How Much Are You Paying For Your 401(k) Plan?
Sanjiv Gupta CPA - 9 years ago
How Much Are You Paying For Your 401(k) Plan?Have you ever wondered “How much are you paying for your 401(k)?” There is a good chance that your HR has not discussed this particular figure with you but starting Aug. 30, that will change.An unprecedented policy change, the U.S. Department of Labor will require employers or administrators of 401(k) plans, to disclose how much they are charging to operate these retirement plans. This new policy is being welcomed by many certified public accountants and financial advisors including my boss, Sanjiv Gupta CPA.“Some employers or administrators may be getting worried because they may not want to openly discuss this particular figure,” says Sanjiv Gupta, CPA.The cost of retirement plans can vary but you can expect anywhere between .3 to 2% if your account balance is less than $50,000. Some of you may even choose to move your retirement plan once you know the exact cost of your plan.“You don’t have to wait till August to find this number. Simply ask your CPA or Financial Consultant. In simple terms, this cost can add up to hundreds of thousand dollars over you the life of 401K account.” advises Mr. Gupta.You should also note that employees of small companies are probably paying more for their 401K account than the employees of a larger company. Larger employers have more leverage and usually have better and cheaper retirement plans.New companies or companies will a lot of newly hired employees are also likely to have a higher cost and this higher cost ends up divided among participants.Before you go all nuts about the cost of your retirement plan, let me remind you that understanding the true costs of a 401(k) hasn’t been easy — even for employers but that is about to change. You should expect this in the mail or on your desk very soon.You will receive a 20-page document will a lot of information divided into 2 main sections. Along with your investment options, you will also get an explanation of administrative expenses and fees such as legal, record keeping and accounting. You will also get an explanation of what kind of fees and expenses can be deducted from your account.You will also get investment-related information: You will get some financial information about the historic performance.And benchmarking information comparing investment with the broad-based market indexYou will also get some other annual operating expense report but it’s not free. The cost for providing this information is about $4 and your employer is allowed to subtract this from your 401(k) quarterly. What can you do with this kind of report? Start by asking some questions to yourself.What are the total all-in fees and expenses?What are we getting a return for the cost?How much it will cost me over the life of retirement account?This new will make employers look twice at the price they are paying for 401 (k) plans and motivate them to offer better options. At the same time, employees should not focus solely on plan costs. You may get some really good fund managers or some really good fund options.You should also note not to put too much in your company stock. This can be seriously dangerous if your company's financial health gets in trouble.401(k) plans are important decisions and you should consult with your CPA or financial consultant on a quarterly basis to make sure you are getting the most for your money.
Worked in US. Now in India. How do I file?
Sanjiv Gupta CPA - 8 years ago
People come to the United States from India for various reasons and for similar reasons Indians go back to India. However, during this transition, we often forget to deal with taxes. United States Tax is based upon worldwide income. If you are a green card holder or a citizen or US resident living in India then you are required to pay taxes on your income in India and the United States. This can be quite complicated. Common questions asked by our clients are:What income should I report?Should I include my retirement plan income?Should I file taxes in India?Do I need to come to the United States to File the Tax Return?I paid taxes in India, Can I get credit in the United States?What kind of deductions can I claim?I do business in India and the US, what return do I need a file ?What form to file?Doing business in the two countries can be quite difficult but our office can make your life a bit easier. Our firm specializes in filing taxes for US residents living in India. You can contact our office for a telephonic appointment or send us the details via the contact us form on our home page. Recently, Sanjiv Gupta discussed this topic on television. You can watch that clip here for some answers.
