Tag: Retirement Accounts


Road Block To Retirement

Sanjiv Gupta CPA - 8 years ago
Have you ever wondered if you may hit a roadblock in your journey to retirement?I will cover some basic strategies that can help you limit the damage caused by an unexpected event or change of lifestyle.A Protracted Illness | 21st Century Major CrisisNursing home care is super expensive both in India and the United States.   The nursing home cost can exceed well over $250/day in the US.  In a recent phone call with Kiser, I was told that paying $500/night for stay at the hospital is a great deal. Well – maybe for Kiser, not for me.If your family has a history of a health problem then you should consider long term care insurance.   At least have a plan in place to deal with such a situation.  You don’t want to end up spending all your retirement savings on nursing homes.Starting or Selling a Business Having a second stream of income during retirement can be very helpful.  Consider buying a business that has a long history of profitable years and has a good management team in place.   A real estate management company and good running restaurants can be great investments.You want to delay collecting from social security as much as possible.  Consider using income from Roth IRA, investment, and businesses during the early part of your retirement.Divorce: Don’t even think about itDivorce can cause all sorts of the problem including major financial issues.  You can do some damage control by purchasing annuity but try to avoid divorce as much as possible.Taking care of Kids or Grand KidsSupporting kids and grandkids during retirement can take a big chunk of your savings.  Carefully plan your retirement with your CPA to see how much you can spare to help your kids.  You can also consider buying a life insurance policy or funding a 529 college saving plan for your grandkids.Volatile Markets Retirement is not the right time to invest in volatile markets.  You want to play safe bets but talk to a financial adviser who can find safe bets with good returns. Thinking about retirement? Here are a few questions you can ask your Financial Advisor?Which income should I draw from first?What other cost should I consider?As I get closer to retirement, how should I adjust my allocation?Which options for covering health care costs make the most sense for my situation?How often should I make changes to the portfolio?

Solo 401k Plan Explained for Self Employed

Sanjiv Gupta CPA - 7 years ago
Last week I talked about the 401K plan and how shared an example explaining how your 401k plan contribution can earn you a 25% return on investment.Today, I want to continue with that conversation and how to explain how an independent contractor or self-employed person can save even more taxes by investing in their solo 401k plan.In today’s video, I am going to explain the following.A.) How much money can you contribute to your solo 401k plan?B.) What are some of the limitations with a solo 401k plan?C.) Where to open a solo 401k plan?D.) How much does it cost to open a 401k plan?E.) What kind of tax benefit you can get by investing in your 401k plan?We have about 2 months before the end of this tax year.  Self-employed personals can contribute up to $50,000 to their solo 401k plan and reduce their tax liability accordingly.There are fees associated with the solo 401k plan, but you can borrow funds from your 401k to help you with cash flow and you can pay the money back within 5 years.  You can also move the 401k plan to another company in the future.  In the video, I will tell you how you can open a solo 401k plan for free.A self-employed person with income of $75,000 will have to pay about $7500 in federal income tax.  However, this person can contribute up to  $30,941 to the solo 401k plan and reduce the federal income tax to only $2,304. Savings of over $5000.Moreover, a contribution to a 401k plan can be made as profit sharing.  In this case,  Up to $13,941 can be contributed as profit share further reducing the tax to about $600.In other words, you can earn up to $75,000 and pay almost no federal income tax if you contribute fully to your 401k plan and take advantage of a few other deductions. Have you checked your retirement plan this year?This is a good time to review your retirement account for the year 2012.  Single tax filers can contribute up to $17,000  to their 401k retirement plan.  Contributing to your 401k can significantly reduce your tax liability for the year 2012.1099 Contractors and Small Business Owners can also reduce their tax liability by taking advantage of various retirement plans.  You still have time to set up a proper retirement plan for this year and save thousands of dollars in taxes.Want to come in for a consultation to discuss your retirement plan?  Please make sure to bring your retirement statement and current year income statement.Free Solo 401k plan for self-employedWatch this video to learn how you can deduct up to $50,000 this year.

Understand Your Retirement Plan

Sanjiv Gupta CPA - 7 years ago
Retirement is one of the most feared times of life especially when there are no plans laid down. Today, the government pension cannot be totally counted on for the best and prompt services. There are so many reasons why retirement plans are considered important. This is why if you are able to plan the best retirement plans, you have to do it well. Retirement plans come in different forms. All aimed at ensuring that you get exactly what you deserve. Although there are some that are not totally drafted with you in mind.,  For instance; you can get a retirement plan that will allow you to take annuity payments on a regular basis for some time.No matter how small is your retirement plan, you need to make sure you are getting exactly what you will need to keep you safe when you retire. The number of payments that will come with every plan will differ. This is why it is best to make sure you research more about the plans you are signing up for. Due to the fact that these plans can be affected by inflation and other economic turndowns, it is best to make sure you are on the right path when going ahead with it.Before you sign up on a retirement policy with a retirement company, there are so many factors to consider. First of all, it will be best to know exactly what you are looking out for. There are retirement plans that will allow you to make monthly installments for a number of years with special packages while there are others that will take a lump sum and make sure payments are made till you retire.  You should use the internet for your search. This will help you to have a larger base to search from.Many people prefer to use online annuity calculators which are great. Using online annuity calculators will give you so much to look up to. It will also give you many annuity companies and their rates. They will also help you to understand their special terms and policies. This will give you so much knowledge and also help you know which rates are best. There are so many insurance companies that can provide you with all you need. However, it will be best to read the policy document before you sign.If the company you want to sign up to have a record of failure, it will be best to make sure you do not go ahead with the contract. Take your time to look through every annuity comparison detail you get. This will help you to ensure you make no mistake. Also, if you have a health condition, it will be best to make sure you select a plan that will benefit you more or transfer to your next of kin when you are not around. Having a retirement plan is always needed and considered very important if you want to have a great retirement life.

