What are different type of retirement account?
It includes cash balance pension plans, profit sharing plans, 401(k) plans, 403(b) plans, employee stock ownership (ESOP) plans, simplified employee pension (SEP) plans, and SIMPLE IRA/401(k) plans.
Withdrawals from Roth IRAs are tax free, provided the owner is at least 59½ years old and has owned the account for five years or more. They also are not subject to the minimum distribution rules, and Roth assets can be passed to heirs tax free. Withdrawals can be spread out over their lifetimes, which will give their inheritance additional years to grow, tax free. By tapping into Roth IRAs and municipal bonds last, a person will get the most tax-free income.
Most distributions from qualified retirement plans or IRAs to an individual who has not yet reached age 59½ are considered premature distributions and are subject to a 10 percent early withdrawal penalty tax. For example, let’s say that Chris, age 50, withdraws $10,000 from his 401(k) plan to buy a boat. Assuming the entire withdrawal is taxable, he must pay a penalty tax of $1,000. He must also include the $10,000 distribution in his income for the year and pay tax on that as well.
Employer cutbacks are leaving more retirees with Medicare as their sole source of health insurance once they reach age 65. Unfortunately, Medicare Part A, which covers inpatient hospital care, and Part B, which helps pay for doctors’ services and other outpatient care, typically do not cover all of a retiree’s health care expenses. Because of deductibles, co-payments, and other limitations, there are many “gaps” in coverage.
A chronic illness that requires long-term care is perhaps the biggest event many retirees worry about facing—and paying for. For many people, this concern is a key motivator in building as large a retirement nest egg as possible, given that a year’s stay in a private nursing home room currently costs around $91,000, on average. Other people, however, choose to purchase long-term care insurance to hedge against the possibility that an extended illness could wipe out their retirement nest egg. Unfortunately, some people underestimate the costs involved and mistakenly believe that Medicare and Medicaid will pay for such expenses.
Quoted from text book ” Senior needs planning”.
While diversification cannot assure a profit or protect against loss in a declining market, it can help guard against unfavorable fluctuations so that declines in interest income will be offset by growth in other investments—namely, stocks. It can also help ensure that assets will grow at a rate that keeps up with or exceeds inflation.