The days when employer-sponsored pension plans plus Social Security benefits prepare you for retirement are gone, but just how far gone are they? The truth is, many employer-sponsored retirements plans are still available, each with its own type and degree of benefits. Essentially, a pension savings plan is a monetary benefit account program, into which you and your employer contribute funds accessible once you retire.
The traditional pension plans, which used to carry workers through their later years in life have been widely supplanted by 401(k) accounts. The primary reason for this supplantation is 401(k) accounts cost employers less money to facilitate. According to the U.S. Bureau of Labor Statistics (BLS), approximately eighty-three percent of public employees and 15 percent of private employees are currently enrolled in some type of employer-sponsored pension plan today.
Not all employers offer 401(k) plans anymore. If yours does, the maximum contribution allowed per year as of 2023 is $22,500 for people under age 50 and $30,000 for people 50 years of age and older (with the maximum catch-up contributions of $7,500. Most employers who offer 401(k) plans match a percentage of your contributions.
Contributions are also tax-deductible, and withdrawals are considered taxable income. A Solo 401(k), also referred to as a one-participant 401(k) plan, is available for individual business owners who have no employees. This is also applicable to self-employed workers. Maximum 2023 contributions are $66,000 per year or $73,500 if older than 50 years of age.
403(b) pension plans are designed for nonprofit or tax-exempt organization employees. This type of retirement savings account has many similarities to 401(k). Maximum 2023 contributions are $22,500 per year for people under age 50. People ages 50 and older are permitted to contribute a maximum of $30,000. Sitting investments increase with tax-deferred status until your retirement, at which point applicable distributions change to taxable income.
457(b) pension plans are available to employees working for local and state government organizations. Maximum 2023 contributions are $22,500 per year for people under the age of 50 and $26,000 per year for those ages 50 and older. Funds are also eligible for withdrawal without penalty prior to your 59 and ½ birthday.
457(b) plans are quite like 401(k) plans except they are specific to government, or public sector workers. 457(b) accounts require no matching employer contributions and sometimes have higher fees than 401(k) plans, however. Sitting investments increase with tax-deferred status until you retire. After retirement, your distributions become taxable income.