What You Must Know About 2012 Tax Challenges
Sanjiv Gupta CPA - 9 years ago
What You Must Know About 2012 Tax Challenges2012 presidential election summons the close of all tax benefits introduced by George Bush. This would usher in an unavoidable clash because of the new tax rules, many deductions, and unchanged tax rates.It is indeed tough to prepare a perfect tax return sheet amidst changing rules and implementation of stringent penalties. Therefore in this article, we are to take a look at how to tackle the most common filing challengesNewly implemented Capital profit rulesWorried about how to calculate taxes on your invested income this year? Heres the key rule: bought stocks after Jan 1, 2011, then you are not eligible to count your cost basis or the tax-exempt investment amount. Your broker will help you calculate the amount as per your preferred method. Most brokers send notice of FIFO; First-in and First-out which reports your selling off older shares. Before filing or tax return analyze 1099 and ask your broker to mend all errors. Talking about 1099, Roman Ciosek, a wealth management assistant at HighTower’s Strata is advising customers to slow down in their tax filing process. According to Ciosek, there will be a number of amendments on the 1099s. However, if you have sold your earlier shares whether willingly or because your broker advised you then you cannot alter your cost-basis.$1billion in unclaimed tax refundsApart from what is discussed above, everything more or less remains in place. You can jolly well counterbalance your gains with losses. While doing so first take into account the long term (considered over a year) profits on assets that incurred tax at or over 15% and balance them with your long term losses; then balance short term gains taxed as minimum income with short term losses. Having calculated the long term accounts and the short term income separately, now you are required to match your long term records to the short term report. If your loss margin is high considering deducting a little near to $3000 from your income. This way you will be able to manage all taxable amount the next year as well.How to plan: when you proceed with tax filing you can choose to toggle between accounting ways. Your common options are “last-in”, “first-out” & “Specific share identification”.Before using FIFO it is a better idea to select particular stocks/shares that you want to sell. This is more appropriate when you have pitched in at over-time stock selling program and have derived your biggest profit out of the initial batch. On the other hand, if you have a great many capital losses with which you can counterbalance your capital profits then 2012 is a good year to enjoy a good number of tax benefits.This calculation will be the same when accounting for mutual funds, dividend reinvestment plans, exchange-traded funds, and 2013 bonds. If you haven’t received any mails yet from your broker’s company, then wait till you get your options to choose a particular method of calculating your tax amount. Don’t treat the paperwork casually.Retirement plansFiling challenge: If you have plans to finance Roth IRA for 2011, then better have it done before April 17, 2012. IRA is a tax-deductible scheme that will provide you a tax concession on your investment but will calculate taxes on withdrawal of money from this traditional plan. Roth requires you/other liable people to pay upfront taxes. This is one reason why Roth is considered a good investment idea for the long-term by most tax-payers.The changes were introduced in 2010 that everyone could convert their IRA to Roth irrespective of income group. This is indeed facilitating unless you have an exorbitant tax bill. However to calculate tax-return for 2012 you have to abide by the conversions introduced in 2011.IRS warns of ‘dirty dozen’ tax scamsTo tide over your 2010 tax payments if it took you two years then you are required to clear all due amounts this filing season 2012. The time is ticking already and you have only until the filing day to undo 2011 alterations.How to plan: open or reinvest in IRA for 2012 and also transfer an existing IRA into Roth. Such conversion will help you trim down a higher tax rate during your retirement days (than what you have to pay now). For those that were planning to go ahead with conversion plans, this is the right time to take the call. If the conversion is done before the Bush tax laws expire then you won’t be required to pay more than 35% on the upturn, which by the year-end can go up much higher than what is anticipated.Home selling: Not a very good ideaFiling challenge: If you are happy to have earned much after selling off your house then wait, your profit might as well come under taxable charges. For single home sellers, anything above $250,000 will be taxable. For married couples, the same rule applies to a marginal amount of $500,000.Wondering what happens if you sell your house at an under-rated price? You will be considered unlucky, simply because you can’t file for tax-return on the initial amount/cost of your residence. However, if you lent your house out on a mortgage and the contract period was cut short by reconstruction/ restoration purpose then you might as well get a tax break. Such deals are also applicable to conditions such as a short-notice sale or when losing your home to foreclosure. This type of tax-breaks means liberation from paying due debts.Should you buy a home in 2012?How to plan: This tax-break plan closes this year 2012. So in case you want a tax break, then better not waste time.Education tax cutsFiling challenge: the American government though has been lenient with educational grants; however some important scholarships scheme as tax-cut loans. Sorting these educational tax