Retirement on a Budget

Retirement on a Budget

Many millennials feel the pressure of student loans bearing down upon them and it can be terrifying trying to figure out how to get rid of all of that debt. On top of worrying about your current financials, you have everyone under the sun telling you to plan for your retirement. You’re probably thinking, “With WHAT money!? How can I get out of debt while saving for retirement at the same time?”. It can seem overwhelming. That’s where Self-Directed IRAs can come in handy for you.

The Basics: Traditional and Roth IRAs

An IRA is an Individual Retirement Account. These accounts are provided by an assortment of financial institutions and they are tax advantaged. There are a few different types, but for now we’ll stick with the basic two: Traditional IRAs and Roth IRAs. Traditional IRAs are tax deferred accounts. What this means is that in addition to the tax deduction you receive for contributing to your IRA, your earnings within the IRA (interest and gains) are also deferred until you distribute. When you withdraw money from your IRA, it is taxed as ordinary income. Roth IRAs are a bit different. There are contribution limits for Roth IRAs and the contributions you make are not deductible. The big draw for a Roth IRA is if you meet certain requirements when you take money out, it is tax free.

The Beauty of Self-Directing

With an IRA you can invest in things like stocks and bonds. With a self-directed IRA, your options become a little broader. Are you well versed in real estate? You can invest in that. Do you like the security of precious metal investments? Invest away! Maybe you’d like to invest in a business? No problem!  With self-direction you can pick something that you are familiar with and invest to your hearts content.  When you self-direct, you are in the driver’s seat. You can invest in ways that other IRAs and 401ks can’t.

Having a wider array of investment options isn’t the only bonus of self-directing your IRA. It may seem like you need a lot of money to start investing. The truth is you can start with whatever you feel comfortable with. Once you begin investing, you’ll gain the experience you’ll need to feel more comfortable with your decisions and invest more. Investing your money can seem scary at first. You can go your own pace and stick with what you feel most comfortable with.

If you would like to learn more about self-direction, contact us here at Next Generation Trust Services. We would be more than happy to answer any questions you might have. You can reach us at Info@NextGenerationTrust.com or 888.857.8058.

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2014 Pension Plan Limitations Announced by IRS

IRS Cost of Living Adjustments The Internal Revenue Service announced some cost-of-living adjustments (COLA) for the 2014 tax year. These adjustments affect employer-sponsored retirement plans such as 401(k)s, defined benefit plans, simplified employee pension plans (SEP IRAs), savings incentive match plans (SIMPLE IRAs) and Roth and Traditional IRAs. A few did not change but many did; you can read the full report with listings of all types of retirement accounts and contribution limits on the IRS website here.

In short, elective deferrals to 401(k) plans remain the same as in 2013 ($17,500 plus $5500 “catch-up” contributions for people age 50 and over). Traditional and Roth IRA contribution caps are $5500 (plus $1000 for the 50-plus group). However, for these IRAs, the modified adjusted gross income limits for contribution deductibility have changed.

For business owners or self-employed individuals with SEP IRAs, the deduction for contributions goes up to $52,000 (an increase of $1,000 over last year).

These limits—such as contribution limits, salary deferral limits, and taxable wage bases—are important considerations as you discuss your retirement goals with your advisor or are determining how to include nontraditional assets in your self-directed retirement plan. All the income and expenses relating to the assets flow in and out of the self-directed retirement plan, which owns the assets within it. If you have any questions regarding self-directed plans of any kind, check our website (http://NextGenerationTrust.com) or contact us at Info@NextGeneraitonTrust.com or (888) 587-8058.

 

Traditional IRA vs. Roth IRA

Traditional IRvs Roth IRAUh oh – we’re in the fourth quarter of the calendar year, it will soon be time to send your tax documents to your accountant . . . and you didn’t set up an IRA yet to start saving for retirement?

No worries – you have until April 15, 2014 to make a contribution that will apply to the 2013 tax year. But now—well, any time—is ripe for opening up an IRA, if you don’t have an employer-sponsored retirement plan through work. Whether or not to select a traditional IRA or Roth IRA is the question. There are benefits to each type of retirement plan depending on the investor’s goals and situation. There are also certain restrictions around income, age, and other factors. Either one of these may be self-directed. We always recommend that our client consult their financial planner or tax professional about which type of retirement plan is best for their unique situation.

Traditional IRA 101

The traditional IRA (individual retirement account) was created in 1975 by the federal government for those Americans who did not have pension plans through their employers, and because (even back then), Social Security was not providing enough income during retirement. Sound familiar?

