Retirement planning for dummies

[linnylu]

My dh and I are pretty much "dummies" when it comes to retirement planning and we are going to correct this as our new year resolution.

We are trying to figure out our retirement fund options.

1. We each have a roth IRA. True or False- each individual is limited to contributing $5000 per year in an IRA (more if over 50)?

What if this is your only retirement option- if your work doesn't offer any retirement funding?

2. DH owns a small business and has a 401 K. The issue is that as the owner he only can put in a percentage that has something to do with how much his employees contribute each year. We have ended up getting money back each year because in the bad economy his employees haven't been contributing. Let's say he can only invest an additional $5000 a year in his 401 K. That will vary by year.

So, what other investment options do we have to save for retirement? Do you just put additional investment income in a mutual fund? I have heard of annuitities but have no clue what they aren? Does anyone have one?

And yes, I know we need to consult a financial planner, but we have no clue how to find one we can trust. Any thoughts on this?

 

[QVCshopper]

Since the board is slow tonight, I'll answer a few questions. The Roth IRA has income limits; provided you are below those limits, you can contribute $5K if under 50 and $6K if over 50 per year/person.

The 401(k) your DH has is following something called Sky Blue laws; highly compensate employees can only contribute a certain amount based on the amount contributed by lower paid employees. So, that's why he's getting the amount back.

Suze Orman says to stay away from annuities for many reasons you can find on her website (I like Suze a lot). I think your only other option is personal investments such as mutual funds, exchange traded funds, or stocks, however you will owe taxes on your gains when you withdraw. I recommend checking out Vanguard or Fidelity's retirement sections to familiarize yourself with IRAs and other info.

A financial adviser is another way to go; however I do think that most mutual fund companies offer this service at a lower cost or free of charge, depending on how much money you have saved up. We get free financial plans from Vanguard, for example.

Hope that helps.

 

[allyphoe]

Your DH can fully fund his 401(k) if he switches to a safe-harbor plan. A 401(k) that has to do discrimination testing is pretty expensive to administer - the savings in admin fees might outweigh the cost of safe-harbor contributions. His plan administrator should be able to hook him up there.

A SIMPLE (either the 401(k) flavor or the IRA flavor) will also have low administrative expense - you save the 5500 with the SIMPLE IRA. But I believe it's too late to switch to either of those for 2011 - you need 60 days' notice.