Description
A new employee joins your company at age 24 making $40,000 per year. Currently, banks are paying 5% interest on saving accounts, and the rate of return on the company stock is 4% per year. During benefits enrollment, the employee stated that she would like to retire at age 60 with 3 million dollars in her retirement account.
Compare the following retirement options for this particular employee in 1,050 to 1,400 words:
- 403B
- 401K
- Pension
- Annuities
- IRA
- Estate planning
Determine which retirement option(s) you would choose if you were this employee.
Assess the factors that this employee should consider when selecting a retirement plan.
Format your paper consistent with APA guidelines.
Explanation & Answer
Attached.
Running Head: Retirement Benefit Plan
1
Retirement Benefit Plan
Institutional Affiliation
Date
Retirement Benefit Plan
2
An employee doing work for either a company, institution or even a government organization
there is always a retirement benefit. Anyone working must always consider having the most
appropriate benefit plan so as to enjoy the retirement plan in the future. As we all know everyone
works so as to invest for the future. Therefore an employee choosing the best retirement plan is
always necessary for future beneficial. Some workers always chose a retirement scheme that is
not appropriate for them an end up not getting maximum benefit out of it. Let us look at different
retirement plan and try to consider what an employee who started his working at the age of 24
making a total of $40000 per year, bank currently paying 5% interest on the saving account and
the employee expect to retire at age 60 with 3million dollars in her retirement account. Let us
analyze the difrent retirement options and see what retirement option to choose if you were the
employee (DesMarteau, 2014).
IRA (Individual Retirement Account)
This is an account set up by financial institution that allows an employer who has enrolled it to
be able to save for retirement with tax free growth or a tax deferred body. We have 3 different
types of IRA which gives an individual advantage when he or she uses it. First we have
traditional IRA which enables an individual to make contribution with the money that he or she
would be able to deduct on the tax return and any earnings can potentially grow tax-deferred
until you withdraw it in retirement. This type of IRA always enables the workers to find
themselves in a lower tax bracket than in the pre retirement. Secondly we have Roth IR which
enables an individual to make contributions with the capital already paid taxes on and this may
lead an individual to grow tax free and also tax free withdrawal at retirement as long as certain
conditions are met which is very advantageous to a certain employee and lastly we have Roller
over IRA which is a traditional IRA which was made with the intensions of money from a more
Retirement Benefit Plan
3
qualified retirement plan. It involves moving eligible assets from an employer sponsored plan for
example 401(k).if an individual choose to work with any of the three plans he or she will still
have an advantage over an individual who uses a taxable account. IRA is advantageous because
it allows an individual to decide the money they will wish to be deducted from their paycheck.
There is also the IRA calculator which helps one to determine an individual to choose the
amount of money to contribute and also it has the limits of specific requirement to be able to use
a certain type of plan in its subdivisions thus very advantageous (Ippolito, 2007).
403 B
This is also a retirement saving plan which has also been tax advantaged and is always available
for the public education organizations and some nonprofit employers and for instance it is always
preferred with the nonprofit workers. This plan allows participants to make tax advantaged
contributions to an investment account and also the employers are free to do so also the
individuals who agree to work with it enables their employers to take part of your earnings and
he or she is able to contribute it to your plan before the money is taxed thus you won’t be taxed
and thus reducing the costs of taxation on dividends, interests or the capital gain generated in
your account year to tear but you will only be taxed upon withdrawal of the money and thus the
tax is deferred (DesMarteau, 2014).
401(K)
This is a retirement plan that enables employees to choose between taking compensations and
deferring it to the 401...