Today, the American dream is to have the ability to set aside funds to plan for retirement and unforeseen financial emergencies. However, in today’s ever changing market, finding the extra money to save for the future may seem impossible for many workers. Typically, this is especially difficult for those employed in small businesses.
Today, more than ever, Americans realize the importance of saving for the future. Most experts estimate that the average American will need between $1.2 million to $1.5 million in a retirement plan to provide for a reasonable lifestyle after retirement. They also estimate that 8 months of expenses should be put aside for unexpected financial emergencies or about $30,000 to $50,000 for the average worker.
In order to provide American workers the opportunity to save and plan for retirement a reality, the U.S. Internal Revenue Code provides a variety of tax-advantage retirement plans through which employees may save funds for retirement. In addition, employers can offer retirement plans for employees’ that, if they meet certain qualifications under the Tax Code, create tax advantages for both parties.
However, with any qualified retirement savings plan for which the government affords tax breaks, there are requirements, under the tax code and the Employee Retirement Income Security Act of 1997 (ERISA), for maintaining the plans. For example, plans must be updated to reflect changes in the law and information about the plan must be reported annually to employees as well as the IRS. If a plan falls out of compliance or is inappropriately used for the advantage of the wrong parties, it must be corrected to avoid penalties or the loss of its qualification for special tax treatment.
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