With the April 15 tax filing deadline just days away, I am reminded of one simple change to the U.S. tax code that I wish Congress and the President would implement.
If “retirement plans” such as IRAs, Roth IRAs, 401(k) plans and SEP IRAs were called “tax savings plans,” I truly believe more people would take advantage of them.
Save for More Than Retirement
I find this to be especially true for those individuals who have no plans to “retire.” They may still benefit from participating in a retirement plan, which provides for tax-free growth on savings, can help them meet financial goals at a faster rate, and often offers a tax-deduction in the year of contribution to the plan.
Yet too many are missing out on this opportunity because of how they view the word “retirement.” “I don’t need a retirement plan, I have no plans to retire,” “I love what I am doing, I’m not going to retire,” and “Retirement is so far away, I won’t ever have enough money to retire,” are typical responses I receive when encouraging friends to open and contribute to a retirement plan.
They may not understand that retirement plans can be used to save for a number of different financial goals, not just retirement. Goals such as a home remodeling project, a second home, a new car or a child’s wedding would be attained faster using a retirement plan account rather than a taxable investment or bank account. As long as the planned date for these goals falls after you reach age 59½, the 10% early withdrawal penalty for retirement plans would not apply.
Focus on Your Financial Goals
Unfortunately, I do not expect Congress and the President to act on my suggested change any time soon. In the meantime, rather than focusing on words, ask yourself or your financial advisor the following question: “Would opening and contributing to a retirement plan best serve me in meeting my financial goals?”
