Following employment, an individual makes a plan to save their money to cater for their needs after they retire. It is this that makes its necessary to draft a retirement plan. A retirement plan is an arrangement set up to supersede an individual’s income after employment, which could be provided by the employer, the government or other financial institutions. In the case at hand, assuming that all other factors remain unchanged, the new employee has 36 years of employment. Given this information, there are various plans to select for a suitable retirement plan for the employee depending on the benefits to be acquired.
A 403B plan is tax-sheltered plan annuity (TSA) retirement plan for specific employees of public schools and ministers, and employees from organizations that are tax-exempted. The benefits of this plan are that an employee does not pay income tax on their contributions; they are eligible to take credit for elective deferral contributed in their accounts. More importantly, the benefits in the accounts are not taxed until withdrawn. Nonetheless, this plan limits the employees in their investment plans as one cannot control the accounts hence limiting their flexibility as compared to an IRA plan. 403B plans focus on annuity products exclusively (Gordon & American Institute of Certified Public Accountants, 2002).

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A Roth 401(k) is a retirement plan funded by the employee and does not require employer contributions as compared to a pension scheme or the 403(b). The employee sets aside a portion of their income and this is usually on a pre-tax basis 401(k) administered by mutual fund organizations. This plan also limits an employee on their contributions as well as investments. The investment plans are selected by the employer or the financial management corporations. On the positive side, one is eligible to open an IRA scheme for alternative investment options. The employee is sheltered from taxes on assets within the 403(k) plan, as these assets are tax-deferred. This plan also brings about huge disparities in annual charges and hence the need of annuities having insurances with strong financial securities (Gordon & American Institute of Certified Public Accountants, 2002).

On the other hand, a pension scheme is controlled by the employer. Funds are set aside by the employer for the employee’s future benefit. The payments are drawn periodically during retirement to support the employee after employment. In this plan, the individual cannot participate in self-directing the investments more so there are no maximum participant allocations. In a defined-benefit plan the employee is guaranteed a definite amount of the benefits by the employer taxable (Robbins, 2016). As this plan presets a fixed benefit, the employee can effectively plan their future expenditure (Robbins, 2016).

Annuity entails the use of insurance products as a retirement plan. Annuities are a financial product that are contractual which employees invest in and they grow their fund, and after annuitization, at retirement, payments are made to the employees. This system ensures a reliable steady flow of income after retirement. Annuities aide in nurturing a guaranteed investment benefit that is tax-sheltered. They also offer to some degree of security against the market fluctuations. Annuities are illiquid (Gordon & American Institute of Certified Public Accountants, 2002). Nevertheless, some financiers offer incentives such as bonuses in the annuity contracts.

An Individual Retirement Account (IRA) allows an employee to save for their employment through a tax-advantaged system. There are three main types of an IRA, traditional IRA, Roth IRA and a Rollover IRA. This plan supplements ones current savings; an employee can access an extensive range of investment choices than in a 401(k) or 403(b) plan. Also, one can take benefit of tax-deferred chances and tax-free growth. The cons for this system include a low contribution rate, the contribution is limited and there are penalties for easy withdrawal (Jasper, 2005).

Estate planning is a retirement plan dealing with retirement asset compilation and preparation of undertakings that manage one’s assets in the case of their death. Such tasks include writing of will, creating trust accounts to limit taxes on the estates, naming an executor of the will and identifying a guardian for their dependants. They can also set up an administrator of their estate and a power of attorney.

The Individual Retirement Account (IRA) is an excellent option as a retirement plan. This plan offers a tax-deferred growth and there are tax deductions on the contributions. It is not expensive as the annuity plan and estate plan. More so, this plan is easy as well as cheap to start and it allows for more investing opportunities such as mutual funds and bonds. The system is flexible and allows for distribution of the contributions that is the funds.

The factors to consider in selecting a suitable retirement plan for this employee include: the cost and availability of a retirement scheme. The financial situation of the employee and their lifestyle is also a factor. The employee needs to consider the fees that apply in a given plan such as if there are any visible charges or even penalties. They should also consider the accessibility of the funds in the event a situation arises that they will require the funds. The risk of the rate of inflation is an aspect to be put into consideration. The employ should contemplate on the flexibility of the retirement plan they are to choose and its administration. Based on a consideration of all factors, the retirement pension scheme holds the best retirement plan for the new employee (Jasper, 2005).

    References
  • Gordon, C., & American Institute of Certified Public Accountants. (2002). Retirement planning. Jersey City, NJ: AICPA.
  • Jasper, M. C. (2005). Retirement planning. Dobbs Ferry, N.Y: Oceana Publications.
  • Robbins, E. J. (2016). Essentials of retirement planning: A holistic review of personal retirement planning issues and employer sponsored plans. New York: Business Expert Press