Comparing Retirement Options
5 min read
Posted on Jan 07, 2021
Retirement planning is not only for those who are nearing retirement. The best time to plan for retirement is now! From helping you understand available retirement plans to exploring ways to generate income during retirement, First Hawaiian Bank has you covered. Because the retirement planning process can be overwhelming, we suggest working with a wealth advisor at First Hawaiian Bank to develop a retirement plan that is tailored just for you.
Common Retirement Plans
Retirement planning begins with understanding your options for retirement savings. Most companies offer their employees some form of retirement plan. Here’s a brief overview of the most common types of retirement plans.
- 401(k) Plan: Many employers offer a 401(k) plan. The 401(k) retirement plan allows you to contribute a portion of your pre-tax earnings into an investment account. Some employers may match their employees’ contributions up to a certain percentage. Some companies also require employees to work a certain number of years before employer contributions become fully vested, which means employees may not own all the funds or the company match until they reach that threshold. Talk with your human resources department to learn about the vesting schedule for your plan.
Contribution limits for 401(k) accounts can change, so check with your company’s human resources department for the most updated information or contact a First Hawaiian Bank wealth advisor for guidance. You can begin drawing money from your 401(k) plan penalty free at age 59 ½. It’s important to note that you are required to withdraw funds starting at age 72 unless you are still employed. First Hawaiian Bank can also help you roll over a 401(k) from a prior employer if you’ve changed jobs.
- Traditional IRA: A traditional IRA is an individual retirement account that allows you to contribute a certain amount of money each year and invest your contributions tax-deferred. This means you’ll only pay taxes once you withdraw the money. You can set up this account individually without relying on an employer. IRA contribution limits are much lower than 401(k) limits and does not allow for a matching contribution from your employer, which means you should consider your employer sponsored plan first. On the other hand, IRAs tend to offer a wider variety of investment options. If you make a withdrawal before you are eligible, you’ll be required to pay both income tax and a 10% penalty on the withdrawal
- Roth IRA: Unlike a traditional 401(K) or traditional IRA, contributions to a Roth IRA are made with after tax income. These funds, and the earnings, will not be taxed when withdrawn.
Roth IRAs are great retirement accounts if you expect your tax bracket to be higher when you withdraw the money. There are eligibility and contribution limits, which a wealth advisor from First Hawaiian Bank can explain to you.
Some people opt to roll over their 401(k) from a previous job into a traditional IRA or a Roth IRA to keep retirement savings on track. Contact First Hawaiian Bank to learn more about your options.
- Simple IRA: A Simple IRA, or Savings Incentive Match Plan for Employees, is like a 401(k) in that both employers and employees can contribute. These retirement accounts are used by smaller companies with fewer than 100 employees. Employers must either match employees’ contributions from 1-3% or make a 2% nonelective contribution instead. With Simple IRA plans, all contributions are 100% vested, no matter the length of employment.
Once you are close to retirement age and have built up your nest egg, it’s time to finally start withdrawing money from your retirement savings. Many people may find that despite careful savings and well-thought-out strategies, they don’t have quite enough in the bank to retire with the lifestyle they hoped for. To enjoy a financially secure retirement, consult a First Hawaiian Bank wealth advisor to develop strategies for generating income during your retirement.
Contact us today to learn more about how to plan for a comfortable retirement.
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