Retirement Terms

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September 21, 2018
Retirement Terms

Image Copyright Ted Grussing Photography – Used with permission

Retirement is something nearly all of us hope to achieve some day, but it can be difficult to do so. And, let’s face it; the vocabulary that surrounds the subject can be hard to understand. This week we would like to shed some light on some often confusing terms that surround retirement plans so you can be well equipped when planning for your big future!

The Matching Rate

This is the rate at which your employer will match your contributions. For example, an employer that matches ‘dollar-for-dollar’, or 100%, would contribute $1.00 to your retirement account for every $1.00 that you save.

Matching Limitation

Virtually all companies place a limitation on the percentage of salary that you can contribute and receive with matching funds. For example, you may earn $50,000 per year and your company matches contributions on a 100% basis, but just up to 3% of salary. In that case, you would receive $1 for every $1 you saved for the first $1,500 you put into your savings. ($50,000×3%=$1,500)

Contribution Limit

This is the annual cap which Congress places on the amount of money you can shelter in a retirement plan. This limit fluctuates annually based on the inflation rate.

Tax Deduction 

When you contribute to your retirement plan the IRS treats that as a tax deduction—meaning you do not owe payroll or income taxes on that amount. This lowers your adjusted gross income and has major advantages as you make your way to higher tax brackets!

Hardship Withdrawal 

In some plans it is possible to take an emergency loan from your retirement plan, known as a hardship loan. Just remember, if you should choose to do so, that this must be paid back or there will be significant taxes and penalties.

Have a great weekend!