April 15th, this is the date that all Americans associate with the IRS. For many it is a stressful situation to try and figure out what exactly needs to go on their return. This is where a Certified Public Accountant or other tax professionals can help by pointing out useful tax adjustments now for next year’s return.
The regulations and codes for taxes are constantly changing and that is truer for this year because the Bush tax cuts are set to expire December 31. These cuts are projected to change how deductions can be made for retirement plans like the traditional IRA and Roth IRAs. Contributing more to a 401k through work can also be a good way to lower the taxable income one acquires within a fiscal year.
For the more affluent individuals it might make sense to roll over any traditional IRAs they own into Roth IRAs if they are projecting that their income after the age of 59 and half will be higher than it currently is. This would allow them to draw the payments from the Roth IRA as non-taxable income when they retire because they have already paid the taxes on the interest returns from those accounts.
Again, it is imperative to talk to tax professionals in order to gain the advice needed to plan for the changes coming in the next year. Seeking the advice of the benefits office within one’s company can help and is where the necessary adjustments need to be requested for changes in the 401k and the withholding forms. Also, the customer service representatives of the financial institutions that the retirement portfolios are being managed can also offer some guidance to tax adjustments now.
If you want a tax credit for retirement savings contributions, you might be able to get it if you already make eligible contributions to your company sponsored plan. It all is based on how old you are and how much you are earning.
How much you can get back
Should you be making eligible contributions to an IRA, 401k or another retirement plan, it might be possible to get a credit of as much as $1,000-$2,000 if you are married and filing together. The credit is based on a percent of the contribution amount. The lower your income, the higher the percentage you will be able to get back.
If you are single, you cannot make earn more than $28,250. If you are a head of household, you must make $42,375 or less. If you are married and filing jointly, you must make $56,500 or less.
Other eligibility requirements
In order to qualify for a credit, you must be at least 18, and you cannot have been a full time student within the past calendar year. In addition, you cannot be claimed as a dependent on anyone else’s return.
Form to use
In order to get the credit, make sure you use Form 8880, credit for qualified retirement savings contributions.
Getting a tax credit for retirement savings contributions is definitely worth the time and effort. First just figure out if you qualify. Than you just have to fill out the form, send it in, and you will have your tax credit shortly.
Your 401K retirement account is something that is very important to your future retirement. However, like many other people you may be considering borrowing money from your 401K account to fund something that is important to you such as starting up a business. It goes without saying that you should never make a rash decision with regards to borrowing from your 401K account, as you could potentially be risking a comfortable retirement by doing this. However, there is sometimes occasions when it can be fine or even advisable to borrow from your 401K account as opposed to looking at other options.
Of course, it is important to always consider what other options are available to you when you are in need of funds, as you may find that there is something that is more suited to your needs and financially viable than using your 401K account. You should bear in mind that, other than under certain circumstances, you may end up paying hefty withdrawal fees/penalties for taking money from your 401K fund early. However, if you repay what you borrow within sixty days you can avoid these charges.
With this is mind, borrowing from your 401K retirement account on a temporary short term basis is often a good idea, as you will not be hit with the penalty fees. This is an ideal solution if you have a short term cash flow problem and know that you can repay the money within sixty days.
If you have a lot of high interest debt that is financially crippling you then you may also find that tapping into your 401K for a loan could be a good idea, as you can ease the financial strain. You will also find that borrowing from your 401K at a really low interest rate to repay a debt such as a credit card debt with a really high interest rate makes financial sense. However, you need to make sure that you do not get carried away and borrow only the amount that you actually need rather than being tempted to take a little extra – after all, it is your retirement money that you will be taking!
Essentially, borrowing from your 401K is something that would be considered ok if it is for a necessity such as medical expenses or something that is going to ultimately save you or make you more money, such as paying off high interest debt or investing in your own business. What you should never do is risk your future by taking money from your 401K simply to splash out on luxuries such as holidays.
Andrew writes frequently about personal finance as well as issues effecting both consumers and small businesses, covering everything from savings to mortgages to business insurance cover.
The online environment has led to some of the best investing opportunities in recent history, and while the actual ventures are nothing new, the approaches and technologies used with them are. It is no different with Roth IRA accounts, and the online resources have allowed investors to take advantage of more options and compare the rates and services of many providers to get the best plan for any given situation.
