Nov 29

IRA vs. 401k

There’s always been a debate about which retirement plan is right for you…the 401k or the IRA.  Experts say that you choose based on your discipline, income and tax goals.

Many people will opt for their employee-sponsored 401k plan simply because it’s the easier option.  There’s nothing you have to do once you are enrolled.  The money comes right out of your paycheck (pre-tax) and as such, will lower your taxable income come year end.  Once you reach age 59 1/2, any distributions you make will be taxed at your current bracket.

On the other hand, one beneficial alternative is the Roth IRA.  Money contributed in this type of plan is already-taxed income, thus there is no tax write off.  The huge advantage here is that all distributions are tax-free once you reach age 59 1/2 and have had the IRA open for at least five years.

So of these two options, which is best for you?

With a 401k plan, you can contribute up to $17,000 for 2012 ($5,500 more if you’re at least 50 years-old) which is significantly higher than an IRA.  Also, your employer might match your contributions usually up to 6% of your annual income and at a rate of 50%.  Some downsides here are that your investing options are limited and fees could lower your investment dollars.

As for a Roth IRA, the max you can contribute for 2012 is only $5,000 ($1,000 more for 50+ year-olds).  Adam Bergman, a tax attorney with the IRA Financial Group, says the biggest advantage of this investment form is that your money grows tax free. With income tax rates expected to increase in the future, Bergman says this could be “potentially tax efficient.”  You are also in charge of what funds to invest in along with a substantially larger choice to choose from.  If you make more than $183,000 jointly you won’t be eligible to invest in a traditional Roth IRA. Bergman notes that since 2011 there are no income restrictions for a Roth conversion, which means you can make a traditional IRA contribution and then convert the funds to a Roth IRA, which would be subject to tax.

Therefore, depending on the amount of money you plan to invest each year and how hands-on you want to be will go a long way in choosing what’s best for you.  Ideally, you would have both types of plans so you’re ready for anything.  Read more at foxbusiness.com.
Contact a tax expert at the IRA Financial Group today to see where your money will earn the most for you.  Call us at 800.472.0646!

 

Nov 28

Retirement Investors Looking for Alternative Investment Options in Light of Looming Fiscal Cliff

IRA Financial Group, the leading provider of self-directed retirement solutions, such as the self-directed IRA and solo 401(k) Plan, has seen an increasing number of retirement investors looking to make alternative investments with their retirement funds in light of the looming fiscal cliff issues confronting the United States. Retirement investors have been recently turning their attention to the $607 billion of tax increases and federal spending cuts set to kick in automatically in January, the so- called fiscal cliff. The Congressional Budget Office has said the U.S. economy would slow by as much as 0.5 percent next year if Congress fails to keep the increases from taking effect. One area that has concerned investors is the tax increases that could take effect at the beginning of 2013. For example, if the tax increases that are set to kick in automatically in January, the rate on dividends for high-income taxpayers will rise to 43.4 percent from 15 percent and the top rate on capital gains to 23.8 percent from 15 percent. For an individual with $10,000 invested in the S&P 500, payouts would fall to $120 a year from $180.20 should the old rate be reinstated. An investor who sells the stock at a $5,000 profit would face capital gains obligations of about $1,190 compared with $750 now. “Many of our self directed IRA clients have been looking to move additional funds out of the equity markets and into more alternative asset forms, such as real estate and gold in light of the looming tax increases as a result of the fiscal cliff,“ stated Adam Bergman, a tax attorney with the IRA Financial Group.

“A growing number of clients have been contacting us concerning adding more retirement funds to their self-directed IRA accounts over concerns that a President Obama victory positions him to demand tax increases for the wealthy as part of a deal to reduce spending to tackle the nation’s deficit, “ stated Maria Ritsi, a senior paralegal with the IRA Financial Group. “As a result, an increasing number of retirement investors are looking to take advantage of the tax-deferred benefits of using a self-directed IRA or Solo 401(k) Plan to make investments, versus taxable accounts, “ stated Ms. Ritsi.

With IRA Financial Group’s Self directed IRA or Solo 401k plan, an individual can invest his or her retirement funds in traditional as well as non-traditional investments, such as real estate without paying tax currently on any income or gains and, thus, escaping the increased investment tax rates.

To learn more about the IRA Financial Group please visit our website at http://www.irafinancialgroup.com or call 800-472-0646.

Nov 27

IRA Deductions & Tax Credits

Retirement plans, specifically IRAs, offer many advantages other than just saving for your golden years.  These include tax deductions and tax credits.  It’s crucial to know how these work and any limitations placed on them.

Often, contributions to your traditional IRA are tax-deductible.  However, if you participate in a SEP IRA, SIMPLE IRA or qualified plan, the deductability of your contributions would be determined by your modified adjusted gross income (MAGI) and your tax filing status.  If it is not deductible, you can still make a non-deductible IRA contribution.  You may also contribute to a Roth IRA provided you are eligible to.  For the full deduction, the limit for a single filer is $110,000 and $183,000 for a married couple.

