Nationwide retirement plans

A retirement plan may be one of the most valuable benefits of employment. Used effectively, it can deliver a long-term impact on your financial well-being. See how a retirement plan works and learn about the power you have to control your financial future.

In general, a 401(k) is a retirement account that your employer sets up for you. When you enroll, you decide to put a percentage of each paycheck into the account. These contributions are placed into investments that you’ve selected based on your retirement goals and risk tolerance. When you retire, the money you have in the account is available to support your living expenses.

Your 401(k) contributions are deducted right from your paycheck and go directly into your account before taxes are withheld. So, if your salary is $50,000 a year and you contribute $3,000 to your 401(k), only $47,000 will be considered compensation for income tax purposes instead of $50,000.

When you withdraw money from your account in retirement, it will be subject to ordinary income taxes. But since you'll be retired, you'll possibly be in a lower tax bracket.

Consider taking full advantage of the tax-deferral by contributing the maximum amount allowed by the plan. Check with your human resources department for limits and details. Please keep in mind that all investing involves market risk, including the possible loss of principal.

Your employer may match a certain percentage of your 401(k) contributions – most do. For example, if your company matches 0.5% for every 1% you contribute up to 6%, that translates into an extra 3% in your account if you contribute 6% or more.

With the example above, your $3,000 contribution plus your employer’s match would add $4,500 to your 401(k). (The plan may have rules when the matching contribution is vested. See your employer for details.)

Because 401(k)s are retirement savings plans designed to help you save for retirement, any money you take out early will be subject to an additional 10% early withdrawal tax unless an exception applies. First, any amounts withdrawn will be subject to ordinary income tax. Second, unless an exception applies, money taken prior to age 59 1/2 will be subject to an additional 10% early withdrawal tax. Finally, if you do not roll this money over, it will be subject to mandatory 20% federal tax withholding.

A retirement plan may be one of the most valuable benefits of employment. Used effectively, it can deliver a long-term impact on your financial well-being. See how a retirement plan works and learn about the power you have to control your financial future.

If you work for a tax-exempt organization, a 403(b) plan is a tool that may help you reach your retirement goals. 403(b) retirement plans are also known as tax-sheltered (or tax-deferred) annuities.

Tax-deferred 403(b) plans are designed for employees of:

• Public schools
• Colleges and universities
• Churches and other religious organizations
• Tax-exempt, non-profit organizations such as charities or certain hospitals

A 403(b) plan lets you set aside a portion of your salary in an employer-sponsored account to save for retirement. Some employers may also match your contribution.

You don’t pay taxes on your contributions to the plan. You also don’t pay taxes on any earnings your account accumulates until you withdraw the money, which ideally happens when you’re retired. And by then you may be in a lower tax bracket.

With a 403(b) retirement plan, you can typically invest in fixed annuities, variable annuities or mutual funds. Ask your financial professional to help you choose investments that best meet your retirement objectives. Just keep in mind that investing involves market risk, including possible loss of principal. And there's no guarantee that your investment objectives will be met.

If your employer doesn’t offer a 403(b) plan, find out if they have another kind of retirement plan. Or ask your financial professional about other ways to start investing for retirement.

Because 403(b) plans were created to help you save for retirement, there may be an additional 10% early withdrawal tax for withdrawing money early.

In addition, any money withdrawn will be subject to ordinary income taxes. The withdrawal amount will also be subject to mandatory 20% federal income tax withholding unless the entire amount is rolled.