Claiming Social Security Benefits

Sanjiv Gupta CPA - 7 years ago
Workers have a lot of ambiguity while claiming social security benefits as there are too many clauses and conditions to fulfill. Some basic questions are answered in this section, which gives more clarity for the worker about his retirement benefits. It is their hard-earned money, and it is only natural for the workers to have their inhibitions while claiming the benefits for social security.One of the rules explains that if the wife applies for benefits from social security when she turns 66 years, she would be eligible for half of her husband’s benefits as part of spousal benefits. The spousal benefit that a wife would get is the sum of her retirement and an incremental amount that is received as part of a husband’s half benefits.Secondly, the Social security scheme works on the assumption that the husband keeps working until the full retirement age to get the full benefits. If the husband opts for early retirement, the final benefit that comes from social security is lesser than expected. The wife can get spousal benefits at the age of 62 years only if the husband is getting the benefits at the same time. However, the additional clause is that, if the wife has not reached the full retirement age, then she is eligible only for half of the spousal benefits. Delaying the social security claims gives an increase in the final benefits. One can expect increased benefits surely regardless of the market conditions. It gives high returns coupled with low risk on their investment.If the husband is actively collecting a retirement benefit, then the wife becomes eligible for her spousal benefit, by default provided it is higher than her retirement benefit. When the husband completes the full retirement age of 66, the wife starts to receive half of her husband’s benefits as a spousal benefit. If the wife wanted to get spousal benefits before that, then the husband should have started to receive his retirement benefits.The husband also has the option to file and suspend all his benefits once he reaches his full retirement age. In this method, though the wife would still continue to get the spousal benefits at half of the husband’s FRA benefits, the retirement credit could get slightly delayed. This is an option that needs to be considered if either the husband or the wife expects some longevity and also have other sources of money until they reach 70 years. In this option, the retirement benefits rise to 32% in just four years and the widow’s benefits that the wife gets are equal to the husband’s retirement benefits. Benefits paid to the wife does not impact the retirement benefits of the husband in any way.The above explanation was given by Mr. Gupta. These can be used only for knowledge purposes but should not be treated as personal advice. Every company would have an adviser exclusively to look after the retirement needs of the employee. It is advisable to consult this adviser for the best results.

Should You Delay Social Security Benefits

Sanjiv Gupta CPA - 7 years ago
Social Security is a scheme in which employees are encouraged to retire later than their actual tenure. There was legislation that got passed in the year 1983 which had allowed the retirement age to be fixed at 67 for people who were born after the year 1959. Delaying the Social security benefits has been under the scanner for long and researches were conducted by many to check if this scheme was beneficial to the aged people.One idea that came up during analysis was to offer lump-sum amounts to employees who retire later than their actual term. The idea of this bulk payment might motivate the aged people to extend their tenure, without having to compromise on their benefits. This research was conducted by four researchers- Jingjing Chai, Raimond Maurer, Ralph Rogalla (from the Goethe University, Germany) and Olivia Mitchell (from the Wharton School).The basic finding from their research was that the lump-sum payment option did motivate the workers to extend their retirement by 2 years, on average. The number-crunching concept behind this research was simple. It was calculated that a person who retires at 66 years instead of 65 years, would get 1.2 times more benefits than he would have got at 65 years in addition to the normal benefits that he is entitled to, at his actual retirement age.The amount that is calculated as the bulk payment is the expected current value of the extended retirement package. There would not be any increased costs to society or decreased benefits for the worker. Hence this system was found out to be “cost-neutral” to society. The workers reacted well to this delayed social security scheme as results proved that the workers who extended their retirement age rose by 49%. Workers who were lured by this delayed social security package were the ones who gave priority to work than vacations, were risk-takers and who were keen to invest in the stock market for increased returns.Another factor in favor of the delayed social security scheme was that the lump-sum payment paid out by the extended tenure did not directly relate to giving away to legal heirs. This amount was mostly used by the people to take care of them as they grow older. This was the motive of the Social security scheme; to be of help to the retired people as they step into their relaxed lifestyles.Social security schemes are considered as the primary source of retirement fund by around 42% of people whose annual income is less than $30,000 and around 33% of people whose annual income is between $30,000 and $75,000. However, people who earned more than $75,000 did not see Social security as one of the top retirement funds. Around 65% of these people used the options of 401K or IRA, which the workers used to deposit their lump-sum payments in. Delaying the retirement benefits was helpful for people with low class or middle-class income levels.

