Retirement insurance in the US

Retirement provisions in the US As in most European states, every US worker receives a national old-age pension. However, usually this isn't really sufficient to cover living expenses in old age. Therefore, it as recommendable to provide for your old age yourself. Usually, employees and employers will pay an equal share of 7.65% of income to the Social Security Administration (SSA) that you will know from the Social Security Card. Self-employed people will pay the entire share of 15.3%. Retirement money can be paid out after ten years of paying into the fund at the earliest, the actual some will be calculated depending on how much you have paid into it in total over the years. Retirement age is 65 for people born before 1959 and 67 for all others. Supplementary benefits - the 401 (K) Plan One attractive means of upping your retirement payment is the so-called 401 (K) Plan according to the respective paragraph in the Internal Revenue Code. The system behind it is simple: The employer will take a fixed amount of your payment (before taxes) and pay it into an investment fund. Usually, the company will add up to one Dollar of every Dollar you pay into it. The usual maximum is no higher than two or three percent. You yourself my invest up to 15 % of your payment up to an annual limit. This is as follows: for 2003 $12,000, for 2004 $13,000, for 2005 $14,000 and for 1006 $15,000.

With most employers, this depends on your employment with the company. The employer can set an annual limit. From the set date, all past and future investments will be yours. With this measure, employers try to bind employees to their company for an extended period of time. In case your company goes bankrupt, you will not lose the money you have already invested. Because a plan administrator will ensure that the money will either stay in the 401 (K) Plan that you will get as soon as you reach retirement age. Or he will transfer it to a new plan. This transfer is called "roll-over." If you want the money paid out prematurely, you have to be prepared to pay a 10% fine and taxes. Make sure that in case of a roll-over the money goes into your account and you don't just receive a check. In that case, the above mentioned fines would also apply.

In any case, you should carefully read the 401 (K) brochures to find out how to best spread your investments. It is advisable to never invest more than 20 percent of your retirement money in the stocks of a single company.

Individual Retirement Account (IRA) Another attractive option is the Individual Retirement Account that is initially exempt from taxation. There are eleven different types in total and we would like to introduce you to the three most interesting here.

Traditional IRA Same as with the 401 (K) Plan, the money will be available to you with 59.5 years at the earliest. However, you will only then start paying income tax for the money. If you want the money earlier than that, you are again facing measures like those described above. You can avoid these if your reason for needing the money is real estate acquisition ot treatment of serious and long-term illnesses. If you buy a house, you can avoid the fee if you have a down payment of $10,000. The regulation applies if you have not bought or owned a house within the last two years. Another option is the payment of college tuition, paying tax debts or paying health insurance premiums.

Roth IRA Paying into a private retirement insurance such as this is, unfortunately, not exempt from taxation. Anyone earning less than $95,000 as an individual or $150,000 as married people can use the full advantages of this plan. There are serious limitations for individuals earning up to $110,000 and married people earning more than $160,000. If you are earning more than this maximum income, you cannot make use of the Roth IRA. However, the advantage of this plan over the Traditional IRA is that you only have to pay fines and taxes for prematurely paid sums, not however for the already taxed money you paid into the account. Similar to the Traditional IRA there are exceptions for house acquisitions, medical treatment, health insurance and tuition fees.

Educational IRA There are even attractive provision measures for your children. Thus fund is called the Educational IRA (EIRA). For this, your children have to be under 18. You can invest up to $2,000 a year. However, the money you pay into the EIRA is not tax-deductible. Provided the money is being used for school and college fees, there will be no taxes or fines. Make sure to use the money for this purpose before the end of 30 days after the child's 30th birthday. After that, you are again facing the measures described above. They can be avoided by transferring the money to a relative's EIRA.

Opening an IRA Opening an IRA is quite simple - this can be handled by a bank or discount broker. The minimum premiums and fees vary according to the provider, but according to experience they are quite low. There are annual limitations for the deposits: one person of up to 49 years can pay $3,000 in 2003 and 2004, $4,000 in 2005, 2006 and 2007, and $5,000 in 2008.

People over 50have other limits: $3,500 in 2003 and 2004, 4,500 in 2005, $5,000 in 2006 and 2007 and $6,000 in 2008.