Sources of Retirement Income

Social Security   

Social Security benefits for many retirees represent their largest financial asset, the income provides a foundation on which they can build a secure retirement. Many Americans decide to begin Social Security Benefits without any advice. Over the years there have been many changes in options for selecting the correct time to start benefits or switch benefits from your benefit as a spouse to your own Social Security benefit. Unfortunately, Social Security is a one time decision that many get wrong.   Junkin and Co. understands the options now available through Social Security to select the best benefits and the optimal timing of them.

Qualified Retirement Plans

One of the best ways to reduce your tax liability is to open or add funds to a qualified retirement account. Your annual contribution will be excluded from your current income for tax purposes. These contributions as well as earnings are taxed as regular income when withdrawn. If taken prior to 59 1/2  withdrawals are subject to a 10% tax penalty.

Employer Sponsored Plans

  • Defined Benefit Plan – provide a monthly benefit when you retire. Benefit depends on years of service as well as salary. These plans are typically funded by the employer. As time goes by these programs are becoming scarce.
  • 401K – provided by private companies and are funded by the employee. Contribution limits do apply and if the contract stipulates, an employee may have the ability to borrow funds. Employers may also provide for a matching contribution.
  • 403b – is commonly offered by schools, hospitals or 501(c)(3) tax-exempt organizations for the benefit of employees. Functionality is very similar to the 401(k).
  • SEP’s Simplified employee pension plans – geared for small business retirement. Typically funded by the employer but the employee has the ability to contribute. SEP’s are held in employee IRA’s.
  • SIMPLE Plans Savings incentive match plans for employees – is a type of tax-deferred employer-provided retirement plan that allows employees to set aside money and invest it to grow for retirement. It’s a type of IRA that offers simpler and less costly administration rules, as it is not subject to ERISA and its associated regulations. Also contribution limits are lower in comparison to other employer based retirement plans.
  • Profit Sharing Plan – Is entirely funded by the employer. Upon retirement, the companies profits dictate the retirement benefit you receive.
  • ESOP Plan, employee stock ownership plan – employer contributes stock to the plan. Upon retirement the employee receives a single payment of stock shares. At age 55 with a minimum of 10 years of service, the individual must be given a choice of other investment options to diversify that account.

Individual Retirement Plans

  • IRA’s – are funded entirely by individual contributions. If you qualify these contributions may be tax deductible. Earnings and pre-tax contributions are subject to taxes when withdrawn. Distributions before 59 ½ may also be subject to a 10% penalty.
  • Roth IRA – an individual retirement account allowing a person to set aside after-tax income up to a specified amount each year. Both earnings on the account and withdrawals after age 59½ are tax-free.
  • Annuity contracts – function similarly to qualified accounts in that they provide tax-deferred growth and are subject to withdrawal conditions. But they are not qualified retirement plans, contributions are not tax deductible and there are no contribution limits.
  • Keogh Plans – are for self employed people and are funded by their income. Potential earnings accumulate on a taxed-deferred basis.