advantage of many employer retirement plans
Transcript, 2 minutes 35 seconds, for use during week of Feb.
Description: Penny and Susan talk about employer defined
Announcer: Invest Wisely comes to you from Iowa State University
Extension through a grant from the Investor Protection trust,
providing investor education on the web at: investorprotection.org.
Susan: Penny, I’d like to talk a little more about defined
contribution retirement plans offered through an employer. I
have a few questions I think you can help with.
Penny: Sure, Susan. What’s
on your mind?
Susan: I have a 401(k) and I know that the money
I contribute with is “pre-tax” dollars.
That’s right. One of the benefits of these
types of defined contribution plans is that you can save on your
tax bill and invest for retirement at the same time.
that money be taxed eventually?
Penny: Yes -- You’ll pay
taxes on the growth when you withdraw the money after you retire. However,
by deferring the taxes now, you can invest the money that would
have gone to taxes as part of your retirement contribution.
So, if I had $4,000 to put into a defined contribution plan each
year, I could invest the entire $4,000.
Penny: Yes. Whereas
if you paid taxes on that money first, you might only have – let’s
say-- $2,800 dollars to invest each year. The amount would
depend on your tax bracket.
Susan: Is there a maximum amount that
I can invest each year?
Penny: The maximum amount allowed by law
is 15,000 dollars--or 20,500 dollars if you’re over 50,
but some company plans have lower maximums so you’ll want
to check with your employer to find out for sure what your maximum
Susan: My 401(k) offers a number of investment
can invest in stock, bond and money market funds. How do
Penny: When you’re looking at the options offered
by your employer’s plan, you’ll want to consider
your risk tolerance, what kind of return you need and how far
into the future your retirement actually is. Your choices
will determine the amount of money you’ll have available
when you retire.
Susan: Thank you, Penny. This has been
Penny: You’re welcome. And remember,
for more information visit the ISU Extension website at extension.iastate.edu
and look for ‘Invest Wisely.’