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Vanguard - FAQs - Employer plans

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Retirement FAQs—Employer plans

Can I take a loan from my employer-sponsored plan?

What does Vanguard offer for investment professionals and retirement plan sponsors?

How can an employer-sponsored plan help me save for retirement?

What is a better way to save for retirement—an employer plan or an IRA?

How can I catch up on saving for retirement in my employer-sponsored plan?

What are some other ways I can improve my retirement savings situation?

Can I take a loan from my employer-sponsored plan?

You may be able to take a loan from your employer-sponsored plan, depending on the rules established by your company. To find out what your plan allows, visit our website for individuals with employer plans.

What does Vanguard offer for investment professionals and retirement plan sponsors?

Vanguard offers investment management and advisory services for corporate and nonprofit investors, information to help consultants better serve their clients, total retirement planning expertise including investments and services for bundled and unbundled plans, and resources for investment professionals and their clients. For more information on any of these services, visit our website for institutional investors.

How can an employer-sponsored plan help me save for retirement?

If your employer offers a retirement plan—whether it’s a 401(k), a 403(b), or another type of defined contribution plan—consider joining it and contributing the maximum, if you can. If your employer matches some or all of your contributions, consider contributing at least enough to get all of the matching dollars. It's free money; don't pass it up.

Contributing to an employer plan provides a double bonus:

  • First, Uncle Sam will subsidize your retirement savings by deferring income taxes on the amount you save. So for every $1 you contribute to your account, your pay may be decreased by only 60 or 70 cents.
  • Second, your employer-plan investments can grow tax-deferred, boosting your long-term returns. And, since the money is taken directly out of your paycheck, you won't be tempted to spend it.

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What is a better way to save for retirement—an employer plan or an IRA?

For many people, the best way to start saving for retirement may be through an employer-sponsored plan. Since the money comes directly out of your paycheck, contributing to an employer plan is easy and convenient—and you can take advantage of matching contributions if your employer offers them. You can keep increasing your contributions until you're contributing the maximum, then open an IRA.

If you're eligible, a Roth IRA is an excellent choice because withdrawals you make during retirement are tax-free. Unlike a traditional IRA, you're never required to take withdrawals, so a Roth can help you preserve assets for future generations. If you're not eligible for a Roth IRA, however, don't pass up the opportunity to enjoy tax-deferred growth by investing in a traditional IRA as long as you're under age 70½.

Once you're contributing the maximum to your employer's plan and your IRA, consider low-cost annuities. Variable annuities are insurance contracts through which you invest in portfolios of stocks or bonds offered by the annuity. Your money can potentially grow tax-deferred until an age specified by the annuity (usually 85). Earnings withdrawn after age 59½ are taxed as ordinary income; earnings withdrawn before then are taxed and subject to a 10% federal penalty tax.

Annuities have fees and expenses in addition to the usual mutual fund costs, so don't buy one if you aren't maxing out on your employer's plan and IRA. Shop around: Annuity costs vary from company to company, and high-cost annuities can be a very poor deal.

Variable annuities are long-term vehicles designed for retirement purposes and contain underlying investment portfolios that are subject to investment risk, including possible loss of principal.

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How can I catch up on saving for retirement in my employer-sponsored plan?

If you got off to a late start in saving for retirement, or your portfolio has taken a big hit recently, you may have to play "catch up" with your retirement savings.

Fortunately, some recent tax law changes allow workers to save far more than ever before in tax-advantaged, employer-sponsored retirement plans and IRAs. And workers who have reached their 50th birthday can save even more under the provisions for catch-up contributions.

The following charts outline the current contribution limits for employer-sponsored retirement plans and IRAs. If you're nearing retirement and your nest egg isn't big enough, now's the time to take advantage of these higher contribution limits.

Employer Plan Contribution Limits

Tax Year Under Age 50 Age 50 and Older*
2014 $17,500 $23,000

* Includes catch-up contributions, which may not be offered by all plans.

IRA Contribution Limits

Tax Year Under Age 50 Age 50 and Older*
2014 $5,500 $6,500

* Includes catch-up contributions.
Source: The Vanguard Group.

What are some other ways I can improve my retirement savings situation?

If you've increased your savings level but still think you're going to have trouble meeting your retirement income needs, there are several things you can do:

  • Postpone your retirement. By working a few more years, you can continue to save for retirement and enjoy medical and insurance benefits through your employer.
  • Work part-time in retirement. Working part-time in the early years of your retirement can help you save some of the money in your investment portfolio for the later years of your retirement.
  • Downsize your home. By moving to a less expensive home, you can use some of the proceeds from the sale of your current home to help boost your retirement savings. You may even want to consider moving to a less expensive state.
  • Adopt a less expensive lifestyle. Buying a cheaper car, taking fewer or less expensive vacations, or perhaps doing some simple home maintenance jobs yourself can help preserve some of your retirement savings.

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