Choosing a retirement plan doesn't have to be a game of chance

Many people are unaware of the different types of retirement plans available to them. While most are familiar with the basic plans offered through their employer, few know much about additional plans they may still be able to invest in. Self-employed people in particular find themselves wondering how they can plan for retirement and what plans are available to them.

Qualified vs. non-qualified retirement plans

Plans are generally classified as qualified retirement plans or non-qualified ones. Qualified retirement plans are those most commonly used by large companies. These offer tax incentives to employers for contributing to the retirement plans of their employees. Besides the fact that employers generally match an employee’s contributions, qualified retirement plans are of benefit in that employee contributions are made on pretax income directly from one’s paycheck. This means that money that would otherwise go to the government is invested in one’s future instead. Also, taxes do not have to be paid on such contributions until money is actually withdrawn from the plan when a person retires or decides to withdraw the money for other purposes.

Here is a list of the most popular qualified retirement plans:

• 401(k)
• Roth (401)
• Defined-benefit plan
• Stock bonus plan
• Defined-contribution plan
• Money-purchase pension plan
• Profit-sharing plan
• Keogh plan (for self-employed individuals)

A non-qualified retirement plan, on the other hand is often used to reward high-ranking employees who earn a substantial income. Employees who invest in non-qualified retirement plans can still enjoy tax-deferred investing, but, unlike with qualified plans, they may lose the ability to transfer their money to another type of retirement account when they leave their job. This means that they may have to withdraw all of their money upon leaving their job and pay taxes on it at the same time.

Here is a list of the most popular non-qualified retirement plans:

• 457 plan (also known as a Tax-Sheltered Account or TSA )
• 403(b) plan
• Roth IRA
• Traditional IRA
• Rollover IRA
• Converted Roth IRA

Along with the previously mentioned Keogh plan, self-employed entrepreneurs also have the following retirement plan options:

• SEP IRA
• Simple IRA

Each of these plans is unique and offers its own benefits, as well as drawbacks. Before selecting the one that is right for you, read up on what each offers and consider sitting down with a professional who can explain the ones that you’re most curious about. Wealth education involves good research, asking a lot of questions and discovering the investment options that are best suited for your budget. By having a general understanding of the retirement plans that are available to you, you can now begin a further exploration in finding the one that is perfect for you.

Prepare for a great future today

While many people spend a lifetime working for money, smart investors know how to make their money work for them. Investing in a good retirement plan is one approach to doing so and understanding how each one works is the beginning of wealth education. It is never too early to begin retirement planning and those who do not have a plan are strongly urged to start one now. If you’ve been relying on cash advances or a loan till payday to pay your monthly obligations or for emergencies, try to imagine how you’ll be able to manage as a senior citizen who is without a payday at all. Start preparing for you future today by defining a personal budget that includes contributing to a good retirement plan.

Saving money is not as easy as it looks. Image from flikr.com

The government has always pushed for people to put money into personal savings. Now President Barack Obama has created ways that will actually make saving easier for workers.

Just like Personal Money store makes online payday loans easier, Obama has come up with these three ways for individuals to save money: auto-enrollment in retirement plans, issuing tax returns as savings bonds and putting unused sick or vacation days into 401k plans.

1. Auto-enrollment in retirement plans

This will not make retirement plans mandatory for employees, it will simply make it easier for employers to enroll their employees in the retirement plans. CNN Money explains:

To make it easier for smaller and medium-sized employers to automatically enroll workers into retirement plans, the administration will clear up some bureaucratic paper-work hurdles for employers to offer that option.

2. Tax returns as savings bonds

This one is pretty simple. Recently the government made it possible for tax payers to get their refunds deposited directly into their bank accounts rather than sending a paper check. Similarly, now tax payers will have the option of having their tax return issued in the form of government savings bonds.

Automatically converting your tax returns into government savings bonds means that your money will be automatically saved and it will earn a higher interest rate than it would at a normal bank. The longer you leave your money alone, the more you will make off of it.

3. Saving sick and vacation days

Many people do not use up their sick days or vacation days at work. For the vast majority, that means that they are wasted. The government now will make it easier for employers to convert their employees’ unused sick or vacation days into dollars invested in their 401k plans. Again, this isn’t a mandatory thing at all. Employers and employees have the option of whether they want to do it or not, it simply will be easier.

Why the extreme measures?

Before you start spouting off about big government and personal freedom, remember that all of these things are completely optional. No one — not employers or employees — is require to participate. However, the benefits of personal savings in relation to the economy are obvious to everyone, so as part of the effort to turn the recession around, the White House has come up with these ways to encourage and facilitate personal savings. Just in case you’re in doubt about whether this help is necessary, here are some statistics from CNN Money:

Even among those with savings in the bank, the nest egg is relatively lean. Of workers 55 years or older, about half have less than $50,000 in savings, excluding their homes and pensions, according to the Employee Benefit Research Institute.

Some of these measures will be very lucrative for people. Unfortunately, these only help people who have jobs and qualify for tax returns. Saving money and investing wisely is very important, and I for one am glad to see that the government isn’t just talking about the fact that people should save money, but is actually taking steps to make it easier. I hope we will see more measures like this in the future, and that we can find a way to help people who don’t have 401ks and tax returns.