Retirement Plan Insights

Welcome to the FAQ section on retirement planning brought to you by James H. Wilson Law Firm. Discover the answers to your pressing questions about various retirement savings options, such as 401(k)s, IRAs, Keogh plans, and SEPs.

What Qualifies a Retirement Plan According to Tax Legislation?

A qualified retirement plan aligns with the stipulations of Section 401(a) in the U.S. Tax Code. These typically include profit-sharing plans like 401(k)s, defined benefit plans, and money purchase pension plans. Notably, most plans acquired via employment are qualified, meaning contributions are tax-deferred until withdrawn.

Why Opt for 401(k) Plans?

From an employer’s perspective, 401(k) plans are cost-efficient since a substantial portion of contributions comes from employee pre-tax salary deductions. Employees favor these plans due to tax benefits, versatile contribution adjustments, the autonomy in investment choices, and opportunities for loan accessibility or hardship withdrawals.

Can You Explain a Keogh Plan?

Keogh plans cater to self-employed individuals and are considered qualified retirement plans despite the ‘Keogh’ term not appearing in the Tax Code. It references the unique constraints applied to such plans, which could result in lower contribution limits for self-employed individuals due to the redefined compensation parameters.

What Does “Vested” Mean in Retirement Plan Terms?

Being vested means ownership of your retirement benefits. This could range from partial (i.e., 50% vested) to full (100% vested), particularly regarding personal salary deferrals in a 401(k). Employer contributions might have different vesting rules based on the specific plan.

Is an Individual Retirement Account Also Considered a Retirement Plan?

Yes, an Individual Retirement Account (IRA) is a type of retirement plan. Unlike qualified plans established by businesses, IRAs, specifically traditional or Roth IRAs, are initiated by individuals. SEPs and SIMPLE IRAs, however, must be set up by an employer and permit more substantial tax deductions compared to traditional or Roth IRAs.

Can I Establish a Retirement Plan for My Business if I Already Participate in One at Work?

Yes, generally speaking. You can create a plan for your business, which is considered a separate entity from your principal employer. Do note, if you contribute to multiple salary reduction plans (like a 401(k) or SIMPLE IRA), watch out for overall limits on contributions.

Are My Retirement Savings Secure From Creditors?

Typically, employer-sponsored plans are creditor-proof under the Employee Retirement Income Security Act of 1974 (ERISA), even during bankruptcy. However, single-individual Keogh plans and IRAs don’t have this federal protection. Yet, numerous states enforce laws shielding IRA assets and possibly single-participant Keogh plans from creditors.

For further assistance or to discuss your unique retirement plan needs, do not hesitate to contact James H. Wilson Law Firm at 804.740.6464. We are here to provide the guidance you need to secure your future.