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Retirement planning and tax benefits as a US citizen

Retirement planning and tax benefits as a US citizen

Here in the United States, retirement planning is a big thing.  We work really hard during our prime years but we also look forward to the day when we have all the time in the world to hang out on the beach sipping a cocktail or two without worry that there’s a backlog of work waiting for us.  

Whatever retirement means to you, you will want to be set financially or at least strive at it.  Getting a tax write off on your retirement contribution is not a bad thing either.

How do you contribute to a retirement plan? 

Employees fund their retirement account by contributing to a 401k plan or something similar.  The maximum amount one can contribute each year changes, it is $19,500 for tax year 2021.

Small business owners set up retirement accounts too. They come in different forms and some of which are:  SEPs, SIMPLE IRA, Profit-sharing plan, 401(k) plan, Defined Benefit Plan.  Business owners usually meet with their financial advisors to find the right plan. 

If you are planning to move to the Philippines or another country before retirement, can you still fund your U.S. retirement account? 

Absolutely! Americans may fund their traditional IRA $6,000 per year or $7,000 for Americans over the age of 50.  Rules on taking money out of your IRA while you are abroad is the same rule for those who are in living in America.

Does funding a retirement account really save you tax dollars?

A retirement plan offers a lot of benefits for individuals as well as businesses.  You are investing now for your financial security as you head to retirement. The perk for doing so is significant tax savings.  

How do business owners benefit from funding a retirement plan?

First off, employer contributions are tax deductible. Say you have a corporation, you and your wife are the only employees of your corporation. The business can open a SEP (Self Employed Pension) IRA for your benefit and your wife for up to 25% of your salary and up to 25% of your wife’s salary. These contributions are treated as a business write off, so it is a win-win situation.  

A SEP IRA is just one of the available plans, there are many others and plan options can be flexible.  Note that assets in the plan grow tax-free. Tax credits and other benefits for starting a plan could apply and help reduce costs and lastly, retirement plans have a way of attracting and keeping employees. You save training costs when employees stay longer.

How do employees benefit from funding a retirement plan?

Employee retirement contributions reduce taxable income and the biggest write off an employee can have. Employee contributions and investment gains are only taxed if the employee takes it out.  Employers make contribution to a retirement plan easy through payroll deduction.   

If you leave your employer, you can roll over your retirement funds to another employer.  It is beneficial to maximize on one’s retirement account as it improves an employee’s financial security in retirement.

See Also

Can U.S. citizens receive their retirement funds abroad? 

So, you are a Filipino American and have decided to go back to your home country, Philippines to retire where cost of living is less and money goes a long way, can you do that and receive your retirement funds there?  

The answer is yes, Filipinos with U.S. citizenship may continue to receive Social Security income while living abroad. You must be eligible for payment meaning you qualify for Social Security benefits based on your earnings record and you must be in a country where the Social Security Administration can send payments.  

Wherever you are around the world, and while rules may be different for each country, funding a retirement plan is an important step to secure your future.  

Sharlon Masler, Masler CPA & Associates

Just like you, I look forward to the day when I can sit back, relax, and enjoy the fruits of my labor so set aside money for retirement now, you would not regret you did.

Pay your SSS contributions directly with Rewire Money App.

Are you living in the United States and have finance, bookkeeping and tax questions? Send them to us and we will have experts at Masler CPA and Associates answer them for you.
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