Category Archives: Retirement

First Look: Individual 401k

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You may have heard of this investment option by the names “Solo 401k” or “Self Employed 401k“, but I like the name Individual 401k, so that’s what I’m going to use to describe this great retirement option.

What Is An Individual 401k?

It’s a plan that enables small business owners (preferrably one with no employees) to contribute much more than a Roth IRA.  This plan allows you can contributed up to $49,000 a year, if you have enough profit!  How’s that for a contribution!!!

If you are self-employed you can contribute $16,500 + 25% of your compensation from your business… up to $49,000.

If you have a very profitable business, this would definitely be an option to consider!

The tax benefits of an individual 401k are as follows.

  • Contributions to an Individual 401(k) plan are tax-deductible
  • Earnings grow tax-deferred.
  • Contributions are not taxed until withdrawn.

The Individual 401k is most benefitial to small businesses that don’t have any employees.  Once an employee enters the picture the paperwork gets much more complex, since the plan must be offered to each employee.

I’m not in a position to take advantage of this great option.  But if you own a small put profitable business where you don’t have any employees, this plan may just be your thing!

Interested in opening up an individual 401k, check out at Charles Schwab’s Individual 401k offering.

-MR

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3 Strategies to Maximize Benefits from your Pension Annuity

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3 Strategies to Maximize Benefits from your Pension Annuity

If you are in the process of looking for a pension annuity that will protect both you and your spouse from financial problems in the future and provide you with income for your retirement, it goes without saying that you will want to do everything in your power to find the annuities with the most benefits for the money that you invest. This is an extremely important thing to make sure of, since a pension annuity is an investment that will protect you during a time of your life when your age and physical condition can restrict the type of work that you are capable of doing.

The first thing that most people think of when they are looking for the best pension annuity to invest in for their future is the interest rate that it provides. They are also often heavily concerned about which plans will offer the most benefits as well. But in order to get the most out of a pension annuity, it is important to carefully choose which features should be purchased in which combination in order to get the most out of the plan. There are several different ways in which this can be accomplished.

Here are 3 ways in which to combine features to get the most out of a pension annuity.

1. One option that you have is to wait a while before you decide to purchase an annuity if this is a possibility for you. In most cases, you can only buy an annuity if you are between the ages of 55 and 75. The later on in your life you are when you decide to purchase an annuity, the more money you can expect to receive in return for your investment. The reason for this is that you will receive larger monthly payments. This is because your remaining lifespan is expected to be shorter. The shorter the amount of time remaining in your life, the more money the insurance company can pay out each month, which gives you more money to live off of without having to continue working.

2. Another possibility is to think about is who to purchase an annuity under if it is a joint annuity. It is often a good idea to purchase the annuity under the husband’s name. The reason for this is the fact that men are expected, on average, to live for a shorter period of time. For this reason, when an annuity is purchased under the husband’s name instead of the wife’s, the payments are typically larger because fewer years of life are expected.

3. When looking at the plan, it is also a good idea to look at it in order to find out if impaired life benefits are included in the annuity. As an example, if you have a medical condition that reduces you life expectancy, this should also be another reason that the insurance company will offer larger payments each month. This might seem backward to people who are used to shopping for health insurance, which will charge higher premiums if you have a health condition. Even so, this is how it works. The shorter your expected lifespan, the larger the monthly payments.

Of course, these three strategies are not everything when it comes to deciding on a plan that is right for you. It is also very important to shop around in order to find the best company available. The company should not only offer good rates, it should have a long history demonstrating that it is financially stable.

Annuities are one of the few financial topics that I don’t have much experience with, so the guest post Lisa is very welcome!

I hope you enjoyed and learned something new from this post on annuities!

-MR

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Sound 2010 Roth IRA Information

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Roth IRA are fun like David Lee?

I think that everybody should have a Roth IRA! It is more fun that David Lee Roth! And by fun, I mean not paying taxes on the future earnings!

First the Basics:

The following is the “2010 Income Limits” range information. MAGI stand for “Modified Adjusted Gross Income“, and not Gross Income!
2010 Roth IRA Income Limits
(The Numbers below are MAGI number not Gross earning!)
Type of Filing Full Amt if Less than: Phase out range: Nothing if over this:
Married Filing Jointly $166,000.00 $166,000 to $176,000 $176,000
Single $105,000.00 $105,000 to $120,000 $120,000

What is the contribution (the amount you are depositing for the year) limit for 2010?

2010 Combined Traditional and Roth IRA Contribution Limits (taked straight from the goverment site: https://www.irs.gov/ )

If you are under 50 years of age at the end of 2010: The maximum contribution that you can make to a traditional or Roth IRA is the smaller of $5,000 or the amount of your taxable compensation for 2010. This limit can be split between a traditional and a Roth IRA but the combined limit is $5,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending upon your modified adjusted gross income (modified AGI).

If you are 50 years of age or older before 2011: The maximum contribution that can be made to a traditional or Roth IRA is the smaller of $6,000 or the amount of your taxable compensation for 2010. This limit can be split between a traditional and a Roth IRA but the combined limit is $6,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending upon your modified AGI.

Okay, now for the stuff I want to write about!

Why do I like Roth IRAs?

  • You can withdrawal your contributions at any time (but not your earnings without incurring penalties and taxes)
  • This is your discretionary income (take home pay), so this amount can be tucked into an Roth IRA, and it will grow without being taxed, since it was already taxed when it was your gross pay. Beats putting the money in a regular brokerage account and getting taxed every year on dividend, interest or capital gains tax.
  • It’s a perfect emergency fund! Since you can pull your contributions out at any time tax and penalty free. Just don’t pull out any of the earnings from the contribution amount, those would be tax at your current marginal rate, and also carry a 10% penalty hit!!!
  • You can pass this down to your children when you die and they won’t have to pay taxes on it!
  • You can use a part of the IRA amount to help buy a first time house.
  • You can create them for your kids, and make them potentially rich (as long as they have earned income) someday.

So how do I use my Roth IRA?

I use my Roth IRA for 2 purposes:

  • I use it as an Emergency fund. I don’t ever expect to need it, so this is the perfect vehicle for it in my opinion!
  • I also use a small portion of my Roth IRA to buy high beta stocks. This is good because if the stock appreciates like nuts and I have capital gains, I don’t get taken down by taxes on those huge gain. But if it’s bad (because of the economy), like it has lately, you can’t take the tax losses against your earned income.

Okay, that covers what I like about IRA’s!

Are there an additional aspects of the Roth that you can identify? Perhaps you use the Roth for something special? Or maybe I missed a benefit?

Anything you can add would be appreciated!

-MR

No 401K 2010 Conversion to a Roth IRA for Me

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I was hoping in 2010 that I could roll my entire 401k balance over to a traditional IRA, and then from there do another rollover to a ROTH IRA.

The advantage of doing it in 2010, is that you can spread the contribution amount over multiple years (3 to be exact) to reduce the tax hit.

So for the first step.)  I was wondering if I could roll over my 401K balance to a tradition IRA while I am still employed at my company where my 401k resides?

Why did I want do this process in 2010 instead of now or earlier?

If I were to do the conversion in an earlier year (let’s say 2009), the tax hit would be too high, because it would bump me up to a higher Marginal Tax rate (actually a few higher)…  And I hate to pay more taxes that I have to.

Sad day for me…  Oh well, 😐