Splitting your contribution between both a traditional and Roth IRA may make sense as well.  If you may only take a partial deduction to a traditional IRA, it makes sense to contribute the rest into a Roth since earning grow tax free there (as opposed to tax-deferred in a traditional IRA).  On the other hand, if you’re entitled to only a partial Roth contribution, you should contribute to a traditional IRA to max out your IRA contributions for the year ($5,000 if under age 50 and $6,000 if 50 or older for 2012).

Finally, you may receive a non-refundable tax credit of up to 50% of your contribution (not to exceed $1,000).  Here are the limitations:

2012
Credit Rate Married and files a joint return Files as head of household  Other category of filers
50% Up to $34,000 Up to $25,500 Up to $17,000
20% $34,000 – $36,500 $25,500 – $27,375 $17,000 – $18,250
10% $36,500 – $56,500 $27,375 – $42,375 $18,250 – $28,250
0% $56,50+ $42,375+ $28,250+

Credit goes to Investopedia

Contact one of the tax experts at the IRA Financial Group to see how to make the most of your IRA contributions.

Nov 26

Problems with Inherited IRAs

Everyone knows what an Individual Retirement Account (IRA) is and how they work.  But what if you inherit one from a spouse or parent…do you know what to do with it?  If you inherit the plan from a spouse, the funds are transferred to your name, basically giving the plan a new name.  This is the simplest choice.

“The re-titling process also has to be done according to very specific rules depending upon the age of spouse. For instance, for a spouse who is younger than the eligible distribution age of 59½ the account should be re-titled “James Johnson IRA (died or deceased on November 18, 2010) for the specific benefit of Beverly Johnson, his wife, beneficiary.”  Upon reaching the age of 59½ Beverly would need to re-title the IRA in her name alone. She can then begin to take distributions, penalty free, and subject to tax only”, says Jack Karns at dailyadvance.com.

When it’s not a spouse receiving the inherited plan (like a child from a parent), the money cannot be rolled over into an IRA in the child’s name.  The account must also be re-titled unless it is cashed out.  Cashing out is never a good option though.  You need to pay all taxes and penalties when you cash out and of course, the money will not be earning for years to come.

“Lastly, if a child leaves an inherited IRA to his or her child the account must again be re-titled naming the specific beneficiary. An inherited 401(k) account can be re-titled as an inherited IRA using the specific language suggested above”, adds Mr. Karns.

If you fail to follow these re-titling rules, the IRS could say that the funds are taxable immediately to the person who currently holds them.  During the process, a lawyer comes in handy to help you in the re-titling.  Read more here.

If you need help with an inherited IRA or other related questions, contact a tax expert at the IRA Financial Group today!  Don’t forget to follow us on Twitter!  @BergmanIRA

Nov 21

Paying for a Roth IRA Conversion

With expected higher tax rates next year and beyond, many people are converting their Traditional IRA into a Roth IRA.  The reason is because a Traditional IRA is a tax-deferred plan.  You pay taxes on any distributions you take.  Since tax rates are at the lowest they might be for the foreseeable future, it’s better to pay those taxes now and convert to a Roth IRA.  With this plan, you pay the taxes now and distributions are tax-free.  The problem is how to pay for the conversion.

“You have to include the converted amount in gross income as though it were distributed to you. The amount, after deductions, will be taxed at your ordinary income tax rate.  Take the taxes from the IRA, and the cost of conversion increases. You’ll need to leave the money compounding in the IRA longer for the conversion to make sense”, says Bob Carlson at InvestingDaily.com.  Here are some strategies he talks about in this article:

Reduce Gross Income – There are several ways to reduce your gross income including “deductible business losses from an S corporation, partnership, LLC, or a proprietorship”, reduce optional distributions from IRAs & annuities, defer salary, avoid taking capital gains and take capital losses to offset gains.

Reduce Adjusted Gross Income – You can take certain deductions that will give you your AGI.  The most widely used deductions are “self-employed retirement plan contributions, health premiums for the self-employed, and self-employment taxes”.

Increase Charitable Contributions – If you’re someone who can afford to make donations, the year you convert is the best time to do so.  “You don’t have to actually give all the money to charity the year of the conversion. You can donate to a donor-advised fund, such as those run by Schwab, Fidelity, other brokers and fund companies, and many localities. Most funds have minimum initial contributions of $5,000. You can direct payments from the fund to charities over time, but you deduct the charitable contribution the year you donate to the fund. Be aware that you can’t get the money back once it is donated to the fund”, says Mr. Carlson.

Check out the article for a few more choices and more information for paying for your IRA conversion.  Need more advice?  Contact a tax expert at the IRA Financial Group for all your IRA-related questions.

