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Video instructions and help with filling out and completing simple ira vs 401k

Instructions and Help about simple ira vs 401k

Hello everybody I know it all Paul this week's episode I'm going to show how you business owners can save some money on your taxes and reward your employees at the same time it's called a simple IRA it's designed for companies with less than 100 employees now as a worker have you ever felt like that person that keeps passing cake around and you don't get any well don't worry everyone is included in a simple IRA it's a great perk to you and tax deductible to the business now as a business owner you can open a simple IRA for your employees at a bank insurance company or investment firm you can do it in person or online almost any kind of investment can go inside their annuities bonds CDs mutual funds and stocks now you have to open the simple ira between January 1st and October 1st unless you're a new business that started after that you have to put in 2% contribution for every eligible employee or you have to match their contributions up to 3% of their compensation now as a company you can change this amount each year but you have to do the same percentage for every employee and every employee is 100% vested automatically now to be eligible an employee has to have earned $5,000 for any of the previous two years and expects to earn another $5,000 in the current year now for the employee the money grows tax-deferred it's never been taxed before so once they cash out at retirement it will be taxed then full retirement age is fifty nine and a half years if you catch out before then you're going to be taxed and penalized 10% because it's supposed to be for retirement any money in the account at age 70 and a half the government is going to start what they call our MDS short Court required minimum distributions basically it's about four to five percent of the account balance the government makes you take it out just so they can tax you on it anything that stays inside of the simple IRA is protected from creditors depending on what state you live in and the money for beneficiaries avoids probate goes to rectly to your loved ones they can cash it out or they can continue it in their IRA now this is just supposed to be an overview for more details you can visit irs.gov please subscribe below I'll have a different topic coming out each week there's anything you want to hear shoot me an email I'll be glad to include it also make sure you check out my blog site at know-it-all Paul calm and follow me on Facebook and Twitter

FAQ

What is the difference between a 401k and IRA?
A 401k and an IRA are both tax-advantaged accounts that incentivize saving/investing for retirement.  They both restrict withdrawals from the account in exchange for deferring or excluding taxes.  There are Traditional and Roth options for both accounts which is a different question altogether (I have an answer here for IRAs but it is applicable to 401ks as well: Alexander Yuan's answer to Individual Retirement Account (IRA): Is a Roth IRA better than a traditional IRA?).  If something is just labelled a 401k or IRA, it is assume to be a Traditional type account.The quick rundown of the differences are the following: you have more flexibility investing in an IRA, you have a higher contribution limit for a 401k, and your employer potentially matches contributions in your 401k (basically gives you free money in the account).  But let's go into some more detail.401kA 401k plan is an employer sponsored retirement plan.  Not all employers offer one, but many large companies do.  Most offer only a Traditional 401k, but there are some companies with Roth 401k options.  The employer chooses which type of account to offer and has it set up with a plan manager.  There are usually specific funds available for you to invest in within the account.  You usually just fill out a form to assign how much of your paycheck you would like to put into the account and how to divide it up into the different options.  There are some restrictions on withdrawing the money put into this account but you get tax benefits in return.  These restrictions and benefits depend on with type of contribution you make (Traditional vs Roth).  The annual contribution limit is fairly high (in 2015 it is $18,000 if you are under 50 years old, $24,000 if you are over 50).  The big advantage to contributing to your 401k is employer matching.  Your employer may match your contribution which means as you put money into the 401k, your employer will also give you money to put into the account.  For example, if your company has 100% matching up to 4% of your income and you make 100k annual salary, you can contribute 4k and your company will put in 4k. This effectively makes your annual salary 104k with 8k being paid to you through your 401k. If the company's matching was only 50%, they will put in 2k when you put in your 4k in the example above. However, the company matched amount usually vests over some period of time which means if you leave the company, you only get the amount you are vested in. For example, if your company has a vesting schedule of 4 years evenly distributed, then in the first example above with 100% matching, you would get claim to an additional 1k each year. You are also always 100% vested in your own contributions. So let's take that example and say you don't contribute anymore after the first year. If you leave after 3 years with the company, you would be entitled to 3k of the 4k match from your first year as well as your own 4k contribution plus whatever gains that 7k earned in the account.Individual Retirement Account (IRA)An IRA is an individual retirement account, meaning you will have to set it up yourself.  You will need to reach out to a broker (Charles Schwab, Fidelity, TD Ameritrade, etc.) to set up an account and you decide whether you want to open a Traditional or Roth type.  You manually move money into the account which has a smaller annual contribution limit ($5,500 in 2015, $6,500 if you are over 50) relative to the 401k.You get the same restrictions and tax benefits in the IRA for the same type of contribution (Traditional vs Roth), but there are income limits to making these contributions.  The main benefit of using an IRA is investment flexibility: you aren't restricted to the investments made in the account.  You can invest in individual stocks or mutual funds or index funds of your choice.
