REALTOR® Magazine-Daily News-The Best Ways to Save for Retirement

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Daily Real Estate News | November 13, 2006 | The Best Ways to Save for Retirement
It might come as a surprise to many practitioners, but “a Simplified Employee Pension plan is the least efficient way to save for retirement,” said Certified Financial Planner Adam Messinger of Merrill Lynch.

Lynch, who spoke to REALTORS® in New Orleans about retirement plans, shared these better options for stowing away money for your golden years:

An owner-only 401(k) plan. Good for the self-employed or business owners with no employees other than a spouse. Individuals can contribute up to $15,000 annually. Contributions are tax deferred. Users can choose from a variety of investment options, such as stocks and mutual funds.

A defined-benefits plan. Appropriate for small businesses with any number of employees. Contributions, which are tax deductible, are employer funded and provide participants with a lifetime monthly payment at retirement. Contributions can be higher than with any other plan, and the gains are tax deferred. “The one caveat is that the IRS doesn’t like people to set these up if they don’t think they’ll have steady cash flow over the next few years. Otherwise, the plan could invite an audit,” Messinger said.

A traditional or Roth IRA. Structured for individuals. Traditional plans are tax deferred. With Roth IRAs, contributions aren’t deductible, but you don’t pay taxes on withdrawals if you’re 59½ or older. There is also a new Roth 401(k)s, which works well for those in a lower tax bracket or for younger investors, Messinger said.

Finally, if you have an IRA, use the stretch IRA strategy to protect your beneficiaries, Messinger recommended. Name someone, such as your spouse or kids, as a beneficiary on your retirement account. When you die, the beneficiary can roll the balance into his own traditional IRA and name another beneficiary. Avoid naming a living trust as a beneficiary. Then your estate has to pull the money out of the trust to pay taxes.

— By Christina Hoffmann for REALTOR® Magazine Online