Using Your Retirement Plan

An employer sponsored retirement plan is the first and best tool for nurses to save money for retirement. These plans have names like 401K, 403b or 457. If you are under the age of 50, you can contribute up to $15,500 to one of these plans in 2007. If you are 50 or above, you can contribute up to $20,500 in 2007. The amount you can contribute usually goes up every year.

These plans are tax-deferred. Tax-deferred means you don't pay taxes on your contributions or the earnings that grow in your account. Instead, you pay taxes as you use the money.

• You will pay no taxes on earnings inside the plan. This is called tax-deferred compounded earnings and it makes these plans very attractive.
• Qualified retirement plans are protected from creditors. That means debt collectors cannot take these assets away from you.
• Deductions are automatic; out of sight, and out of mind.
• Many employer match some of your contribution. This is free money from your employer that you can take advantage of.
• Your contributions never belong to your employer; they are held by a custodian.
• Depending on your plan, you may be able to use your money during a hardship before you retire.

• You will get a smaller paycheck because some of your pay is being put directly into your retirement plan
• Smart investing is not simple intuition. To invest well, you must spend some time to learn investment basics or get help from a CPA, CFP, or other expert.
• Depending on your plan, you might not be able to use the money in the account without quitting your job. This can be difficult if you have an emergency.
• You cannot use your plan money for collateral on a loan.
• Cashing out of the plan before the age of 59 ½ may mean taxes and a penalty of 10%.
• Your investments can lose money.