Retirement Savings Plans for Retirement Pension Provision

Retirement Savings Plans is a generic term used for retirement provision plans. Many plans are available and each plan is designed for a specific category of employees.

These plans have several things in common:

  • Your regular contributions to the savings plan are not taxable
  • Your employer's contributions are not taxable – practically free money
  • The income earned on the investment is not taxable
  • Withdrawals before a specified age not permitted or subject to a heavy tax penalty
  • Distributions after retirement taxed at prevailing tax rates

Each savings plan has rules or parameters under which it operates:

  • Eligibility – Employee category rules for participation in plan
  • Contribution Rate – Employee contribution and Employer contribution specified
  • Maximum Annual Contributions – Maximum you can contribute per annum; Usually quite generous
  • Contribution Rate Changes – Rules around increasing or decreasing your contribution
  • Investment Providers – Which institution, investment, or insurance companies manages the plan
  • Number of Investment Funds – Approximate spread of funds the plan is invested in; The more the better
  • Loans – Can you borrow against your savings plan? Even if allowed, avoid it; You lose much of your tax-advantaged benefits
  • Withdrawals – Rules on withdrawals before retirement
  • Distributions – Required minimum distributions after retirement

The growing power of these savings plans are often not appreciated. The concept of 'tax-advantaged plans' is either not understood or not appreciated. I cannot stress enough how important it is to start early and to maintain and nurture your retirement plan.

I must confess that I personally neglected my retirement provision during the earlier years. When I woke up at age fifty, it was a much harder battle to make adequate provision. And that catch-up exercise had to be achieved with taxed money. Even the earnings on the investments were taxed. I missed out big-time on the tax-advantaged benefits of retirement provision plans. Don't make the same mistake!

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