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Don’t overlook the opportunity to pair your employer-sponsored plan with an IRA, to help maximize your investments for retirement. PNC Investments can help you assess your retirement planning options and determine what account type may be appropriate to meet your goals.
Many employers will match a portion of your 401(k) or 403(b) contributions; try to take advantage of this benefit whenever possible
Employer-sponsored plan earnings accumulate tax-free for retirement until they're withdrawn
Using both an employer-sponsored plan and an IRA provides the opportunity to invest more for your retirement
Defined contribution retirement plans, such as 401(k) and 403(b) plans, are retirement savings vehicles funded by employee contributions and, oftentimes, matching employer contributions. If your employer offers a defined contribution plan, you should try to take full advantage of it.
Features and Benefits
The main difference between 401(k) and 403(b) plans is the type of employer that can offer them. 401(k) plans are generally offered by for-profit companies, while 403(b) plans are generally offered by non-profit entities, religious groups, school districts and governmental organizations. 403(b) plans are not subject to the same administrative requirements mandated for 401(k) plans. Other differences between the two plan types involve the investment options available to participants and required minimum distribution rules. Whether your employer offers a 401(k) or 403(b) plan, check your plan document for details applicable to your specific plan.
Note that some 403(b) plans may permit eligible employees who have 15 or more years of service to contribute up to an additional $3,000 per year, up to a lifetime maximum of $15,000. Check your plan document for details.
Employees under 50: $18,000 for 2015
Employees over 50: $24,000 for 2015
Even if you’re contributing like a champ in your employer-sponsored retirement plan, don’t overlook the opportunity to invest in an IRA, too. While having a retirement plan at work might impact your ability to deduct IRA contributions, it does not close the door to the individual retirement account. And using both provides the opportunity to invest more for your retirement.
For 2015, you may be able to contribute up to $18,000 to your employer’s 401(k) plan, plus an extra $6,000 “catch-up” contribution if you’ll be age 50 or older by the end of the year. (Both of those figures are $500 higher than the 2014 limits.) Imagine that starting at age 40 you contributed the 2015 maximum (not counting the catch-up) for 25 years and the account earned an average annual return of 7%. Your account would hold $1.2 million at age 65.*
Now, team that up with an IRA. For 2015, you may be able to contribute up to $5,500 to an IRA (plus an extra $1,000 if you’re 50 or over). Depositing $5,500 a year for 25 years in an IRA that earns 7% a year would hypothetically add nearly $375,000 in assets.
It’s generally advisable to invest in your employer’s retirement plan first, contributing at least enough to capture 100 percent of any employer match. That way, you're not leaving any money on the table. PNC Investments can help you assess your options and whether contributing to an IRA can help you meet your retirement goals.
*Hypothetical example, not representative of performance of any specific investment.
Our Vested Interest program offers defined contribution/401(k)/403(b) plan services for your employees, along with a vast array of investment options allowing for ample diversification. This program includes daily record-keeping, administration and retirement education services, so you can keep your focus on achieving your business goals.
This material is meant to educate and not to provide legal, tax, accounting or investment advice. PNC Investments and its affiliates and vendors do not provide legal, tax or accounting advice.
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