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Scrambled Nest Eggs: Steps You Can Take To Recover Your Retirement

Scrambled Nest Eggs - TaxACT

Is it possible to make cake when your savings and investments take a beating?

When I was a young mom and my husband was on deployment with his military unit, there was always something “new” popping up in our house. On this occasion, I was carrying a load of clean laundry down the hall, when I heard strange noises coming from the kitchen.

“Ball, pop!” (giggles)

“Ball, pop!” (giggles)

I sensed danger and had a sinking feeling in my stomach as I rounded the corner and looked into the kitchen. My two-year-old son, Daniel, stood in front of the open door of the refrigerator gleefully dropping eggs one-by-one on the newly mopped kitchen floor.

Currently, many Americans feel as if their financial nest egg has taken same kind of beating that Daniel gave those eggs.

Home values have adjusted down, leaving many underwater in their mortgages (where they owe more than the house is worth).

While there are no quick cures or easy answers, there are some steps you can take to recover your scrambled nest eggs in an uncertain economy.

Eggs Over Easy – The 401(k) Plan

The 401(k) is one of the easiest investment plans for the average individual or family.

Ask your company to assign an automatic withdrawal for these funds from your paycheck and if possible, contribute the maximum amount that is allowed.

Be sure you review your benefits package so you know how to take advantage of your company’s specific plan.

For example, when the employer matches 50% of the contribution up to a certain percentage of the employee’s compensation, this means an additional 50% more money on the amount you contribute to the plan. This is the equivalent of a 50% return!

Furthermore, the amount you put into a 401(k) as well as the interest is either tax deferred or pretaxed, depending on your plan.

If you ever change jobs, you should be aware of any “vesting rules” for your plan. You may not have access to your contributions until you have worked five years and become vested to receive benefits.

Other defined contribution plans, such as SEP (Self Employment Pension) and the SIMPLE IRA, vest immediately.

Changing jobs too quickly could mean losing part or all of your pension plan benefits or your employer’s matching contributions.

When you change jobs, you should always rollover your 401(k) and not draw on the funds.

Hard Boiled – Calculating What You Need

To get a hard boiled view of what you will need for retirement to fill the gap between social security, a military retirement, and/or any pension income, use an online “Retirement” calculator.

The Two Minute Timer Egg – Individual Retirement Arrangements (IRAs)

By investing just two minutes a day for fourteen minutes a week, you can set up and manage an effective Traditional IRA account that gives you a choice of investment options for your IRA, including stocks, bond, mutual funds or CDs if you are funding an IRA-approved account.

There are several types of IRAs:

Traditional IRA – These contributions use money that is deposited before tax, all transactions and earnings within the IRA have no tax impact, and withdrawals at retirement are taxed as income.

Depending upon the nature of the contribution, a traditional IRA may be referred to as a “deductible IRA” or a “non-deductible IRA.”

Roth IRA – Oftentimes, this is a good plan for younger investors who will have greater income levels at retirement.

The contributions are made with after-tax assets, all transactions within the IRA have no tax impact, and withdrawals are usually tax-free.

SEP IRA – This is the one that I use as a small business owner. It includes a provision that allows an employer (typically a small business or self-employed individual) to make retirement plan contributions into a Traditional IRA established in the employee’s name, instead of to a pension fund in the company’s name.

If you have a home based business, this is the option for you.

SIMPLE IRA – This is a Savings Incentive Match Plan for Employees that includes a requirement that the employer matches contributions to the plan whenever an employee makes a contribution.

The plan is similar to a 401(k) plan, but with lower contribution limits and simpler (and thus less costly) administration. Although it is termed an IRA, it is treated separately.

Self-Directed IRA – This IRA permits the account holder to make investments on behalf of the retirement plan.

What can you do today, to recover your nest egg for tomorrow?

Photo credit: Raymond Larose via photopin cc

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About Ellie Kay

Ellie Kay is a regular expert on national television with ABC NEWS NOW’s Money Matters and Good Money shows. She is also a national radio commentator, a frequent media guest on Fox News, and CNBC, a popular international speaker, and the best-selling author of fourteen books including her newest release, The Sixty Minute Money Workout (Waterbrook, 2010). For money savings links visit Ellie's blog.