aspx?id=2333Chang RuthenBerg and retentive Pc (2003) Types of Retirement Plans retrieved on 29/1/2008 from http//www.seethebenefits.com/CRLframeset800x600.asp?targetPage=http//209.85.173.104/search?q= hoardAO6rPS-WpS4Jwww.seethebenefits.com/content/CWHY/typesretireplans.htm%20types%20of%20retirement%20plansRyterand, D., J. & L. Alpem, R., L. (2005). The Hand Book of Employee Benefi ts DesignFunding and Administration, section 457, Deferred recompense plans 6th Edition (NY)Mc Graw-Hill Professional.