401(k), IRA, or Both?

To adequately prepare for retirement, many financial experts recommend you fully fund your 401(k) or 403(b) plan, then deposit the maximum possible in an IRA. A 401(k) plan is a retirement vehicle sponsored by employers. Employees make pre-tax contributions into the plan. The employer matches a portion of the employee’s contribution – usually 50% to 100% – up to a percentage of the employee’s salary. The match often represents a significant portion of the investment’s growth. Tax laws limit the amount of contributions employees can make.

Distributions are taxed upon withdrawal. Generally, the employer contributions are subject to vesting. This means the employee must be in the plan for a pre-set period of time before the contributions totally belong to the employee – even if they change jobs.

When someone leaves an employer, they often get a distribution from their 401(k) and possibly a pension plan. The proceeds of these distributions can be rolled directly into a Traditional IRA (see below) without any taxes or penalties.

Talk to your employer to see if a 401(k) or 403(b) plan is available to you and how to contribute to it. If your employer does not have a plan, opening an IRA is even more essential to your comfortable retirement.

Tags: 401(k), 403(b), IRA, Roth IRA

Common IRA Misconceptions

Originally simple in concept, IRAs have been complicated by misconceptions. Individual Retirement Accounts (IRAs) are well-known and often used as a simple and efficient method to accumulate funds on a tax-advantaged basis for retirement and other purposes. IRAs were originally designed to be very different from “qualified plans.” In other words, an IRA was to be less burdensome, and require little paperwork and no IRS filing. Only one line on page 1 of Form 1040 refers to IRA.

Today there are 13 types of IRA plans. Nevertheless, the IRS has maintained the basic IRA simplicity-a fact often lost in the increased ways that the techniques are being used. As a result, numerous misconceptions are heard and repeated. The following are but a few of the IRA misconceptions and the facts concerning them:
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Tags: IRA, IRA misconcepptions, Required Minimum Distribution, RMD, SEP-IRA

Small Business Retirement Plans

Simplified Employee Pension (SEP)

A SEP allows employers to set up a type of individual retirement account, known as a SEP-IRA, for themselves and their employees. Employers must contribute a uniform percentage of pay for each employee. Employer contributions are limited to the lesser of 25 percent of an employee’s annual salary or $40,000. (Note: this amount is indexed for inflation and will vary). SEPs can be started by most employers, including those who are self-employed.

Workers age 50 and older can play “catch-up” with their retirement savings by contributing up to 100% a year over the maximum contribution limits.

Businesses are not locked into making contributions every year. You can decide how much to put into a SEP each year – offering you some flexibility when business conditions vary. A sole proprietor, partnership, or corporation can establish a SEP for the benefit of all employees.
DCU offers SEP-IRAs as a vehicle for funding the pension plan. For more information on retirement solutions for small businesses, see the U.S. Department of Labor.
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Tags: Simple IRA, Simplified Employee Pension, Small Business Retirement Plans

Roth or Traditional: What is best for you?

Deciding whether to open a Roth IRA or Traditional IRA is a major decision with potentially large financial consequences. Both forms of the IRA are great ways to save for retirement, although each offers different advantages.

Traditional IRA

• Tax deductible contributions (depending on income level)
• Withdraws begin at age 59 1/2 and are mandatory by 70 1/2
• Taxes are paid on earnings when withdrawn from the IRA
• Funds can be used to purchase a variety of investments (stocks, bonds, certificates of deposits, etc.)
• Available to everyone; no income restrictions
• All funds withdrawn (including principal contributions) before 59 1/2 are subject to a 10% penalty (certain exceptions apply)

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Tags: How to Decide Which IRA, IRA, Roth IRA, Roth vs. Traditional IRA, Tax Deferred vs. Tax Free IRA

All about IRA Accounts

Traditional IRA

A Traditional Individual Retirement Account (or Traditional IRA for short), is a special type of account which allows investors to make tax-deductible contributions. The money can be invested in stocks, bonds, mutual funds, etc., and the earnings grow tax-free until the account’s owner turns 59 1/2 years old (if money is withdrawn before this age, a 10% penalty is incurred). At this time, the account holder is allowed to begin withdrawing money from the account to fund their retirement. The distributions are fully taxed by the U.S. government. Money must be withdrawn from the account no later than the April 1 following the year the owner turns 70 1/2.

