Investments Tto Retire By

Tax-Deferred Vehicles That Will Last A Lifetime

their income.

The average retiree currently collects $804 per month, or nearly $10,000 per year, while a retired couple will receive more than $16,000 per year. Those individuals, however, who have consistently made the maximum contribution to the system because of high earnings, receive $1,433 per month, or more than $17,000 per year. High-earning couples might receive over $25,000 per year in Social Security benefits. To put that amount in perspective, you’d need to hold more than $400,000 in Treasury bonds paying 6% interest to receive as much in investment income.

Small-company retirement plans. Popular among both employers and employees, these plans offer tax-deductible contributions and tax-deferred investment buildup. SEP plans and SIMPLE IRAs are among the most common vehicles used by small business owners. Here’s how they work: Sep plans allow business owners to put more money into their own retirement account than either Simple IRAs or regular IRAs (up to $25,500 in 2000) with the stipulation that they contribute to employees’ accounts as well, while Simple IRAs require that they make smaller contributions (no more than $12,000 per year) with optional employee participation and a modest employer-match component. “Generally, the fewer employees, the more attractive an SEP plan will be,” asserts Edward Fulbright, the Durham, North Carolina, financial planner who advises Thomas.

Large-company plans. Most major employers offer 401(k) plans in which employees can choose to defer some of their salary and target those amounts to various investment options such as equity and bond mutual funds. Nonprofit organizations and educational institutions provide similar offerings through 403(b) plans.

In such plans, contributions are made before taxes, so they will reduce your yearly tax bill, and, unlike small-company plans, large companies, on average, match as much as 50 cents for every dollar. But even though 401(k) plans follow federal guidelines, their structures vary widely. Most employers offer an array of mutual funds to chose from, while some offer you shares in their stock. Some invest the matching contribution in the mutual funds of your choice. Others match contributions only with company stock. Still others let you invest in the stock market with a portion of your retirement dollars. Your maximum allowable contribution is $10,500.

And many plans encourage employees to be proactive. For example, some employees have not only been participants in their employer’s 401(k) plan, but they have taken active roles on the committees that administer the plan and have met regularly with the money managers who develop investment offerings.

IRAs. Everyone who works (plus nonworking spouses) can contribute up to $2,000 per year to an IRA, where investments can grow untaxed. Those contributions will be deductible if you’re not covered by an employer’s plan, or if you are covered and your income is modest. (For a full $2,000 deduction this year, your adjusted gross income would have to be under $52,000 on a joint return.)

Rollover IRAs. As many employees shift gears, they may consider parking their employer-sponsored retirement funds in rollover IRAs. “Often, when you leave your employer, you’ll have your choice between

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