Some of the better tools for retirement planning are tax-advantaged, retirement-specific plans. These include your 401(k) plan, 403(b) plan, Traditional IRA, Roth IRA, and 457 plan.

In general, contributions to these plans are made with either pre-tax dollars or after-tax dollars, and your employer may match what you contribute. 

A 401(k) plan is a tax-deferred retirement plan that is sponsored by your employer.

It allows you to invest pre-tax income from your paycheck, and your taxable income will be based on your income minus your contribution.

For example: if you earn $100,000 per year and you invest $5,000 in your 401(k) plan, your taxable income will be $95,000.

The 401(k) plan offers a variety of investments that are usually managed by a plan administrator, not the company.

Many employers match your contribution up to a certain percentage, so in general it is a good idea to contribute the same amount that your employer is willing to match.

For example: if your employer matches up to 3% of your annual income, and you make $150,000 per year, then you could save $9,000 in pre-tax income annually ($4,500 x 2).

However, there are restrictions to the 401(k) plans.

• The IRS mandates contribution limits for 401(k) accounts.
  
• You may not have access to your funds before age 59 ½.
  
• If you withdraw money before age 59 ½ , in most instances you will be charged a 10% penalty in addition to your regular taxes.
  
• There may be additional penalties imposed by your employer for withdrawing early.
  
• Don’t assume that you are automatically enrolled in your company’s plan. Check with your employer today.

IRA or Individual Retirement Account is a tax-deferred retirement account that is not sponsored by your employer.

Investing in a traditional IRA may lessen your tax burden each year that you make a contribution. If you are under 50 years old, the maximum you can contribute to a Traditional IRA is $5,500. If you are age 50 or older, the maximum contribution is $6,500. However, the IRA contribution limit does not apply to rollover contributions.

Here are the current restrictions for a traditional IRA account:

• You can contribute only if you have taxable income.
  
• The contribution limits are lower than with an employer sponsored plan ($5,500 in 2013, $6,500 if you are age 50 and older).
  
• You may not have access to funds before age 59 ½.
  
• If you withdraw money before age 59 ½, you will be charged a 10% penalty in addition to your regular taxes.
  
• Your bank or financial institution may impose penalties for early withdrawal.
  
• You must take minimum withdrawals called, “required minimum distributions,” starting at age 70 1/2.

A Roth IRA plan is not tax-deferred because you pay your taxes up-front.

The advantages to a Roth IRA are:

• Qualified distributions are not taxed.
• If you meet certain requirements (called exceptions) there may be no penalties to withdraw your money early.
  
• Your earnings are tax-free.
  
• Unlike the traditional IRA you can leave your money in a Roth IRA for as long as you like.

Disadvantages are:

• You can contribute only if you have taxable income.
  
• There are income limits to Roth IRA accounts.
  
• If you’re single your adjusted gross income cannot exceed $127,000.
  
• If you’re married your gross adjusted income cannot exceed $188,000.
  
• If you’re married and filing separately your gross adjusted income must be less than $10,000.
  
• http://www.irs.gov/uac/2013-Pension-Plan-Limitations

403 (b) plan is a tax-deferred retirement plan offered by tax-exempt organizations and educational systems.

With a 403 (b) plan your pre-tax monies are invested in either annuities or mutual funds.

Generally, only your employer can make contributions to your 403(b) account. However, some plans will allow you to make after-tax contributions.

Here are the current rules for a 403(b) account:

• The IRS mandates contribution limits for these accounts.
  
• You may not have access to your funds before age 59 ½.
  
• If you withdraw money before age 59 ½ you will be charged a 10% penalty in addition to your regular taxes.
  
• There may be additional penalties imposed by your employer for withdrawing early.

A 457 plan is a tax-deferred retirement plan for state and local public employees.

It is similar to a 401(k) plan except there is no penalty for withdrawing monies before age 59 ½. However, you will have to pay income tax for early withdrawal.

You are generally eligible to withdraw funds from your 457 plan under the following circumstances:

• When you retire.
  
• When you leave your job, for any reason.
  
• During unforeseeable emergency circumstances. An unforeseeable emergency is defined as a severe financial hardship resulting from a sudden illness, disability or accidental property loss, subject to strict IRS guidelines.
  

Contact us today to discuss all of your retirement options. RMT Wealth Management is conveniently located in Saddle Brook, New Jersey.

The information contained herein is not intended to constitute legal or tax advice. Tax issues involving retirement plans can be complex.

For specific information that applies to your circumstances you should consult a qualified legal/tax advisor. In accordance with IRS Circular 230 Disclosure, and to ensure compliance with requirements imposed by the U.S. Internal Revenue Service, we inform you that any tax advice contained in this material was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein.