Simply Junior

Self directed IRA accounts work great for those who want to make their own financial decisions, but what about individuals who are self employed or own small businesses? Where do they turn when it comes time to think about retirement plans?

Most of businesses aren’t big enough to qualify for a large retirement plan. So the IRS has constructed several small business retirement plans for these people to take advantage of. When it comes to retirement age, many self employed and small business owners could be left with a meager social security check that would not meet the needs of the lifestyle that they are accustomed to living.

Fortunately, most reputable self directed IRA custodians also offer plans such as SEP, SIMPLE, Solo 401(k), and Roth Solo 401(k).

Simplified Employee Plan (SEP)

The SEP is a retirement plan meant for self-employed individuals and small business owners. Typically, the small business has less than 25 employees. This plan offers the individual a retirement account that doesn’t require complicated qualified plans such as a conventional IRA or 401(k). Advantages include:

• All contributions are tax deductible and compound with tax-deferred savings until the time of withdrawal.
• The employer may contribute up to 25% of the employee’s wages with a maximum of $49,000 each year.

Savings Incentive Match Plan for Employees (SIMPLE)

If you own a business with less than 100 employees and do not have any other type of qualified plan available, the SIMPLE is something to look into. With this plan, you and your spouse can make contributions if you make $45,000 or less per year. Advantages include:

• Tax deductible investments compounded with tax-deferment until the time of withdrawal.
• Employee contributions up to $11,500 for those under the age of 50.
• Employee contributions up to $14,000 for those over the age of 50.
• Employers match dollar for dollar up to 3% of the employee’s compensation.

Solo 401(k)

Think of this plan as a combination of the SIMPLE and the SEP. Basically, a sole proprietorship is offered a qualified plan that allows larger contributions and larger deductions. Advantages include:

• You don’t have to be incorporated to qualify. This includes sole proprietors, partnerships and corporations, too.
• Contributions can reach $16,500 annually if you are under the age of 50.
• Contributions can reach $22,000 annually if you are over the age of 50.
• 0-25% of your profit sharing may be included, too.

Roth Solo 401(k)

The Roth works the same as the Solo 401(k), but you also have the added tax benefits of a Roth IRA. Contribution levels remain the same, but taxes are paid before they are put into the retirement. Additional advantages include:

• If your income limits exceed qualification levels for a Roth IRA, you may be able to consider the Roth Solo 401(k) as an option.

There is a Retirement Plan for Everyone

If you thought that you would never be able to participate in a qualified plan, and you were starting to look at other investment opportunities, you still have some other options. Generally, a retirement plan will offer compound interest through tax deductions and tax deferment that other types of investments aren’t able to offer.

If you are looking into the different types of self directed IRA accounts that you may qualify for, you may want to consider one of these four options.

For 2011 Federal Tax Return for unemployed, there are a lot tax rebates that are available to lower tax liability.

Here are 3 of the important ones available, so as to help you getting a good value of tax refund from the 2011 Federal taxes:

1. COBRA insurance – It allows unemployed individuals and their families to receive health insurance for up to 18 months after employment is terminated. Before the act, individuals had to pay the full premium, which was generally pretty expensive. With the new act, individuals are only responsible for 35 percent of the premium in 2011 for up to nine months, and the employer is responsible for the other 65 percent.

The employer is then entitled to a payroll income tax credit for that 65 percent. That reduces the tax liability for 2011 Federal income return.

2. Retirement account distributions – Support for many unemployed taxpayers in 2011 is their retirement account. Many of these plans are subject to a 10% penalty on early withdrawals, as well as the distribution being taxable when received. However there are some exceptions, one of them is -

2011 IRA Federal income that are used to pay qualified higher education expenses of the taxpayer, the spouse, or any child or grandchild of the taxpayer or the taxpayer’s spouse.

3. 2011 Job Hunting Expenses – Several Job-hunting expenses like Employment agency fees, job counseling and referral services,classified ads,travel for interviews,costs of resumes,telephone/Internet costs are deductible to the extent they exceed 2% of adjusted gross 2011 Federal income.

These are top 3 tax breaks that should be utilized when filing 2011 Federal Tax return for unemployed.

I have received e-mail after e-mail asking about penalties for early withdrawals from IRAs or other retirement plans. When the economy is good and account values are high, I never hear it which tells me not only are things tight for the average retiree, they are tight for everybody. In some cases families spent their way into a short fall. Some others may have lost their jobs. Whatever the case, you should know the rules and penalties before you tap your retirement savings.

Penalties for Early Withdrawals of IRAs or Qualified Retirement Plans

Given the difficult times, some taxpayers may be tempted to apply for early withdrawals of funds from retirement plans to alleviate financial hardship. In addition to taxing the withdrawals, the IRS also assesses a 10% penalty on such taxable withdrawals, making this an expensive source of funding. Additionally, if the withdrawal is coming from a SIMPLE Plan, and the taxpayer first started contributing to the plan within two years, the early withdrawal penalty is 25%.

