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Posted at 06:00 AM and March 24, 2019
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Crazy crazy
One of the biggest rewardsone can receive after a lifetime of hard work is a comfortable retreat. They call it the "golden years" for a reason.
Unfortunately, many people are approaching retirement age but have not planned and will not see anything that reminds them of the gold when it will be time to stop working full time.
The most common forms of funds to help Americans retire are the 401 (k) plans and individual pension account variants, or IRAs.
Most companies do not offer more pension plans or defined benefit plans to employees, so it is up to the employee to use IRAs and 401 (k) as a contributory plan. defined to help build that chasm of retirement.
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With the bull market turning around at age 10, it's important to keep some considerations in mind before you retire. You may have heard that it will take more than $ 1 million in savings to retire comfortably, but the reality is that it is a number somewhat mythical that may be too high for some and too low for others, partly because of the cost of living where you are.
24/7 Wall St. has identified several retirement planning and investment strategies that may sound solid but can destroy your savings. One of those strategies that will destroy your retirement is withdrawing money from defined contribution plans (IRA and 401 (k)) before you retire.
One of the greatest rewards you can receive after a lifetime of hard work is a comfortable retirement. (Photo: 1001Love / Getty Images)
As a general rule, employees are allowed from 2019 to contribute up to $ 19,000 per year in a 401 (k) plan, up $ 18,500. The Internal Revenue Service also raised the limit of annual IRA contributions to $ 6,000 in 2019 after six years of lock-up at $ 5,500. Although there are several versions of IRA accounts, the trouble of removing these is usually universal.
What's interesting about a 401 (k) plan is that employers can match an employee's contributions, either a dollar for a dollar or a portion of every dollar, up to a certain percentage of the employee's income. .
So, if you save between $ 5,000 and $ 10,000 a year and your employer pays an extra $ 5,000 to $ 10,000 a year in your 401 (k), the money can add up and start dialing quickly if you start early enough in life. And if your income goes up, we hope your contributions will increase as well.
Those who start saving well in their 20s should be able to retire comfortably, but what happens when savers start withdrawing money in their 30s, 40s, or 50s? Life happens, and setbacks such as the loss of your job or the need for money for urgent repairs to your home may encourage you to use your 401 (k) funds. These early withdrawals can easily destroy your retirement goals: get you out of this ideal destination.
Contributions to a 401 (k) are tax-deferred, like any growth, and homeowners do not pay taxes until they retire the money. In retirement, when homeowners are no longer on the job market and have lower taxable income, they hope to be able to withdraw the money in a lower tax bracket.
Taking a large sum in one time or a short time before retirement will have another long-term effect than stealing your future. And after an early withdrawal, you can not recover the same tax-deferred money.
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The problems with early withdrawals are multiple. First of all, you have to pay the tax on the withdrawal in your current tax bracket. And as the money increased with tax deferral, any withdrawal had a penalty of 10%. Moreover, and perhaps the most devastating, is the loss of compound interest – that is, withdrawing $ 25,000 from a 401 (k) plan, say in your twenties or thirties, can destroy $ 100,000 or more in future funds. In addition, having access to $ 25,000, even in the 22% tax bracket and with the 10% penalty, means that you could really only have access to about $ 17,000 in real funds. .
It is good that the IRS has catch-up rules allowing older savers to have a better chance of taking a good retirement. Therefore, the year of your 50th birthday, you can then pay an additional $ 6,000 a year in addition to your maximum annual contribution of $ 19,000. But let's say that you make up $ 18,000 combined over a period of three years and that the money is only 16 years old on average compared to the 35-year period mentioned above. This $ 18,000 to 5% over 15 years amounted to only $ 37,420.
Stealing your 401 (k) or IRA today greatly disadvantages your future retirement. If you are smart enough to invest in a 401 (k) or an IRA, be smart enough not to steal it in advance.
24/7 Wall Street is a USA TODAY content partner offering news and financial commentary. Its content is produced independently of USA TODAY.
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