Nov 20

Spousal IRAs Perfect for Stay at Home Moms/Dads

In today’s age there are so many stay-at-home moms and dads.  It’s a 24/7 job that Mint.com calculates the annual salary to be about $100,000 a year.  Often, these people don’t think about saving for retirement or simply don’t know that they can.  Their spouses might have a 401k plan through their employer, but that’s about it.  While there’s no option for a 401k plan for a stay-at-home parent, there is an IRA plan known as the spousal IRA that they can utilize.

This plan works basically the same way as a regular IRA, but the working spouse’s income is used to fund the IRA of the nonworking one.  There are a few requirements as per the IRS:

  • You must be married and file joint income tax returns.
  • The working spouse’s income must be at least the amount contributed annually to the spousal IRA.
  • The nonworking spouse must be under age 70½ in the year of the contribution for a traditional IRA. There are no age restrictions for a Roth IRA.

For 2012, the max contribution for an IRA is $5,000 if you’re under age 50 and $6,000 if you are 50 years old or older.  Also, if your combined modified adjusted gross income (MAGI) is under $173,000, the contributions are fully tax deductible; between $173,000 and $183,000 you can take a partial deduction.

Just because you’re not working doesn’t mean you can’t/shouldn’t save for retirement.  The more you save and the sooner you start will make retirement that much easier for you and your family.  To learn more about spousal IRAs, contact one of the tax experts at the IRA Financial Group and see which is best for you!  Don’t forget to follow us on Twitter!  @BergmanIRA

Nov 16

Retirement Plan Options for Small Business Owners

Planning to start your own business or do you already have one?  Retirement is probably not one of your top priorities, but it should be.  There’s a lot to do when you own your own business.  However, you shouldn’t neglect your retirement needs.  You may have a plan for yourself, like a traditional or Roth IRA, but they only allow contributions up to $5,000 a year ($6,000 if you are 50 or older).  But what about your employees?

There are options for you that are low cost and easy to manage.  Here we’re gonna focus on two of them: the SIMPLE and SEP IRA plans.  Check out this article for a couple more options such as an Individual 401k and defined benefit plan.

First is the SEP IRA, or Simplified Employee Pension Individual Retirement Arrangement.  This allows the owner to contribute a piece of company profits to it’s employees and the owner him/herself.  What each employee receives is based on his or her earned income for the year.  For 2012, the maximum contribution to a SEP is $50,000, significantly higher than a regular IRA plan.  Contributions grow tax-deferred until they are distributed at retirement.  Finally, all plan contributions are tax-deductible and will lower taxable income.

Then there is the SIMPLE IRA, or Savings Incentive Match Plan for Employees.  This puts the onus on the employee to choose to save for retirement.  They may defer up to $11,500 this year (another $2,500 if you are 50+).  The owner can match up to 3% of the employee’s compensation and is also tax-deductible.  This is a great option for companies who have employees who want to save for retirement and could use the tax break now.

Both options are fairly easy to maintain and are cost-effective.  The tax experts at the IRA Financial Group can help you figure out the best plan for your business.  Give us a call today at 800.472.0646 or visit our website.

Nov 15

IRA Tax Deduction is NOT Your Best Bet

So many people open up an IRA account for the tax break, NOT for saving for retirement.  This strategy often backfires since they end up paying more on the back-end than they saved at the onset.  In 2012, you can contribute up to $5,000 in a traditional IRA ($6,000 if you are 50 or older).  If certain requirements are met, you can deduct that money from your tax return.

There are different requirements based on income, filing status and whether or not your company offers a retirement plan (such as a 401k).  If you (and your spouse if married) don’t have a retirement plan at work, then you can deduct contributions irregardless of your income.  If you are covered by an employer-sponsored retirement plan then you cannot take a deduction if you earn over $68,000 per year ($112,000 for joint filers).  Single filers who make $10,000 less get a partial deduction ($20,000 for joint filers).  If your spouse is covered by a retirement plan through work, the limit is $183,000 (under $173,000 and you get the full deduction).

But, is the deduction really worth it right now?  If instead you were to invest in a Roth IRA, which is funded with already-taxed income, then you enjoy tax-free distributions during retirement.  The main advantage those looking for the savings now often overlook is the fact that not only do you pay taxes on your contributions when you withdraw them, you are also taxed on the income and appreciation you have accrued.

Granted, if you make too much money, the Roth option is not available to you.  However, the less you make now, the better a Roth plan is for you since the deduction you can make now is minimal to the taxes you’ll save later on in life with a Roth IRA.  Read more here at fool.com.

