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Tag Archive for 401K

Roth Contributions: Limits To Remember

Who was William Victor “Bill” Roth, Jr? He was the legislative sponsor of the Individual Retirement Account plan that now bears his name, he was also famous for his toupee, he supposedly had “the grace of a stick figure”, and most importantly, he had a succession of Saint Bernard dogs throughout his 34 years of politics and it sort of became his trademark.

Besides his obvious love of St. Bernards, he was a lawyer by profession and started his political career in the late 1960s in Delaware. He was elected to the United States House of Representatives and was known to be fiscally conservative. He was the co-author of the Kemp-Roth Tax Cut. The Roth IRA has been in existence since 1998. And the Roth 401(k) since 2006. Read more

40% of Big Firm Partners Retiring Within Decade

High Net Wealth Partners Retiring

On April 28, 2014 The American Lawyer published its annual (2014) Big Law report in which it found that 16% of partners in the US’ largest 200 law firms by revenue are 60 years old or older, with at least 8% 65 or older.  These 16% of big firm partners will be retiring over the next five years.  Moreover, right behind this retiring group are 28% more partners that have reached at least 50 years of age.

While these thousands of retiring partners leading up to retirement may have been earning between $750,000 and $3 million annually, most also have lifestyles that correspond to spending this level of income.  These retiring partners are now asking Read more

Investing In A Roth 401(K) And Tax Free Rollovers

Roth 401(K)

Employees should consider making contributions to a Roth 401(K) if their employer allows them to do so. The account is funded by after tax contributions. Since there are no income limitations on making contributions to a Roth 401(K), these provide a good way for high income taxpayers to invest in a Roth IRA without converting a traditional IRA. For 2014, you may contribute up to $17,500 to a Roth 401(K) a traditional 401(K), or a combination of the two. If you are 50 or older, the contribution limit is $23,000 annually If the employer matches the employee contribution, it goes into the traditional 401(K) as a pretax contribution.

Both withdrawals from a Roth IRA and a Roth 401(K) are tax-free if the account has been Read more

Saving For Retirement? Get A Credit Out Of It!

The modern day Guru of all-things-financial, the Investing Pundit of the 21st century, Warren Buffet, has said “No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.” There is truth in this statement for all but especially for those who are in the lower income brackets, or those starting on their career paths, saving a little over time adds up!

So you just got a job or you are one of those who are thinking of starting up your retirement basket, the Internal Revenue Service (IRS) has an incentive for you. It’s called the “Saver’s Credit”. It is available to you if you contribute to a 401K or an IRA.

The credit is worth $2000 to taxpayers filing with the “Married Filing Joint” status and worth Read more

Self Employed And Worried About Retirement Plans? Read On…

Manasa Nadig, EA

Manasa Nadig, EA

You did it! You quit your job and started that small business that had always been your dream! Exciting times, thrilling ups & downs, you are your own boss–but wait, you do miss the paychecks that arrived regularly every other week. You also miss the medical benefits that the company paid for & that retirement plan you contributed to. What’s more, you also miss that extra oomph on your paycheck-the employer contribution to the company 401(k).

In this post on Employer Retirement Plans for Small Businesses, let’s closely examine the Individual 401(k). This is also known as the Solo 401(k). Unlike other retirement plans, a solo 401(k) is only for sole proprietors or S Corps who have no employees. A spouse can contribute if he or she earns income from the business.
It comes in both the Traditional & Roth version. Just like IRA’s, Traditional is money put away pretax & is taxable when withdrawn. The Roth 401(k) is funded with after-tax dollars & is tax free when withdrawn. One can also split the contributions between the two. Loans can also be taken against savings in 401(k)’s.

Why I like these plans?

•They are ideal to sock away large amounts of money in the good years.

•It helps you save both as an employer & an employee. Here’s how for 2013 – you can contribute a maximum of $33500 (Up from $33000 in 2012) as an employer AND $17500 (Up from $17000 in 2012) as an employee- not to exceed a maximum of $51000 (Up from $50000 in 2012) or 100% of the employee’s compensation, whichever is lesser. Read more

The Retirement Savings Plan Myth

TaxConnections Picture - Money EggSince 1976 we have all been told that the 401K was the best retirement concept since sliced bread. After all, you get to put money away pre-tax, reducing your current taxes, your employer may even match a portion of it and you will be able to withdraw it when you need it, in retirement, at a lower tax rate than before.

Hogwash! Lets look at the numbers. For the sake of argument you put in the maximum amount allowed into your 401K. Today that is $17,500 if you are under fifty years of age and $23,000 if you are over 60 years of age. The amount you set aside is still subject to social security and medicare tax so we won’t even discuss that issue.

If you are 40 years old and you put $17,500 aside you are probably in the 25% tax bracket which means that contribution saves you $4,375 in income taxes in a year. Do that for the next ten years and you have saved $43,750, always assuming that tax rates stay the same for the next ten years and that the benefit is still available for the next ten years. President Obama has already made suggestions along the line of taxing or limiting your benefit if your account balance could finance an annuity paying $205,000 per year. Currently, for a 60 year old, that would be $3.2 million. You say great, I will never have that sort of money. You will if you saved the money judiciously during your entire working career, or if you are a [union] pension holder, which is another category that the President is talking about taking. [See MarketWatch, September 9, 2013]. For simplicity sake, we will ignore the change in tax rate issue and the loss of the benefit if you save too much. Read more

Saving And Budgeting Is A Science

Saving money can be a tricky proposition for many people.  The first step to saving is creating a budget  –   a detailed budget.  This is not a guestimate based on your recollection of prior month expenses; this needs to be an exact science.  First figure out your monthly income and then take out the taxes (payroll and income taxes).  If your withholding doesn’t cover your tax liability each year, consider changing your withholding so the monthly withholding covers all your taxes for the year.  From there I like to set aside savings.  Retirement may be 40 years in the future or it might be just around the corner, but saving for retirement is always one of my top priorities.

The tax code allows you some choices when saving for retirement.  Most employers offer a 401(k) plan and at least a partial match of your contributions.  If the employer is willing to match 6% of your salary, then the first place to save is 6% of your salary.  If you don’t, you are leaving money on the table right off the bat.  Nowadays many employees can choose between the Roth and traditional 401(k)s  –   the Roth/traditional works like the IRAs.  For a traditional you get a tax deduction when you put the money in, but it is taxed when you take it out in retirement.  For a Roth, the money is not deductible when it goes in and then it is not taxed when it comes out in retirement.  I prefer the Roth for most people, but to each their own depending upon the circumstances.  Keep in mind that you can make both a 401(k) and an IRA contribution.  Sometimes people think it is one or the other, but you can do both. Read more

Making A “Backdoor” Roth IRA Contribution

Sec. 408(d)(1) ordinarily requires a pro rata allocation between taxable and nontaxable amounts (using the Sec. 72 annuity rules) when reporting distributions received from an individual retirement plan (an individual retirement account or annuity (IRA)). The practical effect is that a taxpayer must recover any nontaxable amount (basis) ratably as distributions are received, by tracking basis on Form 8606, Nondeductible IRAs. The tax liability on such a distribution can sometimes lead a taxpayer to improperly conclude his or her best option is to recover the nontaxable portion ratably as distributions are received, without considering a Roth conversion. Read more