Individual Retirement Accounts
There are 5 different types of IRAs. They are: the traditional IRA, Education IRA, Roth IRA, Simple IRA, and SEP IRA - Simplified Employee Pension. For many individuals, an IRA is an important way to prepare for retirement and provide for future generations. It is a tax deferred account designed to help build assets for future use.
Traditional IRA
The amount of this contribution that is deductible on your income tax return depends on your Adjusted Gross Income (AGI) and whether you are covered under an employer sponsored qualified retirement plan. Thus, depending on your filing status (Single, Joint, etc), and your AGI, your contributions may range from fully deductible to totally non-deductible. So even though you are eligible to contribute to your IRA, you may be in a position where none of these contributions are in fact deductible. Schedule a free appointment to evaluate your needs.
Educational IRA
You can put money away each year into an education IRA, the money grows tax-free and has preferential tax treatment upon distribution to the beneficiary who uses it for authorized education expenses. These plans are not very common in that they are very restrictive on who can make contributions to them, the amount of total contributions allowable each year, and the limitations on what exact education expenses qualify. We can assist you in evaluating what savings plan you should undertake to prepare for higher education costs, as well as in reviewing many of the tax-sheltered savings plans now sponsored by the various states, even for benefits of non-state residents. Click here to contact us for more information.
Roth IRA
Contributions are NOT deductible when the funds are contributed, but the Roth IRA earnings accumulate tax-free and remain tax-free upon distribution. To be eligible to contribute, your Adjusted Gross Income must within a certain range adjusted annually. You cannot withdraw your funds within the first 5 years after the establishment of the Roth without a penalty. Given that this 5-year testing period can successfully be addressed by proper tax planning, the establishment and at least partial funding of a Roth IRA account should be on the discussion list of the financial advisor of every taxpayer who qualifies to open such a plan. Ask us for a free appointment to evaluate your needs.
SEP and SIMPLE
SEP A Simplified Employee Pension, or SEP, employers make contributions to traditional Individual Retirement accounts (IRAs) set up for employees which would also include self-employed persons, subject to certain limits. Because this is a simplified plan, the administrative costs are typically lower than more complex plans such as a 401(k). Consult your Financial Foundation Group professional for more details. Link to contact info page What are the requirements?
- Can be a business of any size, even self-employed.
- Must adopt a SEP plan document.
- Generally cannot have any other retirement plan.
Advantages:
- Easy to set up and operate - just one phone call to an Financial Foundation Group professional will get things started.
- Administrative costs are typically lower than more complex corporate retirement plans.
- Flexible contribution limits-a must for a growing company.
- Pre-tax contributions
- Tax-deferred growth
- Higher contribution limits than a traditional IRA
Special note: A SEP is funded solely by employer contributions. Each employee is always 100% vested in (has ownership of) all money in his or her SEP-IRA. Contact your Financial Foundation Group professional for withdrawal restrictions.
SIMPLE
The SIMPLE-IRA Plan was designed to make it easier for small businesses to offer a tax-advantaged, company-sponsored retirement plan. The SIMPLE plan is a flexible, easy to administer retirement plan for businesses with 100 or fewer employees. SIMPLE plans are funded by employer contributions and can be funded by elective employee salary reduction.
What are the requirements?
- The company must have no more than 100 employees, even if self employed.
- Must adopt a SIMPLE plan document.
- Generally cannot have any other retirement plan.
Advantages:
- Easy to set up and operate - just one phone call to an Financial Foundation Group professional will get things started.
- Administrative costs are typically lower than more complex corporate retirement plans.
- Flexible contribution limits-a must for a growing company.
- Pre-tax contributions
- Tax-deferred growth
- Higher contribution limits than a traditional IRA A SIMPLE has the ability to be funded by both the employer and employee. Each employee is always 100% vested in (has ownership of) all money in his or her SIMPLE-IRA.
Contact us for withdrawal restrictions.
401K Rollover
When transitioning jobs you have many choices, and what to do with your old company plan is just one of them. Let the professionals at Financial Foundation Group help you make a decision you can be happy with. Properly managing this transition can be critical to the success of your retirement plan. Avoid the "BIG" mistake Liquidating your account to help cover transition costs will prove to be a costly mistake. Not only will you incur an early withdrawal penalty of 10% (if younger than 59 ½) you will be responsible for ordinary income tax on the distribution. This could prove to be the most costly mistake you make for your retirement. Not only will taxes be an immediate burden, but the potential for future earnings will be non-existent. Speak to us to show you options that best fit your situation.
Avoid taxes You can avoid having taxes and penalties withheld from your retirement plan if you directly roll your assets into an IRA or another qualified plan. Avoid the headache, avoid the regret, but do not avoid us in helping you find solutions to meet your retirement needs. Your financial professional at Financial Foundation Group has access to most investment companies available.
When I change jobs or retire, what are my options for my 401k?
When you leave your employer, you will need to decide what do to with the money you have accumulated in your employer's 401k. For some investors this may represent a sizeable investment. As a result, it is crucial to make an informed decision.
There are several options available to you:
- Take the money out in Cash For most investors this is the worst option. Taking a distribution in cash has very serious tax consequences. Your previous employer is required to withhold 20% for federal taxes. The cash that you receive will be taxed as ordinary income. The 20% that is withheld will be used to pay the taxes you owe for your federal taxes. However, depending on your tax bracket you may owe more than the 20% that was withheld when you do your taxes for that year. In addition, you are likely to be penalized 10% if you are younger than age 59 1/2. As you can see, this can be a major setback towards saving for your retirement.
- Leave the money with your old employer's retirement plan. For many investors who are saving for their retirement, this may be a better decision than Option 1 since you will not be penalized or taxed, however there are some disadvantages. Many investors find it difficult to manage and organize their retirement accounts when they have several retirement plans at previous employers. As a result, investment performance can suffer if retirement accounts are not diversified properly. An even more important issue is most employer's retirement plans have a fairly limited number of mutual funds choices (usually only 10-15).
- Transfer the money into your new employer's retirement plan. Most employers allow you to do a transfer into their retirement plan. Compared to Option 2 this avoids the potential problem of multiple retirement accounts at different employers and the difficulties of managing your investments and organizing them properly. As in Option 2 the same important issue still applies, as most employer sponsored retirement plans have a fairly limited number of mutual fund choices (usually 10-15).
- Transfer the money into a Rollover IRA. For many investors a 401k rollover into an IRA is the best option for the money they have saved in their previous employer's retirement plan. Compared to Options 1-3 you have several advantages: increased control, greater organization, improved investment flexibility and investment advice.