Feb 28

Back to Basics: Your IRA Options

Here again with another Back to Basics post.  This time we’re going to talk about all the different options you have with an Individual Retirement Account (IRA).  One or more may be right for you.

Traditional IRA – This IRA is the tax-deferred option available to anyone who has earned income.  They are funded with pre-tax dollars giving you an immediate tax break.  You don’t pay taxes until you take distributions.  You may contribute up to $5,500 in 2013 plus an additional $1,000 catch-up if you are at least 50 years old.  Depending on your income, contributions may be tax-deductible.  At age 70 1/2, you must start taking required minimum distributions (RMDs) and you may not contribute any longer.

Roth IRA – Not everyone can open a Roth IRA.  If you are single and earn more than $127,000 per year or married filing jointly and make $188,000 per year, you cannot open a Roth.  The biggest difference is that a Roth is funded with after-tax dollars.  You pay the taxes now and in turn get tax-free distributions on your principle and you earnings during retirement.  The same limits apply as traditional plans.  Since your income is already taxed, there are no RMDs and no age limit to when you can’t contribute.

SEP IRA – This stands for Simplified Employee Pension plan.  This is a plan designed for small business owners and self-employed individuals.  The plan provides retirement benefits for both the employer and employee.  For 2013, you may contribute the lesser of $51,000 or 25% of total compensation.  Employers must contribute equally to all employees enrolled in the plan.

SIMPLE IRA – The Savings Incentive Match Plans for Employees is another plan designed for the self-employed or small business (less than 100 employees) owner.  Employers are required to provide each employee with either a 3% match or a 2% non-elective contribution for all eligible employees.  The employees can also make salary reductions contributions up to a max of $12,000 for 2013.  They are easy to start up and maintain.

Spousal IRA – This type is for a person who is either unemployed or underemployed.  For regular IRAs, you can only contribute up to the amount you make each year in earned income (such as salary from a job not earnings on investments).  If you do not work but have a spouse who does, you can contribute up to the amount of earned income your spouse has.  You may opt for a traditional or Roth option and are subject to their respective rules.

Rollover IRA – These accounts are for when you switch jobs or retire altogether.  You can take your old account, such as a 401k, and transfer some or all of it (no matter how much) into an IRA.  It can be either a traditional or Roth account.  Once transferred though, you must adhere to contribution limits for the new IRA.

Inherited IRA – As the name says, this is a retirement plan you inherited from someone else, usually a spouse or parent.  A spouse has the option of rolling it over into his or her own IRA.  If the decedent has already begun taking RMDs, the beneficiary must continue these based on his or her life expectancy.  If they did not reach age 70 1/2 yet, the beneficiary has five years to withdraw the funds.

Self-Directed IRA – Real quick, this is a regular IRA, either traditional or Roth, that you are in total control of.  Because of that, you are not limited to the types of investments you can make.  A custodian (bank, brokerage house, etc.) may limit you on the types of investments you can make with a regular IRA.  There are only a few exceptions that that the IRS has laid out that you cannot invest in.

As you can see, there is a plethora of available IRA plans for you to choose from.  Speak with a trusted advisor to see what best suits your needs.  The tax experts at the IRA Financial Group are waiting to hear from you.  Give them a call at 800.472.0646 or visit their website now!

Feb 27

Pros and Cons of the IRA CD

An IRA CD combines the tax advantages of an IRA with the security and guaranteed interest rates of a certificate of deposit. CDs generally offer lower yields than the market-driven returns of a stock or mutual fund and require depositing funds for a specified period of time, often one year or longer. Nonetheless, depositors are guaranteed to receive a stable amount of interest for the entire term as a safeguard against falling interest rates, as have been recent years. Furthermore, should the bank or credit union fail, the funds are insured by the federal government, a feature not available with other types of investments.

Many financial institutions offer IRA CDs alongside their other deposit accounts. In some cases, banks may pay slightly higher yields on these accounts than their otherwise comparable non-IRA CDs. However, they are typically close in yield, with the tax advantage serving as the primary benefit.

The IRA CD comes with a couple of good pros and one major con.  First, the pros: they are extremely low-risk.  It’s one of the safest investments you can make.  As you grow older and near retirement, you want your earnings to be more consistent and want to shift away from the volatile markets.  Secondly, you don’t have to be a financial wizard to invest in them.  The average person with little to no financial background may be hesitant in investing in mutual funds, stocks and bonds.  A CD can be opened simply by walking into a bank.

