Simply Junior

Life is all about planning. Mundane it may seem but evolution comes from compartmentalizing the things. Man has evolved from the wild because he learnt to classify, derive and plan. If you need to grow you therefore definitely need to classify or categorizes your life. If you were to plan your finance, you would plan ¾ of your life. Financial literacy is fast gaining momentum. Start early and catch the bus.

There are multiple retirement plans available in the market for retirement. Roth IRA comes as the smartest retirement plan. It is a win- win situation all the way. I wouldn’t be joking if I said if you invested in Roth IRA you would be having your cake and eating it too. Here are some of the factors of why Roth IRA over other investment plans.

1) Flexibility: As compared to other investment plans you get the flexibility of investing in any sector bonds, mutual funds, stocks or real estate. Depending on your risk taking capacity. If you are really financially literate there is a chance you would make more money after your retirement by careful and consistent investment. You can make shifts in your investment options from year to year. This is flexibility at its best, not offered by the traditional investment plans.

2) Tax saving: If you were not to invest in any retirement plan you would be paying tax for that amount. An amount of say $5000, in the IRA would help you save tax for that amount. Do you pay tax on retirement withdrawal? There is good news, no you don’t. The entire drawing is tax free. The tax money, whole your life you could use for some self pampering while planning for your old age. This is what we call having your cake and eating it too.

3) Premature withdrawal of part amount: Traditional retirement plans like 401 (k) would want you to return the amount in a short duration and that too with a penalty. Ouch it hurts! Not Roth IRA. You can withdraw some amount after 5 years of your starting the account. But letting the amount being invested is always better.

4) You can withdraw some amount for buying your house may be ¼ of the amount. Your money always comes handy especially for every American’s dream of owning house. This facility is unavailable in traditional retirement plan.

5) You could withdraw money for junior’s education. Again unavailable in traditional plan of 401(k).

6) You can invest in Roth IRA only if you are earning or salaried. The prerequisite of the investment is a calculator. So you cannot invest from your pocket money as a student.

You can begin with an amount as little as $50 and go up to $5000. Maximum slab up to which you can invest is decided by various factors such as your age, tax rebate etc. You can download the calculator of your maximum investment option from the net. You can save maximum in the older age group so that you get a better pay off in a short duration after retirement. Invest in Roth IRA and live a richer, satisfied life.

Many people are of the opinion that self employed people get the short end of the stick when it comes to paying for Social Security, employment tax and health insurance. These are expenses they have to bear on their own whether they like it or not. However, the only silver lining is retirement plans for self employed people.

There are several retirement plans targeting self employed people that allow them to save more money tax deferred for their retirement compared to what most plans offered to employed people by their employers.

Some of the best retirement plans for self employed people are as follows:

Simplified Employee Pension IRA: This is one of the oldest kinds of retirement plans for small businesses. Also known as SEP, the Simplified Employee Pension IRA is much easier to administer compared to a 401k plan. It is also extremely easy to open. All that is required is filling out the proper documents at a bank or broker and the account is opened. The contribution is quite high when compared to a 401k plan and in 2009, a person could contribute up to $49,000. This retirement plan also offers tax-deferred growth for the money and a person has to pay a ten percent penalty on early withdrawals made before reaching the age of 59.5 years. Also, the person would have to pay tax on the withdrawal. However, when the person reaches the age of 70.5 years, he or she has to make annual withdrawals.

Solo 401k: This retirement plan has the same limits for contribution as a traditional 401k plan. However, the Solo 401k plan allows a person to contribute up to 20 percent of their income if they are self employed, or up to 25 percent of their income if they are working for their own corporation. The Solo 401k can be either tax deferred or as a Roth 401k where the contribution is made from taxed monies.

Simple IRA: This retirement plan for self employed people is extremely simple and easy to set up. It is also easy to administer. While this plan has a low limits for contribution, a person can contribute hundred percent of their income. It is ideal for self employed people who have low incomes.

Your retirement plan is more important now than it ever was for American workers in the past. The simple fact is that most people currently in the workforce are not receiving the same options to plan for their future as they once were while the job market didn’t have as much competition. Employers are savvy when trying to eliminate extra costs, and benefits packages are usually the first to go-especially when the employer has no shortage of potential job applicants ready to replace those that don’t want to work without benefits. In the federal reserve, the nation’s social security funds are all but depleted. In essence, current workers are paying social security taxes that they will never be able to collect on. The only alternative towards going broke after retirement these days is to set up a annuity that will guarantee a source of income long after you stop earning regular paychecks. A structured settlement can be a great source of funds for setting up an annuity for your retirement planning.

The annuities have the bad reputation for several years because of the complexity & fees. But, due to economic climate changes, these kinds of the retirement products are now becoming valuable to retirement income planning! I will give you good, bad, and ugly of the annuities to make the well educated choice on which kind of the annuity to buy for the retirement (income) portfolio.

