The IRS Code allows for certain penalty-free withdrawals, and gives the plan administrator the freedom to define certain other hardship exemptions. Certain kinds of retirement plan withdrawals are excluded from the 10% early withdrawal penalty tax. These include medical expenses which exceed 7.5% or 10% of Adjusted Gross Income, distributions to the family members of active duty military personnel who have been called to active duty, and distributions needed if the participant becomes disabled. Continue reading...
The contribution limits are increased over time with cost-of-living adjustments. 403(b) contribution limits are currently the same as 401(k) limits, and are adjusted for inflation at the same rate. As of 2016, if you are under age 50, you may contribute up to $18,000. If you’re over 50, you can also make a catch-up contribution of up to $6,000, for a total of $24,000 for the year. 403(b)s also allow an additional form a catch-up for employees who have been at the job for over 15 years and whose contributions in the past average out to less than $5,000 per year. These catch-ups are called Fifteen Year Cap Expansion Option or just service-based catch-ups. Continue reading...
Withdrawal rules for Keoghs will be essentially the same as rules for IRAs and 401(k)s. Once you are age 59½, you may begin to make penalty-free withdrawals and only pay income taxes on the amount you withdraw, similar to a traditional IRA. If you decide to withdraw money before age 59½, you may have to pay a 10% penalty fee in addition to income taxes on the amount of your withdrawal. Of course, there are exceptions. One exception for most qualified plans is for employees who separate from service at or after age 55: this is the early retirement exception, and the 10% penalty will not apply. Keoghs will technically use the early withdrawal rules for 401(k)s and not IRAs, which differ slightly. Continue reading...
Yes, in fact this is what most people do. This is a very popular choice. Because Traditional IRAs receive the same kind of tax treatment as 401(k)s, with pretax contributions, tax-deferred growth, and taxable withdrawals, the IRS allows you to move funds over without creating a taxable event. Of course, you need to have an IRA account to do so, but it can be as easy as opening an account online and telling the custodian company the account information for your old 401(k). Continue reading...
RMDs are withdrawals that are mandatory for an individual to take from an IRA or 401(k) after the person has reached 70 ½. The government created laws that help and encourage people to save for their retirement by deferring taxes on the growth on certain qualified retirement investment accounts. On Traditional IRAs and 401(k) accounts, they are only waiting to get the tax revenue from distributions/withdrawals that are fully taxable as income. Continue reading...
Keogh plans are any type of qualified plan at a sole proprietorship or partnership. Keogh plans come in various forms, and this is because they are actually quite a broad category. IRS Publication 560 (found here) divides workplace retirement plans into SIMPLE IRAs, SEP IRAs, and Qualified Plans. This last category, Qualified Plans, includes profit-sharing plans, 401(k)s, 403(b)s, money purchase plans, and defined benefit plans such as pensions and salary continuation plans. Continue reading...
B- — S&P / Fitch B3 — Moody’s In the world of junk bonds, a B3/B- rating is about as low of a rating as most investors will venture to explore. Bonds are rated by independent ratings institutions known as the Big Three: Moody’s, Fitch, and S&P. Two companies, S&P and Fitch, use the same symbols, and the B- in this example belongs to them. Moody’s has its own system, and the B3 in this example is theirs. Continue reading...
403(b)s are essentially the same as 401(k)s but there are a few notable differences. A 403(b) is extremely similar to a 401(k); the main difference is the type of employer than can offer each. 403(b)s are offered by public educational institutions, non-profit hospitals, non-profit organizations, religious groups and some government organizations. Due to the negotiating powers of many of those institutions, and their non-profit status, the administrative fees are smaller and they are not subject to some of the administrative oversight imposed on 401(k)s. Most 403(b)s are not subject to ERISA, which means they don’t have to satisfy as many auditing and reporting requirements. Continue reading...
S-Corporations, also called S-corps, are a cross between a traditional corporation and an LLC. S-Corporations are companies which, as opposed to C-Corporations, do not pay any federal income tax on their earnings, except in a few exceptional cases. Instead, the earnings (or losses) are passed to the shareholders and will appear on their individual income tax reports. The “S” comes from the subchapter of the Internal Revenue Code where the taxation laws are outlined. S-corps can actually be owned and operated by a sole proprietor after incorporating or starting an LLC in the state of residence and filing IRS form 2253 (link to instructions and form — found here). Continue reading...
The price to book ratio compares a company’s current stock market price to its book value (which is generally speaking a company’s net assets). To calculate, an analyst need only divide a company’s latest market price by it book value, which is calculated by taking ‘Total Assets minus Intangible Assets and Liabilities.’ The P/B ratio gives some idea of what premium an investor is paying if the company went bankrupt immediately. Continue reading...
