Over the years we’ve seen the good, the bad and the ugly of Qualified Plans (401K and IRAs). In this episode of Fireside Chats we want to show you both the pros and cons of these plans and how this information is essential for your financial future.

Subscribe to Become The Banker for more:

Watch Season 1 of Fireside Chats right here:

Connect with us:
Website:
Facebook:
Instagram:

00:00 Fireside Chats Intro
00:39 Pros
01:59 Cons
05:29 Why is it important to know this?
06:28 Final words

At becoming the Banker, we believe clarity is our mission and certainty is our solution by only using SAFE money strategies. We’re a holistic family-owned financial planning firm with over 70 years of combined successful experience that will help you create and protect wealth without risk. We’re also a Financial School (Larry Larsen’s Eagle Educational Systems, LLC.) registered with the Division of Insurance in over 12 different states. We provide Continuing Education and Pre-licensing education credits for financial professionals such as CFP’s, CPA’s, Financial Advisors, and Insurance Representatives to ensure that their professional licenses remain active.

Feel free to call us to set up free consultations at (303) 779-6600…(read more)

LEARN MORE ABOUT: Qualified Retirement Plans

REVEALED: How To Invest During Inflation

HOW TO INVEST IN GOLD: Gold IRA Investing

HOW TO INVEST IN SILVER: Silver IRA Investing

Pros and Cons About Qualified Retirement Plans (401K and IRA) | Fireside Chats Season 2 EP 03

retirement planning is something that should be on everyone’s radar. As we grow older, the need to have a reliable and stable income after retirement becomes increasingly important. To achieve this, many individuals turn to qualified retirement plans such as the 401K and IRA. In this episode of Fireside Chats, we will discuss the pros and cons of these retirement plans.

Let’s start with the pros. One of the major advantages of qualified retirement plans like the 401K and IRA is the tax benefits they offer. Contributions made to these plans are often tax-deductible, meaning individuals can reduce their taxable income, potentially lowering their overall tax liability. Additionally, any earnings within the account grow tax-deferred, allowing them to compound over time without being subject to immediate taxation.

Another benefit of these plans is the opportunity for employer matching contributions. Many companies offer matching contributions to their employees’ 401K plans, typically up to a certain percentage of the employee’s salary. This essentially amounts to free money and can significantly boost an individual’s retirement savings. Similarly, some employers also contribute to their employees’ IRA accounts, although this is less common.

Qualified retirement plans also provide individuals with a higher contribution limit compared to other retirement options. For example, the 401k plan allows individuals to contribute up to $19,500 in 2021, with an additional catch-up contribution of $6,500 for those aged 50 and over. This increased contribution limit enables individuals to save more for their retirement, potentially resulting in a more comfortable lifestyle once they stop working.

Now let’s delve into the cons of these retirement plans. One notable drawback is the early withdrawal penalties and restrictions associated with qualified retirement plans. Typically, funds withdrawn before the age of 59 and a half are subject to a 10% penalty, in addition to being taxed as ordinary income. This can be a significant deterrent for those in need of quick access to their savings.

Another downside is that individuals are required to take required minimum distributions (RMDs) from their qualified retirement plans once they reach the age of 72. These RMDs are taxed as ordinary income and can potentially push individuals into higher tax brackets, reducing their overall take-home income. Additionally, if someone fails to take the RMD, they may face a substantial penalty of 50% of the amount that should have been withdrawn.

One common concern people have with qualified retirement plans is the limited investment options. Typically, these plans offer a range of pre-selected investment choices, often including a mix of mutual funds and bonds. While this may be suitable for many individuals, those with a more hands-on approach to investing may feel restricted by the lack of flexibility.

It is also important to note that the maximum contribution limits for qualified retirement plans are subject to change with the passage of time and inflation. This means that what may seem like a sufficient amount to save for retirement today may not be so in the future. Staying informed and regularly reviewing one’s retirement savings strategy is crucial.

In conclusion, qualified retirement plans such as the 401K and IRA offer numerous advantages, including tax benefits, employer matching contributions, and higher contribution limits. However, they also have drawbacks like early withdrawal penalties, required minimum distributions, limited investment options, and potential changes in contribution limits. It is essential for individuals to carefully evaluate their personal financial situation and goals before deciding which retirement plan is best suited for their needs.