The biggest con of the IRA CD is that with lower risk, comes lower returns.  The younger you are, the more risk you can take and therefore should forgo CDs.  You can take risks with the markets knowing that over the long haul, it will all even out.  If you make the max contribution for 2013 of $5,500 and leave it in there for thirty years, you can expect an average balance of $6,985 for a CD as opposed to $23,771 for a mutual fund that earns 5%.

CDs will struggle to keep up with inflation so use them sparingly.  They can be used to diversify your portfolio and lower your risk, but they shouldn’t take major role in your overall retirement savings.  Credit to nerdwallet.com.

If you have any questions concerning this or other IRA matters, contact the tax experts at the IRA Financial Group.

Feb 26

Earn too Much for a Roth IRA?

Roth IRAs came into existence in 1997 and allow for tax-free distributions during retirement as opposed to the traditional IRA where you get an up front tax deductions and taxes aren’t paid until you make withdrawals.  The one caveat is the amount of money you earn each year.  If you make too much, you aren’t allowed to open a Roth to shelter tons of money.  If you are married filing jointly, your total Modified Adjusted Gross Income (MAGI) cannot exceed $188,000.  If you are a single filer, your MAGI cannot exceed $127,000.  If they do, you cannot open up a Roth IRA.

High earners often wonder if there is a way around these limits.  There is a way with a little bit of work.  No matter how much money you make, you can still contribute to a traditional IRA.  The only question there is if you can deduct those contributions.  If you aren’t eligible to participate in a plan at work (such as a 401k), then you can contribute to a deductible IRA irregardless of your income.

In 2010, Congress took away income limits for Roth conversions.  All you have to do is contribute to a traditional IRA and then convert into a Roth.  You would have to pay the taxes due on the IRA when you convert, so have cash saved for just that.  This can get tricky and you don’t want to make any mistakes that will cost you money so speak with a professional before deciding to do this.

Why should you want a Roth?  Here are just a few reasons:  You don’t ever have to worry about future tax rates.  You’ll have already paid the taxes on the money inside your Roth and withdrawals during retirement will be tax-free.  Next, having certain stocks, like mortgage REITs, are more beneficial in a Roth as opposed to a taxable account.  Lastly, Roth distributions won’t add to your taxable income during retirement.  This helps you in taxation of Social Security and other income, as well as eligibility for benefits.

Whether you are looking to open a Roth IRA or other retirement accounts, contact the tax experts at the IRA Financial Group who will guide you through every step of the process.

Feb 25

Beneficiary Options for an Inherited IRA

Individual retirement accounts are designed to help people set money aside to increase financial security later in life, but IRA owners don’t always live long enough to use all of their savings. If an IRA owner passes away before withdrawing all of the funds from the account, the remaining assets pass on to the account’s beneficiary. IRA beneficiaries have a few different options when it comes to taking cash from an inherited account.

Opening an Inherited IRA

Any individual who inherits an IRA has the option of setting up an Inherited IRA to distribute the funds. An Inherited IRA is an account set up in the name of the original account holder for your benefit. You have to make required minimum withdrawals from an inherited IRA over the course of your life based on your life expectancy. If the original account owner was under age 70 1/2, you can delay withdrawals for up to 5 years, but you have to withdraw the entire balance of the account after the fifth year if you choose to delay. Withdrawals are taxed as ordinary income subject to your normal income tax rate.

Taking a Lump Sum

If you don’t want to wait to receive cash from an IRA you inherit, you can cash out the entire balance of the account in a single lump sum withdrawal. Taking a lump sum avoids the complications of setting up an Inherited IRA or transferring funds to a different account. When you take a lump sum, the entire withdrawal is treated as taxable income in the year you receive it, which could move you into a higher income tax bracket and result in paying more taxes than you would if you opened an Inherited IRA.

IRA Transfer

When you inherit an IRA from a spouse, you have the option of transferring the funds to your own IRA or designating yourself as owner of the account. Taking ownership of an inherited account gives you the freedom to choose when to make withdrawals, instead of being forced to take withdrawals based on your life expectancy. When you take ownership of an IRA, you are subject to all the normal rules that apply to IRA owners, such as a 10 percent early withdrawal penalty if you tap into the account before age 59 1/2.

