Simply Junior

Most people worried about what they can do when they are retired. So some people begin to make their retirement planning to ensure they have enough money when they get old in bad conditions in the future. So have you ever considered about this things in your life, if you say no. Then there are some items you must to do at this moment.

First of all, you should have a general idea of when you intend to retire. You don’t need to pick the accurate time, but it will help to come up with a target such as approximately a decade, or about fifty years. Ask yourself if you continue to need to be working when you’re sixty-five. Do you expect yourself in frond of the computer at fifty-five, or still choosing what you would like to do? It will a pity view which you don’t want to see.

If you choose to retire in a beautiful villa in the suburb, and you need to think about the long term practical and taxation issues relating to the receiving of pension income. Seeking professional advice is the first step in the right direction to finding the right financial solution – it will save you time and money in the long run and reduce your cost of delay significantly!

In short, there’s no better time to start planning for your retirement than right now. Despite you’re unsure what your income will be like in the coming years, it always helps to write down what you think you’d like to be doing when you retire so that you’ll at least have an idea of how much money you’ll need. Though planning retirement can be stressful, remember that not having a plan when you’re suddenly sixty years old is far worse than doing a bit of number crunching now.

Have you ever completed your tax return to find out that you owe the federal government thousands of dollars? If so, I expect it was because you raided your pension or retirement plan. If you haven’t learned this painful lesson yet, you should read this article so that you don’t end up owing the IRS thousands.

“NEVER TAKE MONEY OUT OF YOUR RETIREMENT PLAN!” read the sign that hung in the tax accountant’s office. I knew this was an overstatement, but understood why the accountant had such a sign in his office. Too many times did I, as a tax accountant myself, have to console crying or angry clients after explaining to them that they owed the government thousands of dollars because they withdrew money from their retirement or pension plan. The worst part is that these people that withdrew were often already facing immense financial problems – job losses, foreclosures, and bankruptcies.

If you take money out of your pension or retirement plan, you will first find out that the law requires retirement plan administrators to withhold 20 percent of your money for the federal government. Most people are upset by this news and believe withholding this amount will cover their tax bill. After all, it is a lot of money. What’s important for you to know is that it’s only the beginning.

Most taxpayers still need to worry about more federal and state taxes due. If you’re in the 28 percent tax bracket, you’ll owe the federal government another 8 percent of the amount you withdraw. Worse yet, if you’re under 591/2 years of age, you’ll most likely be penalized another 10 percent. In addition, most states will tax you 5 to 10 percent.

How will this affect your tax bill? If you withdraw $20,000, the plan administer will withhold 20 percent, leaving you with $16,000. By April 15 you’ll realize that you owe another $3,600 to the federal government and $1,500 to the state. So by taking out $20,000 of retirement savings, you end up with only $10,900. Now you’re probably beginning to understand why that tax accountant hung the sign “NEVER TAKE MONEY OUT OF YOUR RETIREMENT PLAN!”

Sure, there are exceptions. There are a number of ways to avoid the 10 percent penalty – using the retirement proceeds for tuition, medical costs, or to buy your first time home (up to $10,000). Some states don’t have an income tax. And, of course, these penalties and taxes don’t apply to ROTH Individual Retirement Accounts.

What’s important to remember is that your tax advisor will be able to explain to you the financial consequences that specifically pertain to your situation. He or she may even be able to suggest alternatives, such as taking a loan out against your retirement plan. Remember, contributing to a retirement account is a wise choice, just don’t make the very unwise choice by liquidating your account before speaking to a tax professional.

One of the best possible things you can do to provide for your retirement years is to set up a small business. Between the tax benefits you can receive, to the fact that you can often make a tidy sum of money, owning a small part time home based business is without a doubt one of the best things you could ever do. But this letter isn’t about that specifically; we’ll get into that as the year goes on. What I do however want to suggest is a “plan” that you can set up for your retirement goals.

If you are a sole proprietor of a small business and you make less than 200K dollars a year, you can qualify for a retirement plan called a ” combo Sole owner / 401K profit sharing plan”. I know that’s a mouthful, but it’s important to realize that this thing exists. Why? Because you can dump a ton of money in it.

Although you can indeed search the web and find enough information to set one of these up yourself, any financial advisor, or even the officers at your bank should be able to set one up for you quite easily and the going rate appears to be between three and four hundred dollars. I wholeheartedly
believe you should explore this.

Right off the bat you are allowed to put up to 12K dollars in your 401K plan. That’s a very healthy chunk right there, but wait it gets better. You are also allowed to donate up to 20% of your income into this thing under the profit sharing side of the equation. So as you can see, if you claimed say 60K dollars worth of income, you could put the upwards of 24K dollars a year into this plan. That’s right off the top, dollar for dollar donations folks.

For those of you who own your own small business, this is one of the most aggressive plans I’ve ever seen, and if you need a good vehicle to shelter some tax money, I can’t think of much better.

Well, ready or not, here we come!

The 401(k) plan makes it easy and convenient for you to save money for retirement. Once you enroll, your contributions are automatically deducted from your paycheck before you even get to see it. This forces a strict savings discipline on you usually an absolute necessity if you’re not good at looking to the future. Since you are planning to pass through the retirement stage of your life in style instead of as a pauper (and it’s hard to foresee this and save when you receive a full pay-check), this is a real advantage that will help make your retirement as comfortable as possible. If you’re using this plan, you may even retire at age 55 and gain full access to your money, penalty-free! This, in part, is a semblance of the sheer beauty of the plan. Aren’t we poetic?!

