Cheat Sheet for retirement planning

So many types of accounts and too many plans!!

Today, an individual has so myriad options to save for retirement and as many plans to choose from that sometimes it can become a cumbersome process.

Generally, individuals have some confusion when it comes to 401k and IRA rules.

So, here we are, with a cheat sheet of our own. This will give you a better perspective about the differences of both the plans.  

Eligibility Any individual who is under the age of 70 and a half can contribute.
IRS website has the details of eligibility.
Employers may decide the threshold for an employee to meet before starting to contribute to this account.
Contribution LimitsUpper limits for contribution is $6000 for 2021 and individuals above the age of 50 can contribute additional $1000 as a catch upEmployee contributions are $19500 in 2021 and additional $6500 as catch up contribution.
Employers can match upto 25% of the employee contribution.
Taxes on ContributionTaxes are deducted while taking the annual minimum required distribution.
Taxes are deducted only on withdrawals 
Contributions are generally made from pre-tax income. Hence, taxes are reduced while taking the annual required minimum distribution.
Taxes are deducted only on withdrawals
Required DistributionsAnnual required minimum distributions begin when the individual turns 70 years of age.Generally the withdrawals should begin when the employee turns 70 and a half . But if the employee is still working then there are some exceptions to the rule
Rules on Withdrawals Withdrawals can take place any time Withdrawals can start once they have reached the age of 59 and a half .
There are intricacies and exceptions to these rules mentioned in detail on the IRS website.
Taxes on withdrawals
The individuals are eligible to pay taxes on the annual withdrawals as income tax.
An additional withdrawal tax is levied on individuals who are below the age of 59 and a half when withdrawing.
Income taxes are levied on withdrawals made as required minimum distribution.
An additional withdrawal tax is levied on individuals who are below the age of 59 and a half when withdrawing.

Deciding where to invest, how much to invest and when to invest is the most laborious task one can imagine. Also, the risk attached to these activities is huge. One needs to remember that there are pros and cons in all the types of investment options and doing our research before making any decisions is the right way to go forward.

You can always take help of advisors like Plootus to help you make the right decisions.

Until next time!

Be Safe & Healthy,

Sunil Gangwani

Sneha Kotian

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