Making Cents: Do You Dream of Retirement?

Part 5 of the Financial Checklist Series

 Writer  /  Kate Rhoten

Making Cents
There will come a day that you will hopefully get to stop working full-time and pursue other areas of interest. In order for that day to arrive, you have to plan for it. The age of retirement will come no matter what, but will you be able to?

The next step of the financial checklist is just that, retirement. Here will be some information regarding terms surrounding the tax-deferred options as well as common areas to double check on your retirement accounts.

Pre-tax:  This is money that is deducted from you paycheck before taxes are taken out thus reducing your tax liability to the local, state and federal government. This money typically is put in a 401(k) or 403(b) depending if you are a public or private sector employee. The terms 401(k) and 403(b) actually get their name from specific sections of the tax code. There are restrictions and penalties that may apply should funds be withdrawn before the age of 59 ½.

Post-tax:  After you receive your paycheck, you can put additional money into an IRA. IRA stands for individual retirement arrangement not individual retirement account. The arrangement refers to the option of placing your money in a traditional or a Roth account. These accounts are handled differently for tax purposes with the custodian of your IRA and may have different rules regarding the IRA. The IRA funds can be placed in different types of accounts from bank level not earning much interest to growth vehicles like mutual funds.

The main difference without going into detail is that the traditional arrangement may give you a tax deduction for contributing to the IRA in a given tax year. The principal and growth are taxed when funds are removed from the IRA. The Roth allows you to contribute but without a tax benefit in the year you contribute to the IRA. The result is that the principal and the growth are able to be withdrawn in retirement tax-free. I recommend you discuss these options with an accountant as well as an investment professional for guidance.

Things to consider when it comes to funding your retirement:

  1. Start early but it’s never too late
  2. Fund the work related account first if there is a match up to the match. Not only will this reduce your tax liability, but also you are in essence getting “free money” and who doesn’t like that?
  3. After the match into the 401(k) or 403(b), place what amount up to the allowable limits for the IRA as determined by your personal financial situation.
  4. Return to the 401(k) or the 403(b) to continue saving above the match and what you are placing in the IRA if your budget allows and up to the limits.
  5. Review your accounts every year and adjust the amounts as necessary with your advisors.

A few things to keep in mind as you review these accounts:

  1. Don’t leave your plan behind! When you leave your employer for another, take your 401(k) or 403(b) with you. It is highly recommended to complete a direct rollover to another institution to avoid any penalties or taxes. Your contributions are yours no matter what and perhaps some from the employer.
  2. Always name a beneficiary. If married, typically your spouse is listed as the primary beneficiary and you do have the ability to name contingent beneficiaries. If you fail to do this, you run the risk of your estate receiving your funds, which is not a clean easy transfer and takes much longer to disperse funds.
  3. Reviewing your accounts each year paying special attention to the amount being contributed, asset allocation (what the money is in to grow) and beneficiary forms.

Retirement will be here before we know it and wouldn’t be nice to live it the way we dreamed it to be?


4-Walls-Money-Coach-200Kate is a financial expert of what to do and not do with money as well as owner of 4 Walls Money Coach, A Coaching-Focused Company. She has attended and completed Dave Ramsey’s Counselor Training. Follow Kate on Twitter 4WFCoach, reach out to her via email at or visit Feel free to share ideas or questions for future articles.

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