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How Do I Invest Money in My 403(b)?
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...
What is Cash Flow After Taxes?
Cash flow after taxes (CFAT) is nearly the same thing as EBITDA, but with taxes left in. One way to arrive at Cash Flow After Taxes is to take the net income of the business and add in interest, amortization, depreciation and other non-cash expenses. This is one item away from the formula for EBITDA, which also adds tax back in to arrive at the Earnings Before Interest, Taxes, Depreciation and Amortization. Continue reading...
What are the Contribution Limits for a Roth IRA?
If you are eligible to make Roth IRA contributions, you can fund an account for yourself and a non-working spouse, up to the contribution limits. As of 2016, if you are under 50 years old, you are allowed to contribute $5,500 a year to your Roth IRA. If you have a spouse, even if he or she does not work, you can make contributions into an account for him or her, up to the full limit. For two people, that means $11,000 a year can be set aside each year. Continue reading...
Which is Better for Me: a Roth or Traditional IRA?
The choice between a Roth IRA and a Traditional IRA depends on available discretionary income and financial situation. Both IRAs have the same contribution limits. The Traditional IRA goes in pre-tax (generally), grows tax-deferred, and is taxable as income on withdrawal. The Roth goes in after-tax, grows tax-deferred, and is not taxable upon withdrawal. That’s the primary difference. This will allow you to lower your current taxable income by making Traditional IRA contributions, which may seem more appealing in a number of ways. There’s the effect of immediate gratification that leads investors to favor this way, and the fact that you’re technically paying more (by the amount of taxes you paid on the after-tax Roth) to make the same current contribution to a Roth. Continue reading...
What is After-Hours Trading?
After-Hours Trading on the Nasdaq can take place after market close from 4-8pm EST or in the pre-market hours from 4-9:30am EST. Pre- and Post-market trading used to be reserved for large institutional investors or high net worth individuals, but is now made possible through the improvements to electronic trading networks and the demand from individuals trading from their computers at home. Interestingly, institutional investors can trade anonymously on the after-hours Nasdaq market, such that virtually no one knows what positions they take during that time. This is called trading in “dark pools of liquidity.” Traders on the after-hours Nasdaq cannot make certain kinds of trades or use certain instruments. Continue reading...
What is a Thrift Savings Plan?
A Thrift Savings Plan (TSP) is a 401(k)-style plan for Federal employees. A Thrift Savings Plan functions the same way a 401(k) does – you can elect to contribute a portion of your salary, known as an employee deferral or employee contribution, and the money will be allowed to grow in the account tax-deferred. The TSP is only available to Federal Employees and United States military personnel. There is a flat contribution of 1% from the employer, and, depending on the type of Federal job, employees may be eligible for a matching contribution from the employer. Continue reading...
Who Can Put Money into an IRA?
There are some income limits and contribution limits on who can contribute to an IRA. Generally speaking, as long as you or your spouse is earning taxable income, you can contribute money to an IRA, be it a Roth or a Traditional IRA. There are limits at which you cannot contribute to a Roth IRA (in 2016, the limit is $132,000 for a single filer and $194,000 for a married couple). There are also income limits at which you are no longer able to deduct contributions to a Traditional IRA, but these are only applicable if you or your spouse has a qualified retirement plan at work. Continue reading...
Who Can Contribute to a Roth IRA?
Most people will be able to contribute to a Roth, but once your income hits certain limits, you may need to find another way. Many people use Roth IRAs to make after-tax retirement contributions that will not be taxable upon withdrawal. If you have earned income under certain income limits, you can fund a Roth for yourself and even for a non-working spouse. Roth IRAs cannot be opened by everyone: the income limits are based on your modified adjusted gross income (MAGI) and marital status. Continue reading...
How is a Roth 401(k) Different From a Regular 401(k)?
The main difference is that Roth contributions go in after tax and are not taxed on withdrawal. People sometimes don’t realize that Roth 401(k)s only exist as extensions of Traditional 401(k) plans. Some plans have been designed to also permit after-tax contributions, which become that employee’s Roth 401(k) account. This Roth side account has all of the same investment options as the rest of the plan on the traditional side. In fact, an employee can contribute to both the traditional 401(k) and Roth 401(k) with each payroll cycle. Continue reading...
When Do I Have to Withdraw Money from My Roth IRA?