cuts is difficult. Some of the variety of schemes is the lifetime learning credit taxable over $2,000 per return, the American opportunity credit tax-free till $2,500 per undergraduate student, the tuition and fees deduction $4,000 max for a single student per family. However, you can only file one application for the education tax cut per year.Get help to solve your tax doubtsAccording to Justine Ransome, a national tax officer at Grant Thornton the American opportunity credit is the biggest money saver scheme. Taxes are sorted as per income brackets/slabs; but American Opportunity Credit provides the highest tax-cut, $180,000 for married couples and half the amount for singles.How to plan: Bad luck the American opportunity credit expires this year but well you will have various simpler choices the following year.Health care write-offsFiling challenge: health care costs will be deductible at higher rates. This means that you can file for only those that surpass 7.5% of your Adjusted Gross Income. But it seems likely that increasing medical costs can wrap the matter neat and tidy. Allison Shipley, PricewaterhouseCoopers’ principal of personal financial services opines that if a person’s income is drastically reduced and the medical expenses increase on the other hand, then the individual can produce all medical expense bills and enjoy tax-cuts.It’s saving time:Heres what the tax-cut expenses include: general physician and dentist’s bills, doctor's prescription, medications, specs, hearing kits, wheel-chairs, patient’s transportation, consultation fees, caregiver charges, and a few insurance costs.
Roth IRA and 401K Explained By Sanjiv Gupta CPA
Sanjiv Gupta CPA - 8 years ago
Sanjiv Gupta CPA briefly explains the IRA and 401K plans. He explains how a 401K plan can help a small business owner. He also explains the difference between the 401K plan and the Roth IRA. Want to learn which one is better for you? Watch this 5-minute video to get your quick answer.
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 - 8 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 - 8 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.
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.
Moving Back to India -What Should You do with 401K Plan?
Sanjiv Gupta CPA - 8 years ago
Are you a W2 or 1099 Contractor and have a 401K Plan in the United States? Are you planning on moving back to India? Are you wondering what can you do with your 401K plan in case you move back to India? In this short video segment, Sanjiv Gupta CPA will explain how can you manage your 401K plan if you move back home.
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.
Three Annuity Mistakes To Avoid
Sanjiv Gupta CPA - 7 years ago
The recently concluded Market Watch Retirement Adviser Event held in New York gave some basic insight into dealing with annuities and what are the mistakes to avoid while doing so. The immediate annuities and the deferred annuities contribute excellently to the whole retirement income strategy; however, the benefits of these are usually not utilized fully, because both consumers and financial experts make some gross errors while dealing with these.John Olsen, president of Olsen Financial Group and an expert on annuities (he is also the author of lots of annuities books including, Index Annuities: A suitable approach), addressed the gathering and explained about the various mistakes that one should avoid while dealing with annuities. The three mistakes are explained below:Unfair ComparisonsThe common mistake that people make with annuities is about the costs. Most of them view these costs as overheads and hence there is a perception among the general public that these annuities are quite expensive. However, Olsen gave a different view of the whole concept. He advised that one should start looking at these costs as the charges for the risk that is being borne by the insurance company on behalf of the buyer. One of the major reasons for misunderstanding these annuities is that the consumers are not trained to manage risk properly and to transform their assets into income. It was also emphasized, annuities, being a product of insurance, would definitely come with the additional baggage of insurance costs. This cannot and should not be ignored by customers, at any cost. The insurance products never pay profits on average, and it imperative for the consumers to realize the fact that the insurance companies can never survive if it starts to pay off profits on average. This being a product of insurance can never be compared with other mutual funds, because that would be equivalent to comparing apples with oranges.Focusing on ReturnsOlsen advised the focusing on the rate of return when buying annuities is not the right way to deal with annuities. Though low-interest rates directly collaborate with lower pay payouts, annuities must be viewed for the absolute insurance of having a particular amount, in one’s account every month. One should consider the benefits of mortality credits while evaluating annuities. These are nothing but the process where the premiums paid by persons who die earlier than expected, yield more benefits for persons who live longer.Failing to AnnuitizeAnnuitizing a particular portfolio strengthens it and reduces the risk of failure to a great extent. In addition to that, an annuitized portfolio also guarantees a steady flow of retirement income. However, most people fail to realize the benefits of annuitizing. Olsen advised that this process must be focused on more, to evaluate the benefits of annuities in a proper methodical way. The experts at the Market Watch Retirement meet, suggested the consumers that past data should not be taken as the base, as it can create a negative impact in their minds.
