PricewaterhouseCoopers 2008 Guide to Tax and Financial Planning

Chapter 3. Retirement Planning

Today, most workers have much greater tax incentives to save for retirement than ever before because of more favorable rules for traditional individual retirement accounts (IRAs), Roth IRAs, Keoghs, and corporate retirement plans. Those who can take advantage of these opportunities can lower their taxes now, while helping to ensure their comfort and financial security during retirement. The improvements are particularly welcome now, because individual retirement planning is more important than ever. With employer‐paid pensions becoming increasingly rare every year and more businesses downsizing, wage earners face the prospect of financing more of their retirement with their own resources. For most people, retirement income is likely to come from three sources:

1. Tax‐favored retirement plans, perhaps including defined benefit pension plans, but more likely profit‐sharing, stock bonus, IRA and Roth IRA, and employer‐sponsored savings plans. These plans include 401(k), 403(b) (for teachers and employees of tax‐exempt organizations), simplified employee pension (SEP) and Keogh plans (for the self‐employed), savings incentive match plan for employees (SIMPLE; plans for workers in firms with fewer than 100 employees), and 457 plans for government employees.

2. A taxpayer's investments outside of tax‐favored retirement plans.

3. Social Security.

Tax legislation over the past few years has allowed taxpayers to increase their contributions to qualified savings plans, ...