Retirement Planning for Women

Planning for retirement can be a challenging task for both men and women. Many a times, women postpone retirement planning because they feel daunted by the sheer magnitude of the task. Women generally live longer than men. In fact, studies have shown that a woman retiring at the age of 65 can expect to outlive her husband by 20 years! Some women have the luxury of knowing that they will be well provided for in their old age. For others, retirement planning is inevitable. Although initially the task may seem uphill, with time a woman will get used to the idea of managing her finances. Financial independence can also act a massive confidence booster for a woman.

Retirement Planning for Self Employed Women

Most women quit their jobs in order to take care of their family. A number of them start a business from the comfort of their home. Being self-employed provides women with a great deal of flexibility, but then the onus of retirement planning is entirely on them.

Solo Business: This plan is suitable only for the owner of the business. A Uni-K plan is the best option for a woman who runs her own business. The contributions to Uni-K grow tax deferred till the money is withdrawn. Moreover, the amount siphoned off to a Uni-K account is also tax deductible. A woman has the flexibility to decide the amount of contributions on a yearly basis. As compared to other retirement plans for self employed women, the Uni-K plan allows maximum deductible contributions for women of all ages. In case of an incorporated business, the maximum deductible contributions will depend on the W-2 income, while in case of an unincorporated business, the contributions will be based on self-employment income. Money from other tax deferred retirement plans can be rolled over to a Uni-K plan. Withdrawals are allowed after the age of 59½ or upon death, disability, or plan termination. A woman can obtain a minimum of (50% of the amount of money in the Uni-K or $50,000) as a loan. Administrative requirements for a Uni-K plan are fairly simple. IRS 5500 has to be filed once the plan assets exceed $250,000. The plan has to be established before the end of the business tax year.

Small Business with Employees: SEP IRA plan is useful for women managing a small business. In case of an incorporated business, a maximum of 25% of the salary can be contributed. For unincorporated business firms, 20% is the limit. A woman has to contribute the same percentage for herself and for all eligible employees. Contributions are tax deductible and discretionary. Withdrawals are subject to income tax and a penalty of 10% may be applicable in case of withdrawals before the age of 59½. One cannot obtain loans against the amount contributed. Although SEP IRA is available even for a solo businesswoman or a freelancer, Uni-K is a better option for such women.

Employer Based Retirement Plan for Women

A 401(k) retirement plan is offered by most employers. The employer matches the employees contribution. In case a woman is eligible for her employer's 401(k) plan, she should opt for it. The contributions to the 401(k) plan are fully tax deductible, and they grow tax deferred until withdrawn. The employee contribution is discretionary. The plan also allows a woman to temporarily withdraw money in order to meet financial commitments. The amount withdrawn has to be replaced along with interest. In case of cash outs before the age of 59 ½, she would have to pay a penalty of 10% on the after tax amount of the plan money. In case of switching jobs, she can roll over the 401(k) to the new employer's 401(k). In case she quits her job, she can always rollover to Uni-K or SEP IRA. Rollovers are preferred to withdrawals in order to avoid taxes. Employer's 401(k) plan is generally available only to permanent employees. Others can opt for the Uni-K or SEP IRA.

A woman can easily plan for retirement with a bit of resourcefulness. Retirement can be an enjoyable experience, provided a woman builds her nest egg with the same love and care that she normally devotes to her family.