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.
Self Directed IRA – Caution
Sanjiv Gupta CPA - 7 years ago
Self-directed IRA schemes have a great chance of being involved in a prohibited transaction and hence the owner of these retirement benefits face the potential danger of their IRA account being disqualified. This was discussed and decided in the Peek V. Comr. Case. The details of this case are explained below.A fire safety business was considered a potential investment opportunity by two taxpayers. A broker, who was facilitating the sale, connected these taxpayers to a third party agent who managed the process further. This agent explained a technique to the taxpayers which involved them to set up a self-directed IRA, move funds from their existing IRA schemes to the self-directed schemes, set up a company, sell shares of the company and direct the funds into the self-directed IRA scheme and finally use these funds to buy a business interest.The paperwork for this scheme suggested that any prohibited transaction undertaken would prove harmful for the whole objective of this strategy. The paperwork was also accompanied by a letter from the firm’s accountant explaining the prohibited transaction rules clearly, though no personal guaranties were specified.The scheme went as per plan and the transferred funds were used to purchase the assets of the fire safety business. This transaction included a promissory note from the company to the sellers for one-fifth of the total sales price. A couple of years later, the taxpayers moved to Roth IRAs from their original IRAs and hence when the company was finally sold, the payments were finally transferred to Roth IRAs.The taxpayers’ income was fully adjusted to include the capital gains acquired from company stock sales by the IRS and the justification provided by them was that personal guaranties were equivalent to prohibited transactions. The assets from the IRA were deemed to have been distributed to these guaranties. The IRS reasoned that section 4975©(1) (B) disallows taxpayers from creating loans or loan guaranties indirectly to their IRAs. The Roth IRAs discontinue its existence if it is funded by company-owned stock.The taxpayers had to suffer an additional burden of 20% in penalties for not declaring the sales of the company. Their tax advisers could not be trusted upon, because they were the promoter of this sales strategy. The advisers were not given full information either because they were not transparent with the advisors and did not inform them about their decision to personally guarantee their loans.This is a good example for investors to understand the prohibition rules clearly and what transactions to proceed with and what transactions to avoid. It becomes doubly complicated when dealing with investment in retirement funds as the rules pertaining to the IRA accounts are more comprehensive than the other funds. This case also explains the need to be fully transparent with the tax advisers as they are the ones who represent a particular tax strategy and no transaction should be carried out without their knowledge.
