"Retirement Planning Tip: You can
"Rollover" your vested balance from a previous employer’s retirement
plan into an IRA in your name with no tax penalties. You gain control over how
the money is invested and all earnings remain tax deferred."
There are generally three different types of plans that
are appropriate for the Individual Investor.
A large component of the popularity of IRAs is their simplicity. Anyone under age 70 1/2 with earned income can open one, and your choice of investments is nearly unlimited. Individuals can correctly contribute up to $4,000 annually tax-deferred, $5,000 if you are over age 50, and $8,000 for couples filing jointly. You have until April 15 to contribute to an IRA to enjoy the tax benefit for the previous year. Withdrawals prior to age 59 1/2 may be subject to tax penalties.
Roth IRAs are one of the most exciting results of the
Taxpayer Relief Act of 1997. They allow those whose incomes have exceeded the
deductibility limits for traditional IRAs to contribute $5,000 a year after
taxes to a Roth IRA. ($6,000 if over age 50.) While these contributions are not
tax deductible, earnings, interest, and dividends are all tax-free. As long as
the account has been established for at least 5 years, and the account holder
is older than 59 1/2, distributions are all tax free.
Here's an example of the power of the Roth IRA (and
tax-deferred compounding). If an 18-year-old puts away $2,000 a year in a Roth
IRA for just four years-assuming a 12% rate of return-at the age of 65, he will
have $1.5 million dollars that is completely tax free!!!
In terms of the Roth IRA's deductibility, the phase out
for singles is between $105,000 and $120,000 in adjusted gross income. For
couples it is between $166,000 and $176,000. Like the traditional IRA, you can
withdraw up to $10,000 from your Roth IRA for first time home buying and
education expenses. In addition, contributions to a Roth IRA may be made after
age 70 1/2 and the normal minimum distribution rules applicable after age 70
1/2 do not apply.
For all employers, whether small or large, there is a
myriad of plan options, ranging from those that are relatively simple and easy
to administer, to large scale plans with detailed reporting requirements.
SEP IRAs are a simple and practical alternative to
traditional retirement plans. They are designed for self-employed individuals
(and employers with 25 or fewer workers) and feature employer contributions
into individual IRA accounts that are set up for the employer and, where
applicable, each eligible employee. The simplicity of these plans, their high
maximum contributions (particularly appealing to sole proprietors), and their
ease of operation (including reporting exemptions) have made them extremely
popular. Unlike traditional IRAs, all contributions are made solely by the
employer. The maximum contribution is 25% of compensation.
Employers with 100 or fewer employees can establish a
SIMPLE plan as either a 401(k) or a group of IRAs. SIMPLE plans allow employees
to make elective contributions and require employers to make matching or
non-elective contributions. Currently, employees can defer up to $11,500
($14,000 if over age 50) of their salary per year into the plan through salary
reductions-on a tax-deferred basis. Employer matching requirements vary but are
usually either 2%-3% of the employee's salary. The main advantages of the
SIMPLE plans are their salary deferral feature, ease of administration (no
discrimination testing) and the low cost associated with operating these
retirement plans.
The 401(k) is becoming the retirement plan of choice in
corporate America. However, 1/3 of those who have 401(k) plans available to
them choose not to participate.
Traditional 401(k) plans offer employees the opportunity to defer part of their salary on a pre-tax basis until retirement. Employers have the option to provide matching contributions based on the amount each employee decides to defer. In 2009, employees can make a maximum tax-deferred contribution of their salaries, up to $16,500 ($22,000 if over age 50). This amount will be adjusted for inflation in future years.
403(b) plans are tax-deferred retirement plans for
employees of certain tax-exempt organizations such as schools, foundations, and
hospitals. In addition to the employee contributions, 403(b) plans may also
feature employer contributions. Beginning in 1997, tax-exempt employers were permitted
to sponsor 401(k) plans.
Profit Sharing Plans are the most flexible and least
complicated kind of Keogh plan. They allow the employer the option of
contributing a variable percentage from 0% to 25% of the employee's
compensation up to $49,000. This means that in a good year, you can contribute
more, and if, there's a bad year, you can cut back, even contribute nothing.
However, according to the IRS, over the long run, contributions must be
"substantial and recurring."
Money Purchase Plans are not based on employer profits.
Contributions must be made every year and must be a fixed percentage of each
participant's compensation.
This percentage can be as low as 3% of compensation and,
in 2009, as high as 25% of compensation up to $49,000. However, after an annual
contribution percentage is established when the plan is set up, you cannot
change it. The IRS even levels penalties if you fail to meet the required
contribution level.
Many people don't realize that they have a need for estate
planning. How do you know? Consider these:
Just don't want Uncle Sam to have a portion of your
hard-earned estate? Let FS&S work with you to minimize federal and state
estate tax liability.
Let us illustrate some techniques that may help you reduce
your estate tax bill.
Financial Services and Solutions: Murfreesboro TN Retirement Planning and Estate Planning