Let the tax experts at the IRA Financial Group help you decide what’s best for you.  Call us today at 800.472.0646 or visit our website.  Follow us on twitter for updates on newest blog posts and interesting articles.  @BergmanIRA

 

Nov 14

Tax Benefits for IRAs

In an article at Investopedia.com, they talk about the tax benefits people miss out on each year.  You may pay taxes on investments that are tax-free or excise taxes on distributions that should be waived.  This happens because many people don’t know the laws or make mistakes on his or her tax returns.

Basis, also referred to as after-tax balances, accrue in retirement accounts from nondeductible contributions and rollovers of after-tax amounts to IRAs. Distributions of basis amounts are supposed to be tax free. However, if you fail to track these amounts, you could end up paying the IRS taxes on them, resulting in double taxation. Furthermore, if you fail to file IRS Form 8606 (Nondeductible IRAs) for the year, you may owe the IRS a penalty of $50, unless you can show reasonable cause for the failure,” says contributor Denise Appleby.

Things to Note
I. Once you make a nondeductible contribution or roll over after-tax amounts to any of your Traditional, SEP or SIMPLE IRA, any subsequent distributions from any of your Traditional, SEP or SIMPLE IRAs will include a prorated amount of pretax and post-tax assets, as these IRAs are aggregated for the purposes of determining the taxable amount of any distributions.

II. If you have multiple Traditional, SEP and/or SIMPLE IRAs with different primary beneficiaries, you may want to maintain a separate Form 8606 for each IRA. This would allow each beneficiary to determine the basis of his or her inherited IRA and file any required Form 8606 accordingly.

Also, if you inherited an IRA from someone who has died, you’re responsible for the taxes when funds are distributed,  However, these amounts may also be included in the decadent’s estate.  If the estate files IRS Form 706, which is United States Estate [and Generation-Skipping Transfer] Tax Return, you may be eligible for a federal tax deduction.  This is known as an IRD or Income in Respect of Decedent.

Thirdly, if you take distribution before you are age 59 1/2, you’re usually assessed a 10% early withdrawal penalty.  But, there are exceptions to this tax, such as first time home buyer, continued health insurance is you lose your job or if you become disabled.  Talk to en expert to see if you qualify for the waiver of this excise tax.

Finally, one of the biggest penalties having to do with an IRA is not fulfilling your required minimum distributions.  After you reach age 70 1/2, you are required to withdraw a certain amount of your traditional IRA each year (as per an IRS table).  Failure to do so results in a whopping 50% penalty.  “If the failure to distribute your RMD by the deadline is due to a reasonable error, you may request a waiver of the penalty by distributing the amount and writing an explanation to the IRS,” says Ms. Appleby.

Refer to the article cited above for some examples and more information on these needless mistakes.  Be sure to contact the IRA Financial Group to talk to an expert to see if you’re missing out on any tax breaks.

Nov 13

President Obama Victory Could Mean Higher Taxes on Investments – Investors Likely to Consider Self-Directed IRA Options

Now that the election has been decided and President Obama has secured four additional years in the White House, investors will turn their focus to the $607 billion of tax increases and federal spending cuts set to kick in automatically in January, the so- called fiscal cliff. The Congressional Budget Office has said the U.S. economy would slow by as much as 0.5 percent next year if Congress fails to keep the increases from taking effect. One area that has concerned investors is the tax increases that could take effect at the beginning of 2013. For example, if the tax increases that are set to kick in automatically in January, the rate on dividends for high-income taxpayers will rise to 43.4 percent from 15 percent and the top rate on capital gains to 23.8 percent from 15 percent. For an individual with $10,000 invested in the S&P 500, payouts would fall to $120 a year from $180.20 should the old rate be reinstated. An investor who sells the stock at a $5,000 profit would face capital gains obligations of about $1,190 compared with $750 now.

“If the tax increases on investment income happens in January 2013, using tax deferred retirement accounts to make investments will prove more tax advantages than in prior years, stated Adam Bergman, a tax attorney with the IRA Financial Group. “A self-directed IRA or solo 401(k) plan would allow investors to make investments without paying the higher investment tax”, according to Mr. Bergman.

Many investors are concerned that a President Obama victory positions him to demand tax increases for the wealthy as part of a deal to reduce spending to tackle the nation’s deficit. “As a result, investors would be better served if they considered using a self-directed IRA or solo 401(k) plan to make investments as those investments would be exempt from tax,” stated Mr. Bergman.

With IRA Financial Group’s Self directed IRA or Individual 401k plan, an individual can invest his or her retirement funds in traditional as well as non-traditional investments, such as real estate without paying tax currently on any income or gains and, thus, escaping the increased investment tax rates.

IRA Financial Group is the market’s leading “Checkbook Control” Self Directed IRA and Solo 401k Plan Facilitator. We have helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate tax-free and without custodian consent!

To learn more about the IRA Financial Group please visit our website at http://www.irafinancialgroup.com or call 800-472-0646.  Don’t forget to follow us on Twitter!  @BergmanIRA