The IRA education page of our website lays out the basic information about traditional IRAs; for example:

• The traditional IRA is an account that is used to save pre-tax dollars for use in retirement.

• The contributions made to this account are tax-deductible.

• The minimum age that account holders are allowed to start withdrawing money is 59½; withdrawals made prior to age 59½ are subject to an early withdrawal penalty in addition to taxes owed.

• Account holders must start withdrawing funds, which are taxed as ordinary income, after reaching the age of 70½.

• Money grows tax free while it is in the account. Taxes are only paid once money is withdrawn.

• You may not be able to deduct all of your contributions if you or your spouse is covered by an employer retirement plan.

• You may set up a traditional IRA and make contributions if you (or, if you file a joint tax return with your spouse) received taxable compensation during the year, and you are under the age of 70½.

 With a self-directed IRA, whether traditional or Roth, SEP or SIMPLE (for employers and the self-employed) individuals may invest in a broad range of assets, not only stocks, bonds and mutual funds but the many alternative investments allowed within a self-directed retirement plan. If you have any questions about these assets or the types of plans that are available, please contact us.

 Roth IRA 101

The Roth IRA was created in 1997 due to the Taxpayer Relief Act. A big difference (there are a few) is that the funds you contribute to this type of retirement account are already taxed, so the money generated by the investments in a Roth IRA is withdrawn tax-free.

A Roth IRA is similar to a savings account. Money is invested to generate a sizeable profit. The profit you make will then be reinvested into a Roth IRA until the maturity date hits. A Roth IRA allows a person to withdraw funds tax-free and you aren’t required to ever withdraw the funds. The reason the money is tax-free is because the money is invested after you pay your taxes.

Here is some basic knowledge that you need to know about a Roth IRA which was covered in a previous blog post.

 Basic Information About a Roth IRA:

• When money is taken out of the Roth IRA, however, funds up to the amount put into it are always federal-tax free, and often the entirety of the funds are free from federal taxes.

• Intended for the middle class to help save for retirement. The basic uses include: purchasing a primary residence, medical expenses, and help fund a child’s college education.

• No penalties if you withdraw after a 5-year waiting period.

• Money invested is already taxed so any return you earn won’t be taxed if you wait to withdraw until you are 59½.

• No required age to withdraw from the account, and your beneficiary can inherit the account.

There are also restrictions towards a Roth IRA. When this was setup it was intended to help the middle-class. Therefore a single person who makes a gross income of $110,000 or more, and a married couple who earns an income of $160,000 or more is not eligible to contribute to a Roth IRA.

There are advantages and disadvantages to both types of IRAs. Now that you are educated about what a Traditional IRA and Roth IRA are we hope that you decide which one would be more beneficial to you when planning for your retirement. If you have any questions please don’t hesitate to contact one of our representatives at (888) 857-8058 or email us at Info@NextGenerationTrust.com.

For further information about Traditional IRAs and Roth IRAs please read up on information at http://www.irs.gov/

 

Fourth Quarter Reminders about IRA Contributions and Withdrawals

self-directed-retirement-plans-43With the last quarter of 2013 upon us, many Americans will make year-end contributions to their retirement plans; however, many individuals are not aware of current contribution limits and eligibility requirements for their Roth or traditional IRAs.

All IRAs have eligibility and contribution restrictions based upon your income, age, and employment status. There are also penalties for withdrawing funds before the minimum distribution age of 59-½ except for certain circumstances.

Here are some basic contribution rules regarding IRAs, some of which we covered in a previous blog post about IRA Contribution limits HERE:

Spousal IRAs

A spousal IRA provides an investment vehicle for nonworking spouses to save for retirement. This type of retirement account allows couples who file jointly to each contribute to the IRA, even if only one person has taxable compensation. There are definitely certain restrictions and regulations around this type of retirement plan.

However, the contribution made together can’t be more than the taxable compensation reported on your joint return. If you fail to follow this rule a penalty will be applied. The IRS website provides good information and many details about spousal and other retirement accounts.

Rules for Retirees

Retirees who are over 70-½ have their own set of rules. Once you reach this age you can no longer contribute to a traditional IRA but you can still contribute to a Roth IRA; individuals can make rollover contributions to both a traditional and Roth IRA regardless of age. This simply means that you can move assets between retirement plans; the distribution is reported to the IRS on a 1099-R form.