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Tags: Early Withdrawal Penalty, IRA Penalty Exceptions, Traditional IRA, Traditional IRA Features

Understanding Asset Classes

You may have heard about diversification over and over but you need to know what you’re diversifying with. This article is meant to put together a quick list to help you understand different asset classes. As a retirement plan participants, you need to mix and match investments from different categories to help you diversify your retirement savings:
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Tags: Asset classes, Balanced Asset Allocation, Fixed Income, International Equity, Short-Term Fixed Income

Credit Card Accountability, Responsibility, and Disclosure (CARD) Act

Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 provides additional safeguards for credit card customers. While it is not going to keep your credit card company to increase your interest rate, it would enforce new povisions for credit card companies to treat their customers fairly.
Some of the importanct changes are: More »

Tags: CARD act, Credit Card Act, Credit Card Fees, Late Fees, New Credit Card Law

How Can You Save More?

Most people complain that they do not have enough money to contribute to their retirement. But do you really need a lot to make a difference?
Increase your contribution just a little more today, and the difference in retirement saving could be dramatic.

Don’t Believe Us?

Take a look at the simple data table below and you will be surprised how little it takes to make a big difference.

Assumptions:

Annual income $35,000 with 25 years left to retire and 8% annual rate of return. We are also assuming you’re in 25% tax bracket(including local, state and federal taxes).

Retirement Contribution: Making a Difference
Additional Contribution	Take Home Pay Impact	Extra Cash at Retirement
2%	$10	$53,300
3%	$15	$79,900
4%	$20	$106,500
5%	$25	$133,200

Tags: 401(k), Effect of Increasing 401(k) Contribution, Extra Retirement Contribution, Increase Retirement Contribution, Retirement

2010 and 2011 IRA, Roth IRA Contribution Limits

According to IRS, your IRA and Roth IRA contribution limits are based on your age among other factors.

• If you are under 50 years of age at the end of 2010: The maximum contribution that you can make to a traditional or Roth IRA is the smaller of $5,000 or the amount of your taxable compensation for 2010. This limit can be split between a traditional and a Roth IRA but the combined limit is $5,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending upon your modified adjusted gross income (modified AGI).
• If you are 50 years of age or older before 2011: The maximum contribution that can be made to a traditional or Roth IRA is the smaller of $6,000 or the amount of your taxable compensation for 2010. This limit can be split between a traditional and a Roth IRA but the combined limit is $6,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending upon your modified AGI.

Tables below shows IRA and Roth IRA contribution limits:

IRA Contribution Limits
Year	AGE 49 & BELOW	AGE 50 & ABOVE
2006	$4,000	$5,000
2007	$4,500	$5,000
2008	$5,500	$6,000
2009	$5,000	$6,000
2010	$5,000	$6,000
2011	$5,000	$6,000

Roth IRA Contribution Limits
Year	Single	Married Filing Jointly
2006	$95,000 – $110,000	$150,000 – $160,000
2007	$99,000 – $114,000	$156,000 – $166,000
2008	$101,000 – $116,000	$159,000 – $169,000
2009	$105,000 – $120,000	$166,000 – $176,000
2010	$105,000 – $120,000 Rollover Limit Removed	$167,000 – $177,000 Rollover Limit Removed

 
* Catch up contribution is only applicable for people over the age of 50.

Tags: IRA Contribution Limit, IRA Limits, ROth IRA limit, Roth IRA Rollover in 2010

Learn about 401(k)

401(k) is a section of Internal Revenue Service(IRS) code that allows special tax breaks and tax treatment to help people save for their retirement. Money deposited in a 401(k) account is taken out of paycheck pre-tax so you don’t pay any federal, state or FICA taxes on this amount. This money also earns interest compounding over the years with tax-deferred status. In short, you’re delaying your tax liabilities until you start receiving benefits in retirement. Some might argue that what is the point of delaying taxes since you have to pay them eventually?  However, if you take a closer look at the tax guidelines, you’ll notice that delaying taxes could save you thousands in long run due to the fact that most people fall in lower tax brackets in retirement as compared to their working days.
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Tags: 401(k), Benefits of 401(k), Employer Retirement Plans, Retirement Plans, Tax on 401(k) Money