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What You Should Know Before Choosing a Retirement Plan As soon as you start working, you should start keep some money aside for retirement. It does not matter whether you are just starting or have been working for some time, you should start saving for retirement. You can explore different retirement plans to know which one will be right for you. It is important to go through the requirements, benefits and restrictions of the different plans you are evaluating. Here are some things to consider when choosing a retirement plan. How much tax will you pay? Before choosing a retirement plan, it’s important to find out how much tax you will pay. While you still have to pay tax for retirement plans, you can choose when to pay for them. The plan you choose can determine whether or not your contributions will be tax deductible. However, when you finally want to withdraw the money at retirement, the amount will be taxed like normal income. The other type of plan works in the reverse manner. With the second plan, you pay tax on the contributions you make. However, you will not be charged any tax when it’s time to withdraw the retirement savings. At what age will you be withdrawing the retirement funds?When will you need the money after retirement? With some tax plans, you will be required to take distributions as soon as you reach a predetermined age, usually 70 years. On reaching the age, you will have to withdraw a certain amount of money every year. The amount you will be required to withdraw will depend on the life expectancy tables set by the retirement authorities.
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There are also plans that do not force you to withdraw your retirement savings when you reach 70 years. If you have reached retirement age but do not need the money, you can keep the money in the plan. This second plan is best if you are considering estate planning.
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Will you need early access to the money? Depending on the retirement plan you choose, you are likely to be charged a penalty when you make an “unqualified withdraw”. This means you may be charged a penalty if you withdraw from your savings before you retire. The penalty is usually a percentage of the total contributions amount. However, there are some situations when a penalty may not apply for an unqualified withdraw. For example, if you plan on using the funds for college expenses, you will not be charged a penalty. Most retirement plans will allow you to withdraw your original contributions. However, you will not be able to withdraw any profits that may have resulted from the investments that may have been made with your contributions. This being the case, you can use such a retirement plan for two reasons. You can use the savings are a retirement fund or emergency fund.