Employer Plans vs. Outside Investment Vehicles

By Brian Shire

Company employer plans vary in design and options and have many different names. The most commonly known is the 401k, but there are other plans that have tax deferred advantages and offer a long term savings strategy to help the employee save for retirement.

403B, 457, Owner-only 401k, Simple and SEP IRA plans (to name a few) provide a savings design where (normally) the employee can invest in a selection of mutual funds aimed at growth, growth and income or a more conservative focus.
Last month, my recommendation was to try and familiarize yourself with your current plan, and learn if there is a match offered. If a match is available, then a good rule of thumb would be to strive to contribute the amount of the match, but not beyond.

There are elements of employer plans that are an obvious value: tax-deferred growth, lowering one’s earned income and a basic savings plan are universally agreed upon by many to be a real value when planning for the golden years. But there should be areas to consider when putting in more than your employer will match. Lack of liquidity, taxes taken out at distribution, required minimum distributions and lack of investment guidance are features of the average employer plan that can be overlooked.

One way to combat these pitfalls and to complement your savings design is to consider opening a personal qualified account such as a Roth IRA. Roth planning can have immense value as the income is deposited “post-tax” and then grows tax free. There are some details to understand with Roth planning that apply to the interest earned, but generally speaking Roths are viewed as a tax-free way to save and invest for the future.

The main value to the Roth IRA is the opportunity to own stocks and bonds inside a vehicle that can grow without being penalized on the dividends or gains as long as you keep the assets inside the Roth vehicle. Over the years, the IRS has allowed a higher amount to be deposited into the Roth as well as other advantages that couples can capitalize on by investing in their own individual Roth account (Roth IRAs are specific to the individual investor).

Many people will confuse the traditional IRA aspects with the Roth. Important to understand is the main component between the two plan options are one provides an immediate tax benefit (if eligible) and the other doesn’t but can be withdrawn
tax free.

If you would like to understand more in depth about Roth planning and how using this investment vehicle can be a value to you and your family, I would happy to meet with you to help educate you about your options. As always, a good practice when investing is to also consult with your tax professional to understand any and all tax benefits or responsibilities.

Brian A. Shire » Independent Financial Group » 619.534.4240 » email at brian@wealthalli.com
Registered representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker-dealer and investment advisor. Member FINRA and SIPC. IFC and Wealth Alliance, LLC are unaffiliated entities. OSJ Branch: 12671 High Bluff Drive, Ste. 200 San Diego, CA 92130