Roth IRAs

Your options when inheriting a Roth IRA are the same as those available when you inherit a traditional IRA: you can open an Inherited IRA, take a lump sum payment or take ownership of the account if you inherit it from a spouse. The main difference is that with a Roth IRA, withdrawals from an Inherited IRA or taken as a lump sum are not taxed if the account has been open for at least 5 years. If you take ownership of a Roth IRA, withdrawals of investment gains made before age 59 1/2 are taxed.


If you have any questions regarding an Inherited IRA or any other retirement plan, contact the tax experts at the IRA Financial Group.

Feb 22

Back to Basics: The SEP IRA

What exactly is a SEP IRA?  It stands for Simplified Employee Pension plan and it’s designed especially for smaller businesses including owner-only businesses.  It does not have the start-up costs of other retirement plans and you can contribute up to 25% of each employees’ pay.

A SEP is available for any size business and is easily instituted using Form 5305-SEP, a SEP prototype or an individually designed plan document.  You can set up the account for each employee with most financial institutions.  The employee owns and controls the SEP IRA.  There are no filing requirements for the employer however only the employer contributes to the plan.

How does a SEP work?  A business owner will open up the SEP IRA.  The plan offers flexible contribution requirements.  When times are good, more money can be contributed.  The opposite is also true.  The contribution rate must be equal (no matter how large or small) to every employee covered in the plan.  The financial institution that is chosen to run the plan will have investment funds that the employee can choose from.  He or she cannot contribute money into the plan.  As stated, only the employer contribute to it.

The maximum that can be contributed for each employee for 2013 is the lesser of a) 25% of the employee’s compensation or b) $51,000.  There are no “catch-up” contributions for a SEP.  Administrative costs are low making it an affordable options for a small business.

Contact the tax experts at the IRA Financial Group to see if a SEP IRA is right for you and your business.  Don’t forget to follow us on Twitter @BergmanIRA for blog updates, helpful links and interesting articles!

Feb 21

Contribute to an IRA and Cut Your Taxes for 2012

If you are looking to save on some taxes from last year and are not contributing to an IRA, now’s the time to start!  You have until Tax Day, April 15, to make contributions to a traditional IRA and lower your tax bill from last year.  Even if you contribute to a retirement plan at work, you may be able to deduct your IRA contributions depending on your income.  To fund an IRA, you must have earned income from a job or business and be under 70 1/2 years of age.  You don’t need to itemize your deductions to claim it and if you are eligible, the contribution will lower your adjusted gross income (AGI) which could enable other tax breaks based on your income.  The real question is if you qualify for a tax deduction.

If you are not married and do not have a retirement plan through work, you can make a tax-deductible contribution of up to the maximum IRA contribution limit for 2012.  For those under 50 years old, that’s $5,000.  If you are at least 50, you can add another $1,000 “catch-up” contribution which increases the maximum to $6,000.  Your income does not matter in this case.

If you are married and you are not covered by a work-place 401k but your spouse is, you can deduct the full amount only if your total AGI does not surpass $173,000 for 2012.  If the total is between that and $183,000, then you’re entitled to a partial deduction.  Over $183,000 combined AGI, then you cannot take a deduction.

If you do participate in a retirement plan through work, you may still be eligible for a tax deduction.  You will get the max deduction if you are single and earned less than $58,000 or married and earned less than $92,000.  For a partial deduction, you can earn up to $68,000 as a single person, or $112,000 if you are married.  Again, above those amounts and you cannot take a deduction.

Further, small and moderate taxpayers may get another break contributing to an IRA (or other retirement plan).  The Retirement Saver’s tax credit can save you another $1,000 depending on your income.  You will save from 10-50% on the first $2,000 contributed to your retirement plan.  The income limits are as follows:  $28,750 if you are single, $43,125 if you are head of household w/ dependents and $57,500 if you are married filing jointly.

With Tax Day less than two months away, utilize this method to not only save for retirement, but also get a tax break this year.  If you have any questions about this or anything else retirement planning related, contact the tax experts at the IRA Financial Group today!