How do US tax brackets affect a Roth IRA vs. a 401k?
A Roth uses already taxed money going in, with no taxes and no withdrawal requirements on the other end. A traditional 401k uses pre-tax money going in and has specific withdrawal requirements after age 70 1/2 with all the money being taxed as ordinary income.So, if you are in a high tax bracket you will have considerable current savings by deferring the tax on the contributions, and in typical circumstances you will be in a lower bracket when you are retired and withdrawing.The Roth can be a better deal if you are young (so there is a long tax-free growth) and in a low bracket when contributing where the deduction you would get from the traditional plan would not be so much.There are other things to consider too - you may get an employer match on some 401k contributions which is like free money. Or, if you want to leave some money to heirs, the Roth with no withdrawal requirements would be a good thing to leave unless you need it late in your retirement years.
How do I roll over a 401k to an IRA?
It's an easy process and qplum can guide you through it. (1) Open a free traditional IRA account with us (2) we give you the number to call your 401k provider. (3) Call them and ask them to process a distribution to transfer directly to new retirement accountIt’s a no brainer: With the high administrative fees that 401K administrators charge these days, it’s best to rollover your old 401K to another advisor for management.Full process: Typically, you will need to contact your 401K administrator and let them know you would like to rollover your 401K and complete some information in order to process the distribution.Depending on the administrator, you will get the distribution in the form of a check or if possible you can have it wired and you have 60 days to roll it over to into an IRA before you get penalize.Processing the paperwork is simple. Now, the tough part is where are you rolling your funds for management?Granted, there are lots of investment advisors in the market these days, which also offers low fees, but they are NOT THE SAME AT ALL. ( you can see how other financial advisors did in the past year here: Which roboadvisor had the best performance and returns in 2016?)At qplum, we offer our clients A.I. and machine learning based portfolios. We firmly believe that investing is a science, not a game. All of our portfolios have dynamic investment plans along with risk management in place which many other financial advisors do not have. In addition. our fees are also very competitive.The account opening is completely online and paperless.For a projection, you can use our IRA Savings Calculator to get an idea of your retirement savings.From the above entry, for an individual who will make yearly contributions towards their retirement account for 20 years utilizing our investment portfolios, the compound returns are 3 times the contribution!Below are some educational videos regarding:Are you saving enough for retirement?2. Should you rollover a previous 401(K)?If you have any other questions, please feel free to let me know.Here are some articles that you may find help:What you don't know about 401(k) fees is costing you big timeWhich roboadvisor had the best performance and returns in 2016?Disclaimer: All investments carry risk. This is not a solicitation to buy/sell securities. This is not an offer of personal financial advice or legal advice. Past performance is not indicative of future performance.
Once you max out your 401k and IRA, what is the best place to invest additional savings?
Katherine from Betterment here. If you’re concerned with tax consequences, you should consider a taxable Betterment account. Betterment uses automatic rebalancing and automatic reinvestment of dividends to avoid capital gains taxes. Here’s how we do it:When your account receives any cash, whether a deposit or dividend, Betterment’s software identifies which investments need to be topped up.Betterment automatically use the incoming deposit or dividend to buy more shares of the lagging part of your portfolio, and return it back to the original asset allocation.Betterment is able to do this because we can trade fractional shares. Every penny of inflows to your account adds to full diversification. This automated tax efficiency is virtually impossible to achieve in a DIY account. While many online brokers offer an automatic option to reinvest dividends into the fund where the cash came from, this is not the most efficient use of dividends. It can lead to a sell-off for gainers and an accompanying capital gains tax. That’s exactly what you’re trying to avoid!You mention goals: a house, a car, preparing for future children, etc. Betterment is a goal-based investment manager. Tell us what the goal is and we’ll use your risk tolerance (based on amount needed to reach the goal and time horizon) to provide an appropriate asset allocation to help you get there. We’ll also monitor the account constantly to make sure you are on-track to meet your goal. A Betterment account is the best way to put your additional assets to work for you, just like you are doing with your retirement.
What is the best brokerage to open solo-401k and simple IRA accounts?