Do remember that your contributions deducted from the paycheck are tax-deferred, thereby decreasing your current income tax. (That news calls for a pat on our back!) However, there is a limit to how much you may contribute to a 401(k). This limit is set by the Congress and set forth in the Internal Revenue Code. Your employer, too, may limit your contributions to a percentage of your salary, depending on how much he really likes you. Additionally, he may also choose to match all or a part of your contribution. (Yes, it’s time for you to go through your company’s policies regarding the plan if you haven’t already!) It’s also time to polish those rusty apple polishing skills – pun intended!

Most 401(k) plans provide you with a range of investment options, including stock funds, bond funds, balanced funds, international funds, and company stock. You may decide (on your own) how your contributions are distributed among the plan’s offerings by considering your long-term financial objectives, your tolerance for risk, and how close you are to retirement age. We do not advise you to fear risky investments since those are the ones making the greatest amount of money. Others may think differently and suggest that a more conservative allocation strategy is ideal as you get older. Don’t pay too much attention to those behind the times financial advisors; they’re all ageist!

Regardless of your allocation strategy, it is critical to closely monitor the progress of your 401(k) plan. The plan is required by law to provide you with an annual statement in order to assist you with the management. Many plans will also provide you with quarterly statements, online access, and toll-free numbers offering 24/7 access to your current balance.

Each 401(k) plan also specifies when and how often you can make changes to your investments. While some plans permit you to make daily changes, others allow a limited number of transactions per year. At any rate, you are responsible for checking up on your plan’s performance and making allocation changes whenever deemed appropriate. Please make sure you’re not smashed on the day you decide to make those changes!

Certain 401(k) plans also allow you to access your savings in case of a financial emergency before reaching the age of eligibility. This access may come through a loan (with interest) or a hardship withdrawal. In case of a hardship withdrawal you will have to pay ordinary income tax on the amount withdrawn and pay a 10% penalty to the government if you don’t meet one of the following exceptions: (1) purchasing a principal residence; (2) avoiding eviction from your present residence; (3) paying tuition for yourself, your spouse, children or dependents; (4) funeral expenses for a family member; and (5) medical expenses exceeding 7.5% of your AGI.

Oh and we lied when we said that the 401(k) plan always permits you to make penalty-free withdrawals if you retire at age 55. While it is true that you may make such withdrawals at this particular age, it is also correct that certain 401(k) plans only allow you penalty-free access to your savings at age 59.5 years. Again, it is for you to choose the plan that meets your needs. Just remember that by April 1 following the year in which you turn 70.5 years old or retire (whichever is later), it is obligatory to begin withdrawing from your 401(k). So let’s hope you will have so much money coming in that you won’t have to withdraw before turning 70.5! Yes, were also finding it a little odd that we have to refer to ages in decimals (who says seventy point five ?!)- But that’s how it goes, my friend!

There are big headlines on the internet about Social Security being in the red this year. They are paying out MORE than they are getting in this very year. Did you catch that? Not running out of funds in 10 years or 5 years or 2 years, but this very year!

The Congressional Budget Office had issued a report saying that would happen in 2016. WRONG! Between the early retirees and job losses, both due to the downturn in the economy the last few years, there are fewer people paying into the system and more folks receiving benefits.

We’ve all known it was coming, so it shouldn’t be a big surprise, right? But it is one of those huge, major type, awful things that you don’t want to see happen, so you try not to think about it or dwell on it. Humph! And I am hoping to retire within the next 5 years. Guess that will be up in the air. How about you?

It is not all terrible news, but maybe this should serve as THE wake-up call for all of us. There is a surplus which the government has in trust funds. This is currently estimated to last until 2037, although that number will surely be adjusted in the future. The main issue with the trust funds is that the government has borrowed from them to pay for other programs and things they couldn’t pay. So the majority of the funds now reside in IOU’s which will have to be paid back somehow by some other funds from somewhere else. Does this sound promising to you?

Even if they do, by some miracle, find the money to pay back the IOU’s, it is still only estimated to last until 2037. What happens to us when that runs out? What happens to our children when they reach our age? And our children’s children?

What are our options? What are our children’s options? What will work when we all need to retire and still have money to live on? Very few companies still maintain a retirement account for their employees. And let’s face it, who works for the same company for their whole life anymore? That is much more of the rarity than it is the common place. So where will the money come from?

I believe we need to stop thinking the government is going to care for us in our ripe old age. The only ones we can truly depend on to take care of us is ourselves, and maybe other family members. Have we all saved enough money? Woefully, no. By far, the vast majority of people do not have enough money in retirement accounts or savings. So where does that leave us? What can we do?

We need to start up our own retirement funds. How can we do that when we already need most of, or all of, the money to live on? We need to find and capitalize on second jobs or work from home and internet opportunities which do 2 things: pay for themselves and grow a residual income. And since many are short on extra funds, the opportunities need to be cheap. Very cheap.

Would you do something to build a residual “retirement fund” for yourself and your family if it only cost – - let’s say, only cost the price of one dinner in a local restaurant? Or the price of 2 cups of specialty coffee? Or less than the price of 2 movie tickets? And what if it paid for your investment in 1-3 months?

But you don’t think you have the time. You aren’t a salesperson. You don’t want to have to do anything to make money. Well, there are lots of opportunities out there. You just need to find the right one for you. One which costs very little money, takes very little time, sells itself, and can grow a wonderful residual income which you can use for your retirement plan.