Annuities are all offered by insurance company instead of the brokerage firm. These kinds of the products are compared to pension plan with an exception, which the annuities generally tend to go with the inflation and thus giving you upper hand. The general annuities have a lot of features, which you must be known with. The most important advantages is it can pay you the income for life. Your account may not be depleted & you will get the income off an amount that you have put in annuity & percentage or dollar that you may receive. This is assured and thus in case, you stay to be 110, then you will be collecting from this annuity. Next benefit that all the annuities include is interest earned are the tax deferred. As IRS sees and this as the retirement account it is treated as such. Lots of people argue they will get same interest from CD but CD’s are FDIC insured that makes the product HEAVILY TAXED.

Retirement plans are employee benefit plans that are set up or maintained by an employer or a union that will provide income after the individual worker retires. There are different types of plans, including the 401(k) plan, and the defined benefit plan.

Most people who work in the private sector are covered by ERISA, which is the Employee Retirement Income Security Act. ERISA provides some protections for those who participate in retirement plans. In addition, the individuals who manage the plans have to meet conduct standards under the responsibilities that are specified under the law.

The retirement plan set up by your employer is an essential part of your financial security in the future. It’s important that employees understand how their plans work, and what benefits they will receive. Just as you keep track of bank accounts, you should keep track of your retirement benefits.

The people who are responsible for the oversight and management of retirement plans have to follow certain rules that cover the operation of the plans, handling the money in the plan, and watching over the firms that are hired to manage the money. In addition, you should also understand and monitor your benefits.

There are two major types of retirement plans, and they are described as defined contribution and defined benefit.

A defined benefit plan is funded by your employer, and it promises you a monthly dollar amount upon your retirement. Plans like this may state the benefit as a dollar amount, or may calculate it through various formulas.

A defined contribution plan doesn’t tell you that you’ll get a specific amount when you retire. Instead, you or your employer put money toward your account and then these monies are invested. Most of the time, you are responsible for choosing how the monies are invested. In some plans, your employer will match your contributions.

Employers are offering you a benefit when they open retirement plans for their employees. Federal law does not require any employers to offer a plan, and the law also does not prohibit them from doing away with a plan they already have. Of course, if you have monies invested in a plan that your company terminates, the funds you put it will be available for withdrawal, or for rollover to a different 401-k from another company.

The PBGC – Pension Benefit Guaranty Corporation – guarantees that certain retirement benefits will be paid to employees or retirees in most plans, if the plan is terminated and not enough money s left to pay all of its promised benefits.

Check with your Human Resources or Benefits Department at your company, to find out what type of retirement plan your company offers, and which one you signed up for when you hired on. Then keep an eye on the accounts so you can make sure that the money will be there for your retirement.

Tax laws change around year end just in time to take advantage of year end planning. This year is no exception. Congress has been busy making new laws that may affect your tax bill when you file your tax return in 2006. Some taxpayers will benefit from these new laws. Inflation adjustments for personal exemptions have increased, as well as standard itemized deductions, tax bracket adjustments, and annual gift tax exemption.

One of the most favorable law changes affecting most taxpayers is the new automatic extension for taxpayers who cannot file their tax returns by the April 15th deadline. The new law became effective in November, 2005 for returns filed in 2006. Prior law gave the taxpayer an automatic extension of four months after the April 15th deadline or August 15th. If the taxpayer needed more time to file after August 15th, they could file for another extension but needed a good reason. The IRS also had to accept that reason and grant the second extension. The new law does away with the second extension and allows an automatic six month extension or until October 15th. The new automatic six month extension does not require a reason to extend. As always, the extension is for additional time to fill. All taxes owed at the time of extension should be paid.

Laws that affect the victims of hurricane Katrina have dominated this year. The IRS was set up to handle registration calls of victims of Katrina for FEMA. If anyone had to call the IRS this past summer and fall, they meet with long hold times and overworked IRS agents. There are a number of tax law provisions that have been enacted to help the victims of Katrina get back to a normal life. If these people had retirement plans, laws were relaxed to help them obtain loans from the retirement plans. Deadlines to file and pay taxes were set to February 28, 2006 for victims of Katrina. Anyone that has been affected by either hurricane Katrina, Rita or Wilma are urged to seek help from the IRS or other organizations who have aligned themselves with the IRS volunteering time to give them free assistance with their tax questions.

Taxpayers who use their personal vehicle for work either as an employee or in their own business and use the standard mileage rate will receive tax benefits from the increase of the standard mileage rate due to increased fuel prices. The mileage rate for the first eight months of 2005 will be 40.5 cents per business miles and 48.5 cents per business miles driven the last four months of 2005 when gasoline was topping $3.00 a gallon during the hurricane season. Starting in January 2006, the optional standard mileage rate will be 44.5 cents per business mile driven. Medical mileage was also adjusted. Charitable miles remained at 14 cents a mile driven except for mileage in connection with Katrina hurricane relief efforts.

The IRS has announced the Free Filing Alliance. This is an alliance with private companies who offer free tax filing for certain taxpayers who meet the eligibility requirements to e-file at no cost to them. This must be done through the IRS website and the Free Filing Alliance at the IRS website. For additional information on eligibility, check at the IRS website, http://www.irs.gov.