Chapter Sixteen
Retirement Plan and Education Savings Plan Accounts
Most of us would like to stop working at some point in our lives. In order to do this, we need to have saved a sufficient amount of money to live off of. To achieve this goal, many people rely on a formal financial retirement plan. A financial retirement plan is a formal way to systematically save and invest money for retirement.
Ideally, every working person would have at least one retirement plan account that is set aside for accruing retirement funds. Such a retirement account may be employer-sponsored, meaning that it is organized and managed by the participant’s employer. Or it may be an individual plan that is managed by the participant or the participant’s agent, which might be an investment firm or a trust bank. Even though securities are often bought and sold within a retirement plan account, a retirement account itself is not a security. Any registered representative who wants to assist customers with retirement plans needs to understand the complexity of retirement planning. This chapter provides an overview, but the details require regular research and review to make sure each customer has the most up-to-date information.
At the heart of most retirement plans are two goals:
- 1. To provide enough income to live on in retirement, including funds to meet other goals, such as travel, and emergency expenses.
- 2. To defer taxes until after retirement; the conventional wisdom is that the participant will then be in a lower tax bracket.
Retirement plans can be either tax qualified or non-tax qualified. Tax-qualified plans are called such because they meet the requirements of the IRS to receive tax advantages. Tax-qualified plans allow participants to make contributions to a plan with pre-tax dollars. This means that participants can deduct contributions to tax-qualified plans from their income when calculating their taxes. Such plans often include matching em