Best Freez

Archive for the ‘Financial’ Category

If you’re covered by an employer-sponsored retirement plan at work, that $2,000 (or $4,000, for you and your spouse) might be only partially deductible or not tax-deductible at all.
It’s not tax-deductible at all if:
H both you and your spouse are covered by an employer- sponsored retirement plan, you are filing a joint tax return, and the total of the adjusted gross income for the two of you is $50,000 or more; or
1 you are single, covered by an employer-sponsored retirement plan, and your adjusted gross income is $35,000 or more.
If your adjusted gross income is less than the amounts just indicated, you may still be able to deduct at least a portion of your IRA. And if your only retirement option is an IRA, I urge you to invest not only in that vehicle, but also more on your own, taxes notwithstanding. Later in this chapter and the next I’ll tell you how.
What’s the Difference between a 40 1(k) and an IRA?
Well, it’s about as much as $7,500 a year of possible income you can put away. The maximum you can put into an IRA for yourself is $2,000 a year. This is a big reason to push for a 401(k), where the max is $9,500. Even with a SIMPLE you can possibly put away $4,000 more a year than you can with an IRA.

• Ask your boss to get you one. Take a poll and you will see that almost everyone you work with probably wants one, too. Choose the best person to approach your boss to ask about establishing a 401(k) company plan or a SIMPLE for all of you. Offer to do the research yourself or with a colleague. Many excellent plans are offered by different mutual funds companies, all of whom will set up a plan for your company’s needs; Fidelity Investments (800-343-9184) and Vanguard Group (800-662-7447), for example, are two of the largest 401(k) money managers and wonderful places to start looking.
INDIVIDUAL RETIREMENT ACCOUNTS
If you are working for a company that still won’t offer you a retirement plan, your only other option is an IRA, or individual retirement account. Starting January 1, 1997, you can make an IRA contribution of up to $2,000 for yourself, and if you’re married, you can also contribute $2,000 for your nonworking spouse. In order to do this, the combined income of both spouses has to be at least equal to the amount contributed to the IRA. You can also have an IRA in addition to an employer’s retirement plan, but your contributions may not be tax- deductible.

The longer you can let it sit there, in most cases the better off you’ll be. But the government won’t let it sit there (tax-free!) forever. They want their taxes on your retirement money. According to a formula specified by the IRS, you have got to start taking money out of our retirement plans by April 1 in the year after you turn 70Y2. There is one big exception: Begin- fling January 1, 1997, if you are still working, your retirement money is in an employer-sponsored plan such as a 401(k), and you are 70Y or older, you do not have to make withdrawals until April 1 following the calendar year in which you do retire.

The taxes on a retirement plan will be deferred until you take your money out, at which time it will be taxed as ordinary income. But if you withdraw funds from a retirement account before the age of 59, you will pay a 10 percent federal penalty on any amount withdrawn, as well as a state income tax penalty. You will also pay ordinary income tax on the money. With a SIMPLE, it works the same way after the first two years. But if you take out the money within the first two years you participate in the plan, an early withdrawal tax of 25 percent will apply.
However, there are exceptions.