Fundamentals of retirement plans

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If you’re among the lucky Americans whose employers offer a workplace retirement plan, it behooves you to take full advantage of it. True, some plans will automatically enroll you, so all you have to do is show up to work every day and do your job. If you don’t want to join, you have to actively take steps to opt out of the plan.

It would be a mistake to opt out. In fact, it would be a mistake to allow yourself to be automatically enrolled without getting involved in the decisions pertaining to your plan. Otherwise, you may end up contributing just a paltry amount, and your money may go into a fund that’s too conservative or too risky or too expensive for your taste.

In this package of stories, Bankrate covers the fundamentals of retirement plans — everything you ever wanted to know about 401(k) plans, 403(b) plans and 457(b) plans — plus a whole lot more.

Plans come in different flavors

For the uninitiated, 401(k) plans are found in the private sector, 403(b) plans in the nonprofit area and 457(b) plans are offered in state, county and municipal workplaces. All have their arcane sets of rules, and all provide a way for you to save money in a tax-deferred account. Some are stranger than others. Bankrate’s story, “Shakeout in 403(b) plans affects teachers,” uncovers the unusual situation in the education market and explains why teachers are dropping out of their 403(b) plans.

If you work for a small business that doesn’t offer a plan — and the majority do not — then it’s time to lobby the boss for change. Employers can pick from several different types of plans ranging from simple payroll deduction individual retirement accounts to complex defined benefit plans that require serious commitment. Bankrate’s story, “Retirement plans for small biz,” covers the nuts and bolts of 10 different retirement plans designed specifically for small businesses and self-employed individuals.

Retirement plans and you

The government devised several different types of plans in order to entice people to save for retirement, even at the expense of federal tax revenue. Retirement savings in workplace plans keep money out of government coffers — contributions made on a pretax basis are not counted as income, so you dodge the tax bullet on those funds until it’s time to take the money out.

To find out if you have a first-class 401(k) plan or a mediocre one, check out “What makes a 401(k) plan great.” Get ready for changes in your corporate retirement plan as well. This year, sponsors of 401(k) plans will be required to break out all costs to plan participants, as discussed in the story, “401(k) plan fees to be unveiled.” This event will surely be an eye-opener for everyone.

Why should you contribute to your retirement plan? Because doing so affords you options you likely won’t have otherwise. Once you sign up to contribute 10 percent or 15 percent of your paycheck into the plan, you won’t miss the money. And it’s a bonus if you get matching contributions. Over time, you will likely be surprised by how much you will have accumulated. It’s your best chance to prepare for your golden years, so you can maintain your lifestyle long after you stop setting the alarm clock to get ready for work.

Written by
Barbara Whelehan
Contributing writer
Barbara Whelehan is a contributing writer for Bankrate. Barbara writes about a range of subjects, including homebuying, real estate, retirement, taxes and banking.