While Vanguard was the first-mover in the low cost space and were the leader in low-expense mutual funds, they have since seen very strong challengers, primarily Schwab and Fidelity. Vanguard was not the biggest, but they were leader in the passive investing index mutual fund space. However, when the movement they spawned grew substantially, all the big players with broader operational capabilities got in on the action.Therefore, from both a plan design perspective and investment perspective, I would recommend Schwab or Fidelity.If you have opportunities to invest outside the stock market, you should consider self- directed Solo 401k Checkbook Control 401K Plans - 401K Checkbook or a self-directed SEP-IRA SEP IRAs - 401K Checkbook. Using a self- directed plan will ensure you get the best plan features and access to all investment types. With a self-directed plan you could get access to Fidelity and Schwab and invest in real- estate or private lending.Incidentally, it would seem more likely that you're considering a Solo 401k and a SEP-IRA (as opposed to a SIMPLE-IRA SIMPLE-IRAs - 401K Checkbook). A Solo 401k offers many benefits that are unavailable in a SEP-IRA, such as the ability for the business owner to make salary contributions, the ability to borrow from the plan, Roth contributions, and favorable taxation of real-estate investments.
How poor of a decision is it to put most of my investments into a traditional investment account vs a 401k or Roth IRA?
No. A traditional IRA is just fine. I believe the reason the government Invented the Roth is to curb us from tax write offs I.e. Pay more in taxes.The government wants your cash up front so they forbid you to write off depositing into your Roth but they promise not to tax you later which is when you are 65 you can take it out tax free from your Roth account.With Traditional IRA you can write off 3,000 for you and 3,000 for your spouse per year. That's a $6,000 income free of taxes each year. If you compound the benefits here for decades you can easily outperform the tax break of the Roth with the traditional IRA but few people think this way or have a mind for math at all.I use the Traditional IRA. When the Roth came out I didn't buy into that deal and I have not regretted it. I trade for a living so my IRA could be millions by the time I retire and I plan to hire a good Trump attorney to give me all the tax writeoffs I can get when I withdrawal.Remember, consider you can still trade your IRA into millions, pay zero taxes and get the tax deduction every year for deposits while doing so. It's only taxible when you withdrawal. It’s taxable income. So the Traditional IRA vs Roth only depends on your philosophy. I have an advisor that says they will do away with the Traditional IRA so take advantage while you can is my advice.You also mentioned 401k so here is where some companies ‘match’ your deposits with theirs. It's free money so this is a no brainer. If you can get free money max your contrabution here first. Thanks for the question.
Should I max out my 401k or get a Roth IRA and contribute to both?
When I was working they didn’t have Roth IRA’s, so I contributed as much as I could to both my IRA and my wife’s. The years passed and they changed the rules. I had saved so much that when I reached 70–1/2 I had to take out a really large annual distribution. Sound good, eh? Wait a minute. Now both my wife and I took a massive cut in Social Security benefits, because those amounts made us each pay about $400 a month for Medicare. I wish there had been a Roth IRA because it would have been a better choice for me, but for you it is a matter of the income bracket you are in now and the one you feel you will be in when you retire . It is a slippery slope, because you are supposed to withdraw funds from a Roth tax free, but Congress can always change the rules and you would be subject to the same Medicare tax, so your “tax free” amount becomes partially taxable. I vote narrowly for the Roth, but you probably should have both a 401K and a Roth
How easy is it to move money out of a 401k and into an IRA if you’re not close to retirement?
It really depends on the rules of that specific 401(k). In my experience, most 401(k)s allow you to move your (vested) money out of the plan once you’ve parted ways with the employer, regardless of your age or how close you are to retirement. (“Vested” money means money you’re allowed to take with you. Any money you contribute yourself is vested from the beginning, but matching contributions from your employer might follow a vesting schedule, whereby a certain percent becomes vested your first year, another percent the next year, etc. It’s a way of incentivizing you to stick around for a while – at least until your matching contributions are fully vested. By the way, any growth off of vested money in your account is also considered vested money.) Some 401(k) plans will also let you move money out once you’ve turned 59 1/2, if you’re still working there at that point. To find out the exact conditions under which your plan will allow you to permanently remove money from the plan, consult your 401(k)’s summary plan description, which you can get from your HR Dept.A word of caution: there’s a window of time during which, if you leave an employer with whom you have a 401(k), it might actually be disadvantageous for you to roll money from there over to an IRA. That window opens on January 1 of the year you turn 55, and closes on the day you turn 59 1/2. If you separate from an employer with a 401(k) plan during this time frame, then (assuming the plan grants you full access to your vested money) you’re free to cash money out of the plan without having to pay the 10% early withdrawal penalty that normally applies when you cash money out of a 401(k) or IRA before you’re 59 1/2. (Any portion of the money you withdraw that hasn’t been taxed already will count as taxable income that year – even if it’s from a Roth account inside your 401(k). This is because one of the conditions for withdrawing profits tax-free from a Roth IRA or a Roth account inside a retirement plan is that you be at least 59 1/2.) But this exemption to the 10% penalty doesn’t apply to money in an IRA, so any money you roll from your 401(k) into an IRA will once again be subject to the 10% penalty till you turn 59 1/2. So, depending on your circumstances, it may make sense not to roll the entirety of your 401(k) into an IRA.