Feb 20

The Open Self-Directed IRA LLC Real Estate Solution

IRA Financial Group, the leading provider of Self-Directed IRA LLC solutions, announces the introduction of the Open Self-Directed IRA LLC real estate solution. With IRA Financial Group’s Open Self-Directed IRA LLC solution, the IRA holder will have “checkbook control” over his or her retirement funds, allowing the individual to make real estate investments by simply writing a check. IRA Financial Group’s Open Self-Directed IRA LLC real estate solution will allow the retirement investor to serve as manager of the special purpose IRA LLC and make real estate investments by simply writing a check. “Our Open Self-Directed IRA LLC real estate solution is geared towards any real estate investor looking for a flexible investment and retirement vehicle to make real estate investments tax-free,” stated Adam Bergman, a tax attorney with the IRA Financial Group.

Instead of buying real estate with personal funds and being subject to higher income and capital gains tax rates, a Self Directed IRA real estate LLC with Checkbook Control will allow one to buy real estate, including rental properties without paying tax. With a self-directed real estate IRA, all income and gains generated by the IRA investment will flow back to the individual’s IRA tax-free. By using a Self-Directed IRA to make investments, the IRA owner is able to defer taxes on any investment returns, thus allowing the IRA owner to benefit from tax-free growth. Instead of paying tax on the Self-Directed IRA returns of an investment, tax is paid only at a later date when a distribution is taken, leaving the investment to grow tax-free without interruption.

IRA Financial Group’s Self-Directed IRA LLC with “checkbook control” solution is tax court and IRS approved. A special purpose limited liability company (“LLC”) is established that is owned by the IRA account and managed by the IRA account holder. The IRA Custodian then transfers the IRA Holder’s retirement funds to the new IRA LLC’s bank account, which can be opened at any local bank providing the IRA holder with “checkbook control” over his or her IRA funds.

The IRS has always permitted an IRA to purchase real estate, raw land, or flip homes. “With IRA Financial Group’s Open Self-Directed IRA real estate LLC solution, investors can make real estate purchases and generate income and gains while deferring taxes,” stated Mr. Bergman. “A growing number of clients are realizing that using a Self-Directed IRA to make investments will become far more tax efficient than in prior years due to the increasing capital gains tax rates,” stated Maria Ritsi, a senior paralegal with the IRA Financial Group. One major advantage of buying rental properties with a Self-Directed IRA is that all rental income generated by the property is tax-deferred until a distribution is taken (Traditional IRA distributions are not required until the IRA owner turns 70 1/2). In the case of a Self-Directed Roth IRA LLC, all gains are tax-free.

IRA Financial Group is the market’s leading facilitator of Self-Directed IRA plans. IRA Financial Group has 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 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.

Feb 19

IRA vs. 401k

In a perfect world, you can contribute to both a 401k and an IRA account.  But, not everyone may be able to do this.  Here are some basics about each type of plan.  The focus is on traditional 401k and IRA plans.  This article gives you the who, what, where, when, why and how of each type of retirement plan.  Refer to the link for a more detailed description.

First, who can participate?  With a traditional 401k, you must work for an employer who offers the plan.  Employers may put limitations on who can participate and when.  For an IRA, most people under age 70 1/2 who earn an income can contribute to an IRA.  There are income restrictions on tax benefits however.

Next, what are they exactly?  Basically, they are two types of retirement accounts to encourage people to save for their futures.  As stated already, you can get a 401k through your employer.  Contributions are made pre-tax and taxes are deferred until you take distributions during retirement.  As for an IRA, you must personally sign up for one on your own (at many different financial institutions).  You may take tax deductions for traditional IRA contributions.  Roth IRAs are funded with already-taxed dollars.

Now, when do you take distributions?  You can take penalty-free distributions from both an IRA and a 401k once you reach age 59 1/2.  There are certain exceptions to doing this before you reach retirement.  Also, once you reach age 70 1/2, you must start taking required minimum distributions.  Note that Roth IRAs do not have RMDs.

Where can you put this money?  With an IRA, there are a multitude of things to invest in which include stocks and bonds, to real estate and small business ventures.  An employer-sponsored plan like a 401k are limited in the number of investments you can make.  Mutual funds from different asset classes and sectors are the most popular.

So why do contribution limits change?  From year to year, the IRS may deem it fitting to raise the limits based on inflation.  This does not happen every year and the amount may be different.