Saving For College: A Parent’s Guide To Federal Tax Incentives

Sanjiv Gupta CPA - 6 years ago
When your child receives the college acceptance letter in the mail from their dream school, the only thing that could make you happier is knowing that they will have the financial resources to pay for the college of choice.The cost of college for your child(ren) might be the largest expenditure you ever have. Millions of other parents face this same challenge. The good news is there are more options to save for future college expenses than ever before. The traditional investment options – taxable investment accounts, savings accounts, United States Savings Bonds and annuities – are joined with new education savings vehicles including Coverdell education savings accounts and Section 529 college savings programs.While these new investment education programs bring new opportunities, they can also make a parent’s decisions much more difficult. Understanding all of the available options is the best way to maximize the return on each dollar you save for your child’s future. It is important to remember that even though saving for your child’s education may seem overwhelming now, with savings and proper planning, college costs can be within your reach.One of the best ways to make your child’s education more affordable is to take advantage of some of the federal tax breaks geared toward savings and reducing the cost of college including:529 Plans (Qualified Tuition Programs): Tax-deferred earnings. When distributions are taken for qualified post-secondary education costs, they are tax-free.Coverdell Education Savings Accounts: Tax-deferred earnings. When distributions are taken for qualified post-secondary education costs, they are tax-free. Withdrawals from education savings accounts are also tax-free when they are taken for primary and secondary school expenses.United States Savings Bonds: I and EE savings bonds that were purchased after 1989, by someone 24 years or older, maybe redeemed tax-free for college tuition and fees for the bond owner, dependents or their spouse. The tax exclusion, in 2014, is phased out for those with incomes from $76,000 to $91,000 (for married filing jointly the incomes are phased out from $113,950 to $143,950). Each year, income levels increase.Individual Retirement Accounts: With traditional IRAs and Roth IRAs, the penalties for early withdrawals are waived when the funds are used to pay qualified post-secondary education costs for the account holder, dependants, their spouse or grandchildren. However, taxes for the withdrawal may still be due.American Opportunity Tax Credit: Available through 2017. Parents can claim a tax credit for their dependent children’s college tuition and fees equaling 100% of the first $2,000 and 25% of the following $2,000 ($2,500 maximum per child). If the student is not claimed by someone else as a dependant, they can claim the American Opportunity Credit themselves. The tax credit is phased out with incomes from $80,000 to $90,000 (for married filing jointly it is phased out from $160,000 to $180,000). The tax credit is only available when students attend a college degree program half-time or more and if they have not completed 4 years before the beginning of the tax year. The American Opportunity Credit cannot be taken more than 4 tax years. Lifetime Learning Credit: This is a tax credit for 20% of up to $10,000 in tuition and fees for the taxpayer, dependent children or their spouse. This tax credit is phased out in 2014 for incomes from $54,000 to $64,000 (for married filing jointly it is phased out for incomes from $108,000 to $128,000). When a taxpayer claims the Lifetime Learning Credit, they cannot claim the American Opportunity Credit during that tax year. With the Lifetime Learning Credit, there are no enrollment time or degree program requirements. Also, this credit has no limit on the number of years it can be claimed.Student Loan Interest Deduction: An above-the-line deduction may be taken for student loan interest up to $2,500 if the student loan was used to pay the taxpayer, dependent children or their spouse’s college costs. The student must be attending a college degree program at least half-time. In 2014, the deduction is phased out for taxpayers with incomes from $65,000 and $80,000 (for married filing jointly the deduction is phased out for income from $130,000 and $160,000). This deduction cannot be claimed by the student if he/she is a dependant on someone else’s tax return.Tax-Free Education Grants: If the recipient does not provide a service in exchange for the grant, the majority of grants are tax-free.Tax-Free Education Scholarships: If the recipient does not provide a service in exchange for the scholarship, the majority of scholarships are tax-free.Tax-Free Employer Educational Assistance: When an employer provides tuition assistance to an employee, the benefit is tax-free. It can only be used to pay the employees education, not the spouse or dependent children. Education doesn’t have to be related to the job. Also, under a Section 127 educational assistance plan, employers are able to deduct up to $5,250 in tuition and fees for college or graduate school for each employee.Your goal is to afford the college of your child’s choice. You should not look at college costs as another expense, like your rent or electric bill. Think of it as an investment in your child’s future. According to the Census Bureau, college graduates earn 85% or more than those who only have a GED certificate or high school degree. The additional income earnings for people with a college education could exceed $1 million over their lifetime.The best way to make sure that your child has higher education options later is to save now. That way your child can base their college selection on a school that offers the best education, not the school that offers the best financial aid. Knowing that affording their college education will not be dependent on outside sources, like scholarships and loans will put your mind at ease.To maximize your college education savings, there are many vehicles available for you to choose from. It is critical that you select a suitable strategy and combine the best investment vehicles. Take time to carefully evaluate all of your options. It may be helpful to seek professional financial and tax planning advice to develop the best strategy to save for your child’s college education.
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