Excessive Contributions and Penalties

Nobody likes paying a penalty. You can get taxed if you have an excess IRA contribution, such as contributing more that the allowed, limit or contributing to a traditional IRA after age 70-½. Those excess contributions are taxed at 6% each year until the solution is resolved.
To avoid the excess contributions tax you may:

Withdraw the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
Withdraw any income earned on the excess contribution.

Of course, for any matters regarding your tax situation or financial planning matters, we recommend you consult your financial advisor for the best course of action for your unique needs, income bracket, employment status, and overall financial picture.

As deadlines for year-end contributions approach, there is still time to open a retirement account if you do not yet have one. If you are considering a self-directed retirement plan of any kind (Traditional or Roth for individuals, SIMPLE or SEP for business owners) please contact our professionals with any questions you might have at (888) 857-8058 or Info@NextGenerationTrust.com; or take a look at our online Starter Kits to review what you’ll need to open your self-directed retirement account.

Click Here to Download a PDF Version of Fourth Quarter Reminders about IRA Contributions and Withdrawals

There’s Still Time to Open an IRA – But Which Type is Right for You?

Roth IRA vs Traditional IRA

Uh oh – we’re in the fourth quarter of the calendar year, it will soon be time to send your tax documents to your accountant . . .  and you didn’t set up an IRA yet to start saving for retirement?

No worries – you have until April 15, 2014 to make a contribution that will apply to the 2013 tax year. But now—well, any time—is ripe for opening up an IRA.

Whether or not to select a Traditional or Roth IRA is a choice to make when opening a retirement account. There are benefits to each type of plan depending on the investor’s goals and situation. There are also certain restrictions around income, age, and other factors. Either one of these may be self-directed.

We always recommend that our clients consult their financial planner or tax professional about which type of retirement plan is best for their unique situation. You can also read about these plans at http://www.irs.gov/.

Here are some comparisons between Traditional and Roth IRAs for you to consider.

Traditional IRA 101

The Traditional IRA (individual retirement account) was created in 1975 by the federal government for those Americans who did not have pension plans through their employers, and because (even back then), Social Security was not providing enough income during retirement. Sound familiar?

The IRA education page of our website that explains “What is  traditional IRA” lays out the basics about traditional IRAs; for example:

Roth IRA 101

The Roth IRA was created in 1997 as part of the Taxpayer Relief Act; it was intended for the middle class to help save for retirement. Therefore, there are income criteria associated with who may open and contribute to a Roth IRA.

A big difference (there are a few) is that the money is taxed going into the account; the money generated by the investments in a Roth IRA is withdrawn tax-free. Another difference is that with a Roth IRA you are not required to ever withdraw the funds.

Here are some Roth IRA tips which we covered in a previous blog post:

rothvstrad-iraWith a self-directed IRA, whether traditional or Roth, SEP or SIMPLE (for employers and the self-employed) individuals may invest in a broad range of assets, not only stocks, bonds and mutual funds but the many alternative investments allowed within a self-directed retirement plan. If you have any questions about these nontraditional assets, the types of retirement plans that are available, or wish to open a self-directed IRA, please contact us at (888) 857-8058 or Info@NextGenerationTrust.com; one of our helpful professionals will get you the answers right away.

How To Set Up A Self Directed IRA

Looking to estabish a Self Directed IRA, Self Directed Retirement Plan, or Real Estate IRA? Next Generation Trust Services, a self directed IRA administrator based out of Northern New Jersey, presents the basic steps to filling out the application paperwork to get your self-directed retirement account open! Control Your Future, Today!

What is a Traditional IRA?

Traditional IRA Conneticut A traditional IRA (individual retirement account) is any IRA that is not a Roth IRA or a SIMPLE IRA. Click here to learn about Roth IRA versus traditional IRA.

You can set up and make contributions to a traditional IRA if you (or, if you file a joint return, your spouse) received taxable compensation during the year, and you were not age 70½ by the end of the year.

You can also have a traditional IRA whether or not you are covered by any other retirement plan. However, you may not be able to deduct all of your contributions if you or your spouse is covered by an employer retirement plan.

If both you and your spouse have compensation and are under age 70½, then each of you can set up an IRA but you cannot both participate in the same traditional IRA.

If you file a joint return, then only one of you needs to have compensation.

A traditional IRA is an account that is used to save pre-tax dollars for use in retirement. An IRA can be opened at a variety of places such as a brokerage, mutual fund company, or even at your local bank. The money in the account can generally be invested in stocks, bonds, mutual funds, or CDs, subject to the availability of products within your account.

