More workers are gaining awareness of the need to save for their own retirement. Companies that once provided defined-benefit plans for employees have told their employees they can no longer afford to fund their retirement.
They have switched to "401(k)" defined-contribution plans, which are funded by the employee. This has awakened employees to the fact that they alone are responsible for funding their retirement because nobody else is. They hope there will be Social Security but understand it won't be nearly enough to support their desired retirement lifestyle.
When employers establish 401(k) plans for the benefit of their employees, the employees choose to either participate or not. If they choose to participate, they designate a portion of their salary to be placed into the 401(k) plan, which has various investments for the employee to choose from. (I wrote about how employees can get help with their 401(k) investments in my Oct. 13 column).
Some employers will match employee contributions up to a certain amount. For 2011, employees can contribute a maximum of $16,500, and if they are 50 or older they can add another $5,500 for a total of $22,000.
If a participant in employer's plan also works for another employer and there is no affiliation between the two employers, he or she can participate in both employer plans and contribute the maximum amounts to each.
The same goes for an employee who is also self-employed in a separate business. For example, if a nurse works at a hospital as an employee and also consults as an independent contractor, she can direct part of her salary to the hospital-provided 401(k) and save her consulting income in a separate solo 401(k) account.
She will avoid paying taxes on the amount she saves in both 401(k) accounts until she retires and starts making withdrawals.
Employees who work for employers who don't offer a retirement plan have limited options. They can save for retirement in an IRA account, and they can save in a regular taxable account.
Unfortunately, the most they can contribute to an IRA account in 2011 is $5,000 ($6,000 if 50 or older).
If you are an employee who participates in your 401(k) plan at work, you can also contribute up to $5,000 in 2011 to a traditional IRA account ($6,000 if 50 and older). Your contribution may be tax-deductible.
If your filing status is head of household or single, your IRA tax deduction phases out between an adjusted gross income of $56,000 and $66,000. If you file as married filing jointly, the IRA deduction phases out between $90,000 and $110,000. If you are married and file separately from your spouse, you get no deduction whatsoever if your adjusted gross income exceeds $10,000.
SOURCE: http://www.montereyherald.com/business/ci_19204407
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