There are exceptions to the early withdrawal penalty rules that a taxpayer may wish to consider. For some early withdrawals from retirement plans, these may include using the funds for a rollover (either a direct rollover or within 60 days of having received the funds), paying for health insurance premiums if unemployed, paying for education expenses for either the taxpayer or a dependent, paying for medical expenses in excess of 7.5% of adjusted gross income, purchasing a home (if the taxpayer did not own a home within two years and limited as to how much of the distribution qualifies to avoid the penalty), if permanently or totally disabled or if the IRS has levied the taxpayer’s retirement account to pay off tax debt.

Substantially Equal Periodic Payments

One important exception to the penalty rules on early withdrawals include substantially equal periodic payments (also called SEPP or 72t, named for the tax code that permits the exception). In order to qualify for the exception, the period must be for a minimum of five years or until the taxpayer is 59

When it comes to basic retirement planning individual retirement accounts (IRA) or 401k retirement plans play an extremely important role. When utilized correctly, you can amass a very large retirement sum with some proper planning. The earlier you start contributing to an IRA or 401k plan, the better. The key to achieving your retirement needs takes time. Market performance plays some role, but we know from past performance that the longer the time horizon, the more that can be achieved.

If you have a 401k retirement plan available to you at your place of work, it is important that you start to contributions, as soon as possible. Many employers offer a 401k match. This means that for every dollar you contribute up to a certain limit, your employer matches, your contributions, dollar for dollar. This puts you at a tremendous advantage when planning for your retirement, as every dollar you contribute your gaining 100% return, right off the bat. Where else can you get those kind of returns? And this is before any market growth. Over time, you have the additional benefit of the market working in your favor. As you and your employer dollar cost average into your 401k account.

Now, if you’re one of the unlucky individuals that don’t have access to a 401(k) plan, contributing to an IRA account is an absolute must. You don’t have the benefit of somebody adding 100% return to your account immediately, making retirement planning, even more important for you. When it comes to choosing an IRA. You have two typical choices, a traditional IRA, or a Roth IRA. Traditional IRA’s allow you to contribute pretax dollars into a retirement account. This allows you to write off any retirement contributions against your tax return. The funds within the IRA account, then grow tax-deferred until withdrawn and retirement. You do, however, have to wait till you’re age 59 1/2 before withdrawing without penalty. Mandatory withdrawals are required at age 70 1/2; this is called required minimum distribution, or RMD. RMD is required, so that the government is able to tax your pretax contributions. A Roth IRA, on the other hand, is a completely tax-free way to save for retirement. However, Roth IRA contributions have to be made with after-tax dollars. Depending on the amount of income you make, you may qualify for the Roth IRA. Determining which is most suitable for you, can be determined by your tax bracket and retirement.

Over the last few years, the Congress has passed laws, which enacted the Roth 401k. The Roth 401k works much like the Roth IRA, in that contributions are made with after-tax dollars and withdrawals are tax-free. Unfortunately, not all employers offer this new plan. Additionally, many employees are so attached to the tax write off that comes from traditional IRA or 401(k) contributions, that the traditional instruments are the more common choice. Choosing between the two is not an open and shut case, the traditional IRA might be great for some, but others may prefer the Roth IRA or 401k. The important thing here is to choose one or the other, do something, as getting started is the most important step. The earlier, we get started, the more we can put away for retirement. Just getting started at age 21, as opposed to getting started at age 31, can mean the difference of substantial amounts of money. In fact, the individual that starts at age 21 has such a large time advantage over the procrastinating 31-year-old that he can stop investing entirely when he reaches age 31, and still outpace the 31-year-old. It’s important to understand that everybody’s different, we all have different goals, and we all have different needs. Retirement planning is all about addressing our individual goals, and our individual needs.

One of the options that some people have for retirement planning is the 401k retirement plans. Employers for employees who meet specific requirements (which the employer can set to some degree) offer this type of retirement plan. As one of the most ideal types of retirement plans, it is highly advisable that anyone who is looking for a way to put money into their retirement consider the use of this particular type.

Tax Advantages

One of the reasons that anyone should use retirement plans is because they offer tax advantages. You could just put money into a savings account or another form of savings and use those funds during your retirement. However, you will pay income tax on those funds not only when you get the funds from your employer but you will also pay taxes on the interest that you earn. To help give you a better method of building your balance, the IRS offers a variety of retirement accounts.

In the 401k retirement plan, individuals set up the account through their employer, though they remain in control of their money and they can even select the types of investments (to some degree) that they would like to invest in. The funding for the retirement account occurs through payroll deductions. You do not have to think about making the payment as it is automatically done for you.

The best benefit is that the funds are deposited into your retirement account pre-tax, which means that there is no income tax applied to them at this point. The funds then enter the retirement account and grow there, tax free. When you reach your retirement, or by 70 ½ years of age, you can begin withdrawing from the account to pay for anything you would like to during your retirement. You are taxed when you take money from the account, but you are taxed at your income tax level at that point, which is generally far lower than what you would be paying now.

Take some time to look into the retirement options that your employer is offering to you. Learn as much as you can about the investment firm and the actual 401k. Even if you have another type of retirement plan in place, you may want to consider using this plan to further your goals especially since it has a higher contribution limit and may be matched by your employer. 401k retirement plans can help you to plan for your particular needs in the future easily.