Retirement Planning FAQ

Retirement planning is worth your attention at any age. In your early adult years, it can seem impossible to make decisions about your life 50 years later. Choosing the right retirement plan — and setting aside the money to fund it — can be a difficult task. As you get older, you’ll have new questions about financial planning and your best retirement date.

This article answers some of the most frequently asked retirement questions. Some of these topics may need more personalized and professional advice. Speak with a lawyer about issues involving taxes and claiming retirement benefits.

Common Types of Retirement Accounts

You might manage several accounts for your retirement savings or benefits during your working years. You can also adapt your retirement plan as your circumstances change. Making new accounts, gaining new benefits, or rolling over accounts from former jobs are all common.

A few factors to consider when choosing your retirement plan include:

• Your sources of income
• When it would be favorable to pay taxes on your retirement money
• Opportunities to participate in employer match programs

Not all types of retirement accounts may be available to you. Some types are only available based on your employer or employment status. Others, like the Roth IRA, have an income limit.

What is a “qualified” retirement plan?

Qualified plans for retirement are generally special accounts that qualify for favorable tax treatment. The IRS determines which plans qualify.

Typically, it means the money you contribute to the account will not be taxed until the money is later withdrawn. So even though you “earn” money, if you place it in a qualified account, it will generally not be taxed, or will be taxed more favorably.

The end result is that you earn tax-free, or nearly tax-free, money. This advantage can add up to tremendous savings in the long term.

What are 401(k) plans?

401(k)s are the most well-known and popular qualified retirement plan. 401(k)s derive their name from the relevant tax code (section 401, subsection k), and were designed to encourage people to save for their retirements.

401(k)s are popular with employers because the majority (or all) of the contribution comes from the employee. Traditional plans are expensive, so using a 401(k) allows an employer to still provide a retirement option at a much lower cost.

“Matched” 401(k)s are retirement accounts where an employer agrees to match the employee contribution up to a set amount. For example, if the employee contributes $1,000, then the employer also contributes $1,000.

Employees like 401(k)s because the contributions they make from their salary aren’t subject to income tax. Imagine an employee who makes $50,000 per year. If they contribute $5,000 in a tax year to their 401(k), their taxable income will only be $45,000. The more an employee contributes, the lower their tax bracket may be.

What are IRAs?

IRA stands for Individual Retirement Account. While employers create 401(k)s, an individual can establish an IRA. Unlike a 401(k), it is not a “qualified” plan. But that doesn’t mean it lacks favorable tax treatment.

There are a few types of IRAs, such as traditional IRAs and Roth IRAs. One of the main differences between these types is whether the account is tax-deferred. They each have different attributes and qualities, so investigate which type of IRA makes sense for you.

What are Keogh plans?

Keogh plans are retirement plans intended for self-employed people. They are a “qualified” plan like a 401(k), and since you are self-employed, you the employer are setting it up. They function somewhat like a 401(k), but are generally more limited in terms of the contributions the individual can make. This is largely because the definition of “compensation” differs for general employees versus the self-employed.

What are some other typical retirement accounts?

Other common retirement accounts include:

• 403(b) plans, which generally are used in the education sector
• SEP and Simple IRAs, which are for business entities
• 457 plans, which are generally used by state and local governments as well as certain tax-exempt organizations

If you have additional questions about retirement plans, see FindLaw’s Retirement Planning section.

How To Maximize and Protect Retirement Savings

Retirement planning is an ongoing project throughout your adult life. Some decisions you make today, such as job changes, can impact your financial future.

What does it mean to be “vested” in retirement plans?

“Vested” essentially generally refers to whether you can actually claim a benefit. If you are 50% vested, then you can only take 50% of the benefit. In terms of a retirement account, if you are only 50% vested in your account when you leave the company, then you can only take 50% of it when you go.

Can creditors claim money from my retirement accounts?

It depends on which type of retirement account you have. Many plans, including most “qualified” plans, are exempt from creditors under the Employee Retirement Income Security Act (ERISA) and are also protected in bankruptcy.

IRAs (of any variety) and Keogh plans are not necessarily protected and are not covered by ERISA. Many states, however, protect some of these plans or limit creditors’ access to these plans, so check to see whether your state offers any protection.

Can I have multiple retirement accounts if I work for a company but also own my own business?

Yes, you can, but there are overall contribution limits. If you are contributing to your 401(k), it may reduce how much you can contribute to your own business retirement account. You have to coordinate the accounts to comply with contribution limits.

When Should I Retire?

The best retirement age will depend on your unique circumstances. The general goal is to retire once you’ve saved up enough money to comfortably cover your future expenses. Unfortunately, calculating how much you need is ambiguous. Life is unpredictable, especially as your health and cost of living may change dramatically as you age.

Most people do not retire before age 59 due to tax penalties for early retirement withdrawals. Many people wait until age 62, at which point they can start receiving Social Security benefits. Delaying your retirement date can increase these benefits. Medicare eligibility begins at age 65, so some continue to work to keep their employer-sponsored health insurance plans until they qualify.

Some people are unable to save enough funds to cover their future costs. They may need to rely on Social Security payments and other government benefits once they retire. Nonprofits also offer aid for food, medical, and housing assistance. Sometimes, retirees work part-time long after the usual retirement age because they need the extra income.

Not everyone can afford to retire early, but a careful strategy can boost your chances of a smooth transition at your ideal retirement age. Saving as much as you can early in life gives your account time to grow. Retirement savings accounts like IRAs let your growth compound over several decades.

Do I Need Legal Advice for Retirement?

You might want to discuss your retirement plans with a lawyer if you have specific legal concerns, such as:

• Protecting or splitting your retirement savings in a divorce
• Setting up an estate plan for your savings
• Planning ahead for particular medical expenses and long-term care
• Appealing a denial of Social Security benefits
• Resolving a dispute about your employee benefits or pension plan
• Starting or closing your own business
• Filing for bankruptcy

You might work with an investment advisor or financial planner to set up your investment strategy. But when you need help with a complex issue, contact an experienced retirement lawyer. Only an attorney can provide legal advice.