One of the most attractive features of the Roth IRA is its flexibility, and while the program itself is structured to be as versatile as possible, when the power of the Internet and global communications are added, the possibilities of the even the best Roth IRA accounts increase dramatically. The web also allows users to compare the best Roth IRA providers as well, just as would be done if one were investing anywhere else from penny stock brokers online to gold scrap dealers.
Funding and Investment Options
The best Roth IRA account fits the needs of those investing into it, and this is another of the defining features of this great program, and from the funding options to the various outlets that can be invested in, these are truly some of the most versatile retirement options there are. Outlets like E-Trade and Fidelity both have some of the best Roth IRA rates and options, as well as the most trustworthy reputations, some particularly important aspects when investing for retirement.
Taxation and Fees
Another very alluring feature of the Roth IRA strategy is the tax incentives they bring to the table, and unlike most other retirement plans, 401-K and traditional IRA plans included, the withdrawals are not taxed, as these are taken care of when the contributions are made. This, and the fact the only real fees are for early withdrawal and just about anyone in the middle-class income bracket can use them, are some of the best Roth IRA features.
When can you Take Advantage of a Roth IRA Account Online? (2009tax.org)
A 401k rollover to Individual Retirement Account (IRA) situation usually denotes a movement from one employer to another. Instead of en-cashing the 401k account, the recommended choice when you decide to switch employers is to rollover your 401k to your IRA. The IRA is an account which helps you to lower your investment related expense and can give you more choice in investment opportunities.
Having an IRA can be advantageous in many different ways. It is a good option to manage your investment portfolio and saving on administrative and management cost. With an IRA, you can develop your investment portfolio according to your own risk appetite levels. In addition to that you can also choose your own administration and custodian for the account.
However, having a 401k rollover to IRA does have its own disadvantageous as well. One of the biggest negative for this is that the account can be used to pay off your debts should you get into a bankruptcy situation and the amount is higher than 1 million. A traditional 401k account cannot be touched in such a scenario. Another big disadvantage is the IRA mandates that you take periodic distributions when you reach 70 years old even if you are working whereas the normal 401k does not have such stipulations.
The 401k rollover to IRA does have some guidelines which must to be clarified. The first is that the 401k rollover can be put into any of the three different accounts rollover account, roth IRA or traditional IRA. The second rule is that the account can be cashed out anytime but with the accompanying fines and fees. The third rules states that any loans due must be settled within 60 days to the 401k rollover to IRA.
It is very easy to do a 40k rollover to IRA. You just need to open an IRA account with a financial institution and inform your employer about the change so that the check can be made out to the financial institution. Once the fund is transfer, you can start investing with the IRA.
To begin with, the Pension Protection Act of 2006 which came into effect in January of 2008, includes a provision for plan providers (the vendor that provides you company with your 401k plan platform) to offer plan sponsors (your company) the option for plan participants (you) to pay for independent third party investment advice with pre-tax money from your plan assets. Granted this is not free but it gives the plan participant the choice to use pretax dollars vs. writing a check for the investment advice.
Know that even though you do not currently get a bill for the service, you are already paying manager fees if you own any type of mutual fund in your plan. You just do not see the money deducted from inside the fund. It is not transparent.
Furthermore, at least one plan provider, Charles Schwab, has begun offering some of their plan sponsor clients the option for plan participants to use, without charge, an unrelated investment advisory firm, GuidedChoice Asset Management, Inc.. There is a catch however; their investment advice is limited to the core lineup of mutual funds offered in the plan. In other words, if the plan also has a self directed 401k GuidedChoice will not advise the plan participant on those possible investment choices. Neither will they provide any advice on assets held outside the plan whereas an independent advisor would, if asked.
Yet, Schwab has taken the concept a step further. They are introducing an indexing-only 401k plan using exchange traded funds… along with customized 401k advice. The indication so far is not clear if the client plan sponsor or the plan participant is billed for the advice; however, it is clear that participants are in dire need of this service.
If you think that 401k advice is a good idea and you want to know if your company has adopted any of these provisions, call your human resources department and ask. If no one can give you a verbal answer, ask for a document called The Summary Plan Description. This document will spell it out for you. Just know that there are 401k advisors ready and willing to help.