Welcome to 1st Choice Funding's Estate Planning Guide

• Combine savings/investment with the protection of your family in one policy.
• Elect a cash-out feature that allows you to withdraw while you are still alive, or leave your assets exclusively for your heirs.
• Use insurance policies to possibly reduce or eliminate estate tax for your survivors.
• Direct a ready source of cash when and where it’s needed most after you die.

Seek Out Tax-Advantaged Savings Opportunities

To make retirement saving easier, the government has established a number of programs that provide tax incentives for money you’ve set aside for retirement. In the most general terms, this means that in return for keeping the money invested until you reach retirement age (or a comparable distribution “event”), you may receive special tax treatment on the money you put into the retirement account. This can enhance your earning power, putting your retirement dreams more easily into your reach.

Employer-sponsored retirement plans

For many, the retirement plans offered by their employer are the easiest way to prepare for retirement in a cost-effective manner. Here are the primary advantages:

• Tax advantages—money you contribute is generally pre-tax, and any earnings are free from taxation until you start withdrawing the money.
• Diversification—there are typically a wide range of different types of investments for you to choose from for your own account.
• Employer Contributions—most retirement programs offer either direct employer contributions on your behalf, or, more commonly, contributions that match what you put in yourself. These contributions are not taxed until withdrawal.

Types of retirement plans

Contact your employer to find out what retirement plan(s) you may be eligible for. The most common types are:

For larger employers:

• Defined Contribution Plans such as a 401(k)–employees may elect to contribute through salary reduction on pre-tax basis, usually with full or partial employer match; contributions are invested typically in a mix of investment choices allowed by employer.
• Defined Benefit Plan–employer funded plan provides for fixed benefit at retirement.

For smaller employers:

• SEP-IRA–features employer contributions, with employee control of investments.
• SIMPLE IRA—allows pre-tax salary deferrals with an employer match in some cases; employee has control of investments.
• Profit Sharing/Money Purchase Pension Plan–features employer contribution only; employer may control investments or allow employees to choose from selected investment choices.
• 401(k)—new rules make it easier than ever for smaller employers and sole proprietors to offer these popular plans; ask your employer about 401(k)s.

IRAs

To supplement your employer-sponsored plan, consider an IRA, which provides potential tax advantages as well as a wide array of investment choices. The main types of IRAs are:

• Traditional IRA—allows potentially tax-deductible contributions of up to $3,000 per year ($3,500 if you are over 50) for tax year 2004. Those amounts rise to $4000 per year ($4500 if you are over 50) for tax year 2005.
• Roth IRA—allows the same contribution levels without any tax deduction, but with tax- and penalty-free qualified withdrawals at retirement.
• Rollover IRA—allows you to enjoy tax-deferred growth potential and avoid current income taxes and penalties on assets from a former employer’s retirement plan.

Annuities

Annuities are contracts issued by an insurance company that can help you save more for retirement than you can in your IRA and employer retirement plan. Like those retirement arrangements, annuities are tax-deferred until you withdraw the funds, but they do not have limits on the amount you may contribute—giving you much more flexibility in funding your retirement in a tax-advantaged way. Annuities also may provide an extra measure of protection for your heirs in the form of guaranteed survivor payments.

Step Three: Consider the Types of Investments

Now that you’ve discovered where you can invest your retirement savings, you need to look at how you can invest your assets. The most common categories of investment include:

• Stocks—if you’re interested in long-term growth, part of your portfolio will probably be devoted to the one kind of investment that has historically produced such growth—common stocks. Past performance is no guarantee of future results.
• Bonds–-also known as fixed-income investments, bonds offer the potential for regular income and can be a way to add a component of relative stability to your investment portfolio.
• Traditional Savings—unlike stocks and bonds, traditional savings accounts like money market deposit accounts and bank Certificates of Deposit (CDs) are FDIC-insured and preserve your principal investment amount. This built-in safeguard against market risk may be a consideration for many retirement plans, especially for people who are at or nearing retirement.

The keys to investing

Here are some general tips to bear in mind as you create your investment program:

• Consider taking a long-term approach—while you should always revisit your retirement plan if your circumstances or lifestyle change, frequent buying and selling of investments introduces the uncertainty of market timing, which may dramatically increase the risk of investing.
• Diversify—owning different types of investments may give you more potential growth opportunities, while helping to spread out your risk. The particular mix of investments for you depends on your risk tolerance, your time frame for investing, and your current financial position.
• Seek the assistance of a Financial adviser—the more you save now, the more flexibility you will have in retirement. A Financial adviser can help you set up an investment program that matches your goals and situation.