A Solo 401(k) Plan Can Cut Your 2011 Tax Bill by $9,800. But Need to Act Soon.

Posted on November 11, 2011 by Tony — No Comments ↓

Plot of top bracket from U.S. Federal Marginal... — Image via Wikipedia

Self employed individuals must act very soon to take advantage of this deduction for 2011.

Solo But Duo RolesOne of the great advantages of a Solo 401(k) is the ability to play the roles of both employer and employee, enabling the owner to contribute up to $49,000 of his annual income tax-deferred in 2011 (or $54,500 if at least 50 years of age). That’s a generous amount that might even drop the owner into a more advantageous tax bracket that can fast track the owner’s time to retirement.

The high contribution limits, tax savings and easy access to cash via penalty-free loans make the nominal price for solo 401(k)s a savvy financial move for any owner-only business that wants to save more than $5,000 a year (the traditional IRA limit).

In the past, many owner-only businesses have turned to traditional IRAs as a retirement savings strategy – an approach that, compared to a Solo 401(k), provides much lower contribution limits (not to mention penalties if the owner needed to access the money before reaching retirement age). Solo 401(k)s also offer more flexibility than about any retirement option. For example, just compare a 401(k) to a traditional IRA:

401(k)

Traditional IRA

Annual Limit per Individual
$49,000

$5,000

Age 50+ Catch-up Amount
$5,500

$1,000

Roth Income Limit
None

$120K*

Penalty-free Access
Yes, loan to self

No

via forbes.com

The solo 401(k) is more affordable than most self employed people realize.

Please comment or call to discuss how this affects you for 2011 and beyond.

401(k) and IRA Changes Coming in 2012 (money.usnews.com)
Bill would remove penalty for tapping 401(k) to avoid foreclosure (401kplanadvisors.com)
Tax Tips for Retirement (turbotax.intuit.com)

IRS Announces Pension Plan Limitations for 2012

Posted on October 20, 2011 by Tony — No Comments ↓

Image via Wikipedia

he Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for Tax Year 2012. In general, many of the pension plan limitations will change for 2012 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged. Highlights include:

The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $16,500 to $17,000.

The catch-up contribution limit for those aged 50 and over remains unchanged at $5,500.

The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000.

The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011. For singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.

The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $57,500 for married couples filing jointly, up from $56,500 in 2011; $43,125 for heads of household, up from $42,375; and $28,750 for married individuals filing separately and for singles, up from $28,250.

via irs.gov

Please comment or call to discuss.

IRS raises 401(k) contribution limit to $17,000 (money.cnn.com)
How to Handle Excess Contributions to Retirement Plans (turbotax.intuit.com)
The Basics of a Traditional IRA (turbotax.intuit.com)

This Do-Over Could Save You Thousands

Posted on October 12, 2011 by Tony — No Comments ↓

SAN FRANCISCO, CA - APRIL 14: Drew Darmon (R)... — Image by Getty Images via @daylife

Now is the time to review your tax situation with your tax professional. Your after tax investment return is what matters the most.

The Roth do-over opportunity
In 2010, the tax laws removed the income limit on Roth IRAconversions. Because high-income individuals still can’t make regular contributions to Roths, the conversion option gave them their first pathway into the Roth universe. Because they provide tax-free growth for retirement savings, Roths are especially valuable to taxpayersin high tax brackets.But as I explained back in April, a big benefit of converting your IRA to a Roth is that you can recharacterize your conversion if things go awry. This offsets the downside of converting: You have to include the amount you convert in your taxable income and pay taxes on it. If the market goes down after you convert — as has now happened for many who made the move to a Roth late in 2010 — then you face the added insult of having to pay taxes on a higher amount than your Roth is currently worth.

Recharacterizing your Roth conversion lets you avoid that problem. In simplest terms, recharacterizing gives you a do-over as far as your Roth is concerned, letting you put your money back in the traditional IRA where it came from and pretending (for tax purposes) that nothing ever happened. Granted, you still have the losses from your investments, but at least you don’t have to pay taxes on them.

via fool.com

The only thing that does not change about your tax situation is that your tax situation will change.

Please comment or call to discuss.

Roth Regrets? Still Time to Change. (online.wsj.com)
Save on Taxes with a Roth Conversion Right Now (dailyfinance.com)
The Roth IRA Switcheroo (online.wsj.com)

Why Economists Should Stay in Their Ivory Towers

Posted on September 16, 2011 by Tony — No Comments ↓

Any proposal requiring a government to manage resources will be inefficient and ineffective. Each individual must be responsible for their own future this includes retirment.

So what is it? In a nutshell, the proposal would completely eliminate the deduction for employee contributions to any defined contribution plan and any employer contributions to such plans would be current taxable income to the employee (and subject to FICA tax as well). The tax revenue generated from this would be used to fund a new government matching program for qualifying savings. Employee and employer contributions to a DC plan (and individual contributions to an IRA) would qualify for a 30 percent government matching contribution, which would be contributed to the employee’s account (or IRA). (The details for how this would happen are conveniently not disclosed.)

via asppanews.org

Does anyone believe a government is a better steward for your retirement savings than you? Do you truly trust any government with your financial future?

Please comment or call to discuss.

Boost Your Retirement Savings (turbotax.intuit.com)
The Use of ERISA § 3(38) Investment Managers in Defined Contribution Plans (401kplanadvisors.com)
Smart Investor – Why Fees Matter for 401(k) Plan Fiduciaries, But Not Defined Benefit Pension Plans (401kplanadvisors.com)

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A Solo 401(k) Plan Can Cut Your 2011 Tax Bill by $9,800. But Need to Act Soon.

IRS Announces Pension Plan Limitations for 2012

This Do-Over Could Save You Thousands

Why Economists Should Stay in Their Ivory Towers

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Article Categories

	401(k)	Traditional IRA
Annual Limit per Individual	$49,000	$5,000
Age 50+ Catch-up Amount	$5,500	$1,000
Roth Income Limit	None	$120K*
Penalty-free Access	Yes, loan to self	No

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