Tag: Social Security


Strategies for Funding and Managing your 401(k)

Sanjiv Gupta CPA - 8 years ago
he 401(k) fund is undergoing a few changes that are bound to affect almost everyone in its coverage. As such, if you are planning to fund your retirement using the 401(k) accounts, it is about time that you took a keen interest in the changes that are in the offing. Of course,  the largest change is going to be in the amount that you will be required to contribute towards your retirement. The government is in the process of setting up a thrifts savings plan that will increase this value from $500—from $17,000 to $17,500. These changes are expect6ed to be in effect as of the 31st of December this year. This is a good thing for most people as it means the amount of money that will be available to you upon retirement will increase. To take advantage of these changes it is important that you perform an audit to determine that you pay as much as you can legally. In addition, some significant changes that have been added include changes in the disclosure provisions. From the start of the coming year, the first that 401(k) participants will be eligible to receive quarterly and annual statements listing fees, which are to be charged to the account.So what are some of the strategies that you can put in place in order to ensure that you maximize the 401(k) strategy? To start with, you should be keen on the amount that you pay in fees. The percentage that you pay in order to manage your account may at the end of the day be more than you can actually handle if care is not taken. If it is possible for you to minimize the amount that you pay in fees, then the better for you. You can minimize these fees by investing in low-cost index funds or by managing the fund yourself. It is also important that you keep yourself from trying to tap into your retirement funds at an early age. The temptation is often great especially if you are going through some tough economic times. However, keeping yourself aware of the danger you pose through such an action goes a long way in keeping you level headed.

Tax Rules for Independent Contractors

Sanjiv Gupta CPA - 7 years ago
Are you clear about your employment status – whether you are an employee or an Independent Contractor (IC)? If you are not sure, then it is good that you check the IRS website to understand tax implications on these employment categories.It is the duty of every citizen to pay taxes regularly no matter what the tax liability amount is. Of late, the IRS has been conducting a lot of scrutiny on Independent Contractors because it has been noted that in certain circumstances, employers are evading employment tax by classifying their employees as Independent Contractors.Let us discuss more Independent Contractors, in the context of dental practices, to gain a better understanding of the employment classification mechanism. Independent Contractors are people who are self-employed. They are specialists in their area, own their own dental practice, perform their work duties from their premises, bring and purchase their work materials and supplies, work at their will, pay for their own staff, in case they employ people to work for them, and ultimately control the quality of their work or output that is to be delivered. Broadly speaking the ICs maintain a contract with the entity and not with the person providing the service. Hence, it is a contract between two entities. There is strictly no employer-employee relationship in this context.An employee is one work for an owner, perform services as mandated by the owner, work during the hours fixed by the owner, adhere to output quality set by the owner, use the equipment and supplies of the owner to provide the designated service and ultimately is supervised by the owner throughout the job duration. A dental associate is a classic example of this category. An associate works for a specialist or an independent contractor and draws a monthly salary for offering services. There is a clear employer-employee relationship in this context.Misrepresenting or misclassifying employees as ICs either intentionally or by ignorance is a serious offense and is punishable by law. IRS heavily penalizes owners who adopt such practices to evade taxes. Consequences for an owner who misclassifies employees are:Scrutiny of the employer’s social security and Medicare tax liabilityScrutiny of Federal unemployment tax paidPenalties an interest in general and specifically on any employee benefit plansThere are a number of cases that fall under this category of misrepresentation. If the IRS detects the case to be an abuse of classification the owner could face grave consequences. On such example is the case of a stockbroker. All the stockbrokers of this small firm were where treated as independent contractors by the owner of the firm. When the IRS audited this brokerage firm, all the brokers had to prove that they were paying self-employment taxes and also had to provide a copy of their returns to ascertain that they were reporting their income accurately. Ultimately the brokerage firm was penalized hundreds of thousands of dollars on back payroll taxes and interest.Since the results of an IRS audit could be grave, in case of malpractice or abuse of employee classification, it is best for businesses in their own interest to be transparent and straight forward in cases related to employee classification.

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.
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