Roth IRAs are not subject to RMDs, which means you aren’t forced to make withdrawals. In most retirement accounts, Required Minimum Distributions will be mandatory once the account holder turns 70 ½ years old. This does not apply to Roth IRAs. They are basically the only tax-advantaged retirement account that does not have to take RMDs. This is partially because the IRS wants to make sure they get some of the taxes out of the money that was invested on a pretax basis. Continue reading...
Can I Hold Bitcoins and other Cryptocurrencies in an IRA?
It is becoming increasingly popular today to have an IRA just for bitcoin. If you create a Self-Directed IRA, you can hold almost anything you want within it, if you can find a custodian and trustee willing to facilitate it. This isn’t overly difficult to do since many new companies are jumping at the opportunity to facilitate bitcoin and cryptocurrency IRAs. Examples of assets that can be held within a self-directed IRA include real estate, cryptocurrencies, precious metals, intellectual property, private businesses, hedge funds, private equity, tax lien certificates, livestock, and more. Continue reading...
What are Required Minimum Distributions?
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...
What is a Traditional IRA?
A Traditional IRA holds money tax-deferred until retirement. An Individual Retirement Account (IRA) is an account which allows tax-deferred growth of assets. As its name implies, an IRA has to be opened in the name of the individual. A person can contribute to one, up to the annual limit, and deduct the entire amount from his or her taxes unless they are prevented from taking deductions due to participation in a workplace retirement plan and having income that exceeds certain limits. Continue reading...
What is IRS Publication 525, Taxable and Nontaxable Income?
IRS Link to Publication — Found Here This IRS Publication describes the distinction to be made between taxable income and nontaxable income. Many types of individual income are described and many sources of non-taxable income are illustrated. Gross income is usually reduced by standard or itemized deductions to arrive at a portion of income which is taxable. The amount that was left out of this equation is called nontaxable income. Continue reading...
What is Real Rate of Return?
Real rate of return is a notion that takes factors such as inflation and taxation into account before reporting a realized rate of interest on an investment. Economic theorist Irving Fisher first popularized the idea that there is a difference between a nominal interest rate and a real interest rate. Consider a bond that pays a steady coupon rate of 2% for the next 10 years. If inflation is more than 2%, the real rate of return on that investment is negative. If the investor got taxed on the nominal gains, the real rate of return is pushed further into negative territory. Continue reading...
How Do Deductible and Non-Deductible IRAs Differ?
It is possible to make non-deductible contributions to an IRA, even if you have a qualified plan at work. Traditional IRAs are a good place to stash retirement money because of the tax treatment. Some people will choose to make contributions even when they are not deductible, which gives us two kinds of Traditional IRAs: deductible and non-deductible. Deductible IRAs provide a way to lower your taxes because you can deduct contributions to your IRA from your income. Nondeductible IRAs do not allow you to deduct your contributions, but they still retain their tax-deferred growth. Unlike a Roth, these after-tax contributions will be taxed upon withdrawal as income. Continue reading...
Where do I Get Started in Saving for Retirement?
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...
How is a Roth IRA Different from a Traditional IRA?
The most basic difference is that the Roth contributions are made after-tax while the Traditional IRA contributions are usually deductible from income. Both Roth and Traditional IRAs provide for tax-deferred growth of your assets. However, the contributions you make into your IRA are pretax (or, more accurately, tax-deductible), and contributions you make to your Roth IRA are after-tax. The annual contribution limits for each are usually the same, and, in fact, a person can contribute up to this amount in either of these combined in a given year. Continue reading...
What Should I Know About Roth IRAs?
Roth IRAs are a very popular and useful accumulation vehicle, and there are some things you should be aware of. Along with Traditional IRAs, Roth IRAs are very important retirement tools and should be taken into careful consideration while deciding upon the account that is right for you. The first thing you’ll want to know is whether you can contribute, based on income limitations, so check the current IRS website to find out. Continue reading...
What is Second-To-Die Life Insurance?
Second-to-die policies are also known as survivorship policies, and are primarily used by married couples to provide a guaranteed legacy to their children after they have both passed away. These come in handy for estate planning, when an estate tax bill might be looming for the heirs. To be clear, this insurance covers the lives of two individuals and provides a death benefit to a listed beneficiary only after the last surviving insured individual dies. Continue reading...