401K and IRA Plans Explained By Sanjiv | Video
Sanjiv Gupta CPA - 7 years ago
In this video, Sanjiv answered a few important questions related to 401k and IRA Plan. If you are planning to move to India and wondering what should you do with your 401K plan or retirement then you should watch this small video
Self Employment Income Needs To Be Turned Into Pension Plan
Sanjiv Gupta CPA - 7 years ago
For people who are self-employed, had a great year and want to save for retirement, it is advised that they start a defined benefit plan by the end of the year. You are funding the pension plan: you can deduct and contributed the most and build up your benefits significantly in a relatively short time (often only 5-10 years). If you combine your defined benefit plan with a 401(k) plan, you will be able to shelter your income from taxes with a tax deduction that could reach a couple hundred thousand dollars each year. How Do I Get The Tax Deduction For This Year?To get this year’s deduction, you will have to start the plan before the 31st of December but the good news is you do not have to fund it fully until the following year before your tax filing deadline. The exact amount that you will be able to contribute is based on actuarial calculations that consider your income, years until you retire and age. Generally speaking, the older a person is, the more they can contribute. These defined benefit plans are perfect for those individuals who would like to contribute more money than they are allowed under many retirement plans including 401(k)s or SEP-IRAs.Defined benefit plans are best for small practices and owner-only businesses. Think architects, doctors, software developers or sales reps. If you are married to your business partner, you could put away large amounts of money for your retirement. These plans are also perfect for employees that have a side business for extra income and spouses that are self-employed but they are not the partner that has to contribute to the living expenses of the family. Do I Have To Make Contributions To The Defined Benefit Plan Every Year?Once your defined benefit plan is set up, you will be required to add the minimum contribution that has been recalculated for the year. It is important that you only sign up for a defined benefit plan if you are expecting 3-5 steady years with a good income. Only put in the amount you feel comfortable with. Do not let any advisors push you over that amount. Many people want to put the maximum amount in because they want to get the most take benefits; however, they need to think about the future. If your business goes out of business, you are able to close the plan.If you are not sure if you will have a steady income over the next few years, you should consider contributing a smaller about to the plan and open a 401(k). This way, in good years you can contribute to the 401(k) plan after you have made the defined benefit plan’s minimum contribution.Now is the time to start your defined benefit plan. Remember, if you want to take advantage of the tax advantages for this year’s taxes, you need to open your plan by December 31st. You have until the filing deadline to fully fund your plan and it will still count for this year’s tax return.
Why You Should Have A Pension Plan?
Sanjiv Gupta CPA - 6 years ago
If you are worried about your retirement, the time to get everything organized is now. First, consider the options that are available. Your pension plan is the security of your retired life. I am obvious that you don’t want any kind of financial burden after retirement, so the earlier you plan the better. There are lots of plans authorized by the US government, and you can select any one of them to suit your needs. Before that, you need to know the basic things involved in retirement planning.Two types of pension plansThere is a policy known as the cash balance pension plan. According to this plan, you can go for two different pension plans i.e. defined benefit plan and defined contribution plans. In the first plan, you will get a perfect amount of money after your retirement and in the second plan you will have to deposit a set amount of money every time and according to the other terms and conditions, you will get the amount of money against your deposit. The second plan can be beneficial in case your account gains more. Otherwise, you can simply opt for the first plan if you do not want to take any kind of risk.Fixed date pension planInvestment can also be categorized in other ways. There is a term known as 401(k) plans. A policy known as target-date retirement refund comes under the 401(k) plan. This is basically long term investment planning, and you can only opt for this pension plan when retirement time is fixed. However, there are also lots of options and categories in a single date target plan. You may get options like a target 2030 plan. Furthermore, there may also be lots of different types of plans in the 2030 plan itself. You will need to choose according to your risk-taking capacity.You can also try to understand a few things before going for this plan. Check the investment strategy and see how much of your involvement is required or is it mainly the bank that gets involved, and then compare these things with your requirement. Try to understand where your money will be invested. If there is the option of changing the investment plans then also you need to check where, when and how you can change. You should also clearly know when you can access your money.Tax payment issuesAnother major fact is tax payments. You should have a clear picture of the amount of tax that you need to pay on the retirement pension plan, and also the cost of the plan. There are also some important facts stated in The Employee Retirement Income Security Act of 1974 which protects the plan users from different problems. Considering all of this now will also help in your current tax deduction, and will ensure your future is secure.
What is Self Directed IRA?
Sanjiv Gupta CPA - 2 years ago
When discussing self-directed IRA, it is important to note that it is not any different of a significant matter when compared to the IRA. However, the former is unique due to the available options for investment as well as the investing direction that comes to the entrepreneur.
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