Finally, how much can you contribute?  This is a major difference between the two types of plans.  For 2013, you may contribute up to $17,500 to a 401k plan.  If you are at least 50 years old, you may contribute an additional $5,500 “catch-up” contribution.  For an IRA, the limit is $5,500 plus another $1,000 “catch-up” contribution for those at least 50.  Once you reach age 70 1/2, you cannot make any more contributions to a traditional IRA (you may still contribute to a Roth IRA).

These are two types of retirement options out there.  There are several more including the Solo 401k and the self-directed IRA to name a couple.  Not all plans may be available to you.  Further, certain plans may not be right for your situation.  It’s best to speak with a professional before starting your retirement planning.  Contact the tax experts at the IRA Financial Group to see what best suits your needs.

Feb 18

The “SIMPLE” Solution for Retirement

One oft overlooked retirement plan for the small business owner is the SIMPLE IRA, which stands for Savings Incentive Match Plan for Employees.  This allows employees and employers to contribute to traditional IRAs set up for employees. It is ideally suited as a start-up retirement savings plan for small employers not currently sponsoring a retirement plan.

As opposed to a traditional or Roth IRA where you can only contribute up to $5,500 for the year ($1,000 more if you’re at least age 50), with a SIMPLE IRA, you can contribute up to $12,000 ($2,500 more if you are 50+) as an employee.  Further, as the business owner, you can contribute up to 3% of your net self-employment income.

You must offer a match to every employee who signs up for the plan who makes at least $5,000 per year.  You do not have to put money aside for those who do not sign up.  This is a much cheaper choice than a SEP IRA, where you must make the same percentage contribution to all employees.  Also, there is no percent of income restriction with a SIMPLE.  Another great advantage is that the owner gets a tax deduction for all matches made to his/her employees.  Note that if you have a regular job and contribute to a 401k plan there, any employee contributions you make to a SIMPLE will count against your contribution limit to your 401k.

This type of plan works for a married couple who works together as well.  If your spouse is on the payroll of your business, he/she may also contribute up to the annual limit in addition to 3% of pay matched by the employ spouse.  Furthermore, if one spouse is the big money earner and the other makes a small profit, you can use the SIMPLE to shelter most, if not all, of the secondary income.

One last thing to note is that a SIMPLE IRA must be set up by October 1st to make contributions for the year.

If you have a small business and are looking to set up a retirement plan for you and your employees, contact the tax experts at the IRA Financial Group who specialize in individual and small business IRAs and 401k plans.

Feb 15

The Traditional IRA CD

A traditional IRA certificate of deposit is a low-risk, tax-deferred investment option.  They can be bought from banks, brokerage firms and credit unions.  Terms, interest rates and withdrawal rules vary, but they are subject to federal tax rules when you do withdraw them.

First, here are the basics of a traditional IRA.  They are funded with pre-tax dollars and grow tax-deferred.  You don’t pay taxes on anything until you withdraw them during retirement.  You must start taking required minimum distributions when you reach age 70 1/2.  The limit for contributing to an IRA for 2013 is $5,500 (plus another $1,000 catch-up contribution if you are at least age 50).

Now as for the actual certificate of deposit: it’s an interest-bearing investment account with a fixed term that may last from days up through many years.  Earnings on CDs are subject to income tax.  However, with an IRA CD, earnings are sheltered from taxation until withdrawal.  If the CD term ends prior to you making withdrawals and you want to defer the taxes further, you can roll it over into another CD.

If you open your IRA CD at a bank or credit union, generally you cannot touch those funds until the CD term ends.  If you withdraw prior to the maturity date, penalties may deplete not only interest, but principle as well.  You have a seven-day right of rescission on CD IRAs, meaning you can get back your principle if you close the account within a week of opening it.  If your CD was bought through a brokerage firm, usually cannot redeem them until maturity.  Once that happens, the issuer will redeem the CD and put cash into your IRA.

IRA CDs offer you a predictable, albeit low, rate of return.  The FDIC insures them up to $250,000 per account holder per bank.  The NCUA provides the same for IRA CDs offered through credit unions.  Brokerage CDs are not federally insured unless issued by banks.  The only real risk with CDs is the inflation risk – when the rise of inflation is more than the rate of return on the CD.

For any help you have concerning your IRA and other retirement plans, contact the IRA Financial Group today.