WHAT IS THE TRADITIONAL IRA PRETAX ADVANTAGE?

what is a traditional IRA New Jersey

The primary benefit of a traditional IRA is that in most cases, the contributions are made on a pre-tax basis. This means that when you deposit money into the traditional IRA, you can deduct that amount from your taxable income. This results in paying less income tax for the year.

In addition to receiving the tax deduction up front from your traditional IRA, the money in the traditional IRA account grows tax deferred. Any interest or gains from the traditional IRA investments are not taxed when the gains are realized. Instead, the gains from your traditional IRA are deferred until money is withdrawn from the IRA, at which point the money is taxed as ordinary income.

WHAT ARE TRADITIONAL IRA ELIGIBILITY REQUIREMENTS?

Anyone under age 70 ½ with earned income is eligible to open a traditional IRA, but there are some restrictions as to who can deduct the contributions. There are income limits that are used to determine how much of the contributions are deductible, if you or your spouse are participants in an employer plan.

WHAT ARE TRADITIONAL IRA DISTRIBUTION REQUIREMENTS?

One of the potential disadvantages of a traditional IRA is the forced distribution that must begin at age 70½. Even if you don’t need the money, if you do not take at least the required minimum distribution (RMD) each year, you are subject to stiff penalties. In addition, withdrawals made prior to turning age 59½ are subject to an early withdrawal penalty in addition to taxes owed.
IS A TRADITIONAL IRA RIGHT FOR YOU?

If your employer doesn’t offer a retirement plan, then a traditional IRA is generally a good option for saving pretax money for retirement. Keep in mind that, depending on whether you, or your spouse if you are married, are covered by a retirement plan at work, you may be subject to income limitations that affect the deductibility of your contribution to a traditional IRA.

what is a traditional IRA New YorkFor many people, once they reach retirement, they find themselves in a lower tax bracket than when they were employed. This means you receive a greater tax break on the contributions during your working years, and later in life when you are not working and withdraw this money, it is taxed at a lower rate. Unfortunately, it is impossible to predict what will happen to tax rates in the future, which is why it is important to have multiple sources of retirement savings. If we have not answered all your questions regarding “what is a traditional IRA,” please feel free to contact us. We’re here to help.

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Roth IRA versus a traditional IRA

Roth IRA versus a traditional IRA New YorkNot sure which IRA is right for you and your family? Deciding the benefits of a Roth IRA versus a traditional IRA? Well, if you’re looking for answers that compare a Roth IRA versus a traditional IRA, you’ve come to the right place. Click here to learn “What is a traditional IRA?

When comparing a Roth IRA versus a traditional IRA it’s important to understand that when money is first invested in a Roth IRA, it is federally taxed based on the tax bracket one currently inhabits. When money is taken out of the Roth IRA, however, funds up to the amount put into it are always federal-tax free, and often the entirety of the funds are free from federal taxes. That’s one of the biggest differences between a Roth IRA versus a traditional IRA – the funds are taxed going in but not when they are withdrawn. That’s why it’s important to consult with a retirement planning expert who can advise you the best tax implications for you based on your individual circumstances when considering the benefits of a Roth IRA versus a traditional IRA.

HOW DOES A ROTH IRA DIFFER FROM A TRADITIONAL IRA?

Roth IRA versus a traditional IRA New Jersey
A Roth IRA is an account or annuity set up in the United States solely for the benefit of you or your beneficiaries. It is an individual retirement arrangement. However, when comparing a Roth IRA versus a traditional IRA, it’s important to understand that a Roth IRA differs from traditional IRAs in that contributions are not deductible. For information on contributions and the limitations please refer to Chapter 2 of the Publication 590, Individual Retirement Arrangements.

To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is set up. A deemed IRA can be a Roth IRA, but neither a SEP IRA nor a SIMPLE IRA can be designated as a Roth IRA. To be eligible to contribute to a Roth IRA versus a traditional IRA, you must meet IRS designated income limits, which are adjusted periodically. For more information on current Roth income limitations please visit the IRS website at www.irs.gov.

If you satisfy the IRS regulated requirements (which include a five year holding period), qualified distributions are tax free. Additionally, you may take tax free and penalty free distributions of basis (the amount you originally contributed) at any time. Contributions can be made to your Roth IRA after you reach age 70½, and you can leave amounts in your Roth IRA as long as you live, as the Roth IRA is not subject to the Required Minimum Distribution rule.

RESOURCES LINKS

Traditional IRA or Roth IRA