B+ — S&P / Fitch B1 — Moody’s B+/B1 is within the range of ratings given to High Yield Bonds, also known as Junk bonds. B+/B1 is the 14th rating rating from the top rating of AAA/Aaa in the scales used by the Big Three credit ratings institutions, which are Fitch, Moody’s and S&P. They evaluate the fundamentals of companies, municipal entities, and their bond contracts to determine how much risk of default is present. The limit for the category of Investment Grade bonds is BBB-, and there are a few categories of BB above B. Continue reading...
Your employer is usually the best place to start, but you can also open your own retirement account (an IRA or Roth IRA, for instance) at your bank or a major custodian (like Charles Schwab or Fidelity). In some cases, there are income limits for contributing to a retirement account, which a financial advisor can discuss with you. A smart idea is to set up an automatic contribution to your retirement account, such as 10% of your monthly income. That way you’re automatically saving, and saving regularly. Continue reading...
403(b)s have essentially the same distribution rules as 401(k)s. The advice given for 401(k) accounts still applies here: taking money out of a retirement account before retirement is strongly discouraged. You may withdraw your money penalty-free at age 59½, and you must begin taking annual withdrawals that satisfy RMD requirements on April 1st of the year you turn 70½. If you withdraw money before age 59½, you will be subject to a 10% penalty in addition to regular income taxes. Continue reading...
Investing in a 403(b) is done by making contributions via payroll deductions and selecting investment options from among the available choices with your custodian. Payroll deductions on a pretax basis are routed into your 403(b) account with your consent. This can be done by telling the payroll department what percentage of your compensation you would like to send there, or by telling the plan custodian company, who tells your payroll department. Continue reading...
Medicare is a medical insurance benefit for Americans 65 years of age or older, but it also provides coverage for those with severe disabilities, ALS (Lou Gehrig’s disease), and ESRD (end-stage kidney disease) at any age. The premiums for what is known as Part A are paid throughout the insured’s working career, with Part B available as a supplement at low cost. Once you’re over 65, this becomes your medical insurance unless you’re still on an employer’s plan. Medicare provides coverage for in-patient procedures and short stays in the hospital, as well as hospice care and a few other small benefits for home health care. That is just for Part A—the “free” portion of Medicare people pay into over their working lives as part of their FICA taxes. Continue reading...
The S&P 500 (also known as the Standard & Poor's 500) is an index of the 500 largest and most important U.S. companies (selected by a special committee). The S&P 500 is a cap-weighted index, meaning the respective weights of companies in the index depends on market capitalization. For example, since Apple Inc. and Google are the biggest companies in the U.S., they affect movements in the S&P 500 more than a smaller company, like Visa. Continue reading...
IRS Link to Form — Found Here Interest income, such as that paid in certain bank accounts and government bonds, will be reported to the taxpayer and the IRS by the payer of the interest income. Form 1099-INT is the form used by these businesses or entities to report the income. Interest income from bonds and interest-paying bank accounts, such as savings accounts, and certain investments, will be reported on Form 1099-INT. The payer of the interest will submit the form to the IRS even for very small amounts of interest payments. Continue reading...
Medicare Part A is the standard, baseline hospital coverage that comes at no cost as part of everyone’s Medicare benefits. It will pay for inpatient stays at hospital and skilled care facilities, but only for a certain number of days. Medicare Part A is hospitalization and inpatient care insurance. It will pay fully for about 20 days of care, but only if there is an inpatient procedure first and the patient appears to be convalescing. If the patient is not gradually recovering, their Medicare benefits will be suspended. Continue reading...
BB- — S&P / Fitch Ba3 — Moody’s The BB-/Ba3 rating is given to bonds and companies who have a moderate risk of default, and this rating appears around the middle of a scale with over 20 ratings. There are two symbols in this example which are the same rating: Fitch and S&P use BB-, and Moody’s uses Ba3. These are the Big Three of the Credit Ratings Agencies (CRAs) that the SEC has sanctioned to issue ratings which can be used for internal regulation within industry groups. Continue reading...
C-corps are generally the larger, more established companies in the country – most publicly-traded companies are C-corps. C-Corporations are companies which, as opposed to S-Corporations, are subject to federal income tax entirely separately from their owners. In addition, the earnings (or losses) are distributed among the shareholders (usually as dividends) and will appear on their individual income tax reports. This is the double-taxation for which C-corps are infamous. Continue reading...