Employer-sponsored retirement plans allow for additional voluntary contributions, which can increase retirement benefits and provide more resources for dependents. There may be restrictions on the amount of contributions, but creating an additional retirement account is an option. The return on investment and personal criteria determine pension benefits, and additional contributions may be necessary to reach retirement goals. There are tax advantages to making voluntary contributions, but the funds may not be accessible in case of financial hardship. Rolling over contributions to an IRA can avoid tax penalties.
In an employer-sponsored retirement plan, a sponsor can match cash contributions made by plan members up to a certain percentage. Additional voluntary contributions are cash deposits made by plan members that exceed any matching schedule. There may be restrictions on the amount of voluntary contributions that can be made, and some plan sponsors may block this entirely. In this case, an individual can create an additional retirement account that can receive contributions. The advantages associated with making voluntary deposits include a higher benefit at retirement and more resources for any dependents.
When a person is concerned about the value of a retirement pension, or simply has the resources to maximize the overall benefit, they can make additional voluntary contributions. There is likely to be some procedure at the plan sponsor, usually the employer, that dictates the policies associated with making these deposits. A defined contribution retirement plan structure generally allows for additional voluntary contributions. Defined benefit retirement plans receive these additional deposits less frequently.
Pension benefits for plan members are determined by the return on investment of assets directed to financial markets, contributions made by individuals and employers, as well as personal criteria surrounding plan members, such as size of a salary and tenure in a company. A pension administrator may perform calculations to illustrate the anticipated size of pension benefits at the time of an individual’s retirement. If that amount isn’t adequate to support a retiree’s needs or goals, additional voluntary contributions may be the best way to increase benefit size.
Plan members should anticipate that there will be a limit to the number of deposits that can be made into a retirement account each year. This threshold will vary according to the legislative policies in force throughout the region. Making additional voluntary contributions could result in tax advantages for plan members, and payroll deductions from which retirement contributions are derived are likely to be taken on a pre-tax basis.
In the event a plan member encounters circumstances that require financial relief, they may not be able to borrow voluntary funds deposited in a pension account. Instead, that money may only be accessible to an individual upon retirement or leaving an employer. In the event a plan member has died, it is likely that a designated beneficiary will be able to access the funds as part of the pension benefit. It is possible to roll over voluntary contributions to an individual retirement account (IRA) and avoid some tax penalties.
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