You cannot claim your own social security benefit until you have reached age 62, and you have to start taking them by the time you reach age 70. You can actually start receiving benefits while you are still working, but your benefits will be reduced if you are younger than Normal Retirement Age. Currently, you have to be 62 years or older to start receiving Social Security benefits, and this includes spouses who wish to claim spousal benefits. You must start to receive benefits at age 70. Keep in mind that the longer you defer your benefits, the greater your Social Security payments will be (until age 70 of course). Continue reading...
Generally speaking, the closer you are to age 70, the better. But everyone will need to take all of their options into account and use some planning tools or the assistance of a professional planner to arrive at an ideal cash flow scenario for retirement. All assets should be brought into consideration, as well as the possible social security benefits of both spouses and their spousal benefits. There is no one “best age” to start receiving the Social Security benefits. Everyone has a Normal Retirement Age (NRA), which determines the age at which you can receive your “full” Social Security benefits, but you can defer your benefits past this point to receive an 8% increase for every additional year you deferred your benefit. Note that benefits cannot be deferred past age 70. Continue reading...
A 457 is a deferred compensation arrangement that is available to some government employers and non-profit organizations. A 457 Plan, offered to state and local public workers and employees of a few nonprofit organizations, functions similarly to a 401(k) or 403(b): the contributions are automatically deducted from your paycheck before taxes and transferred into your account, where they grow tax-deferred until retirement. Continue reading...
Contribution limits for the TSP are the same as regular 401(k)s. Employees and employers using the TSP will have the same contribution limits as 401(k) plans. An employee can defer up to $18,000 a year in 2016, plus a $6,000 catch-up deferral if the employee is over 50 years old. The employer can contribute up to a maximum total balance of $53,000 (or $59,000 if the employee is over 59 ½), including employee deferrals. There is a standard 1% employer flat contribution, and some Federal employees will also receive a match. Continue reading...
When compared to other methods of investing, there are benefits to using an IRA. An IRA provides tax deferred growth of your assets, and the result of such growth, over the years, can be quite remarkable in comparison with a regular savings account. Using an advanced calculator online – or asking an advisor or a CPA to run some calculations for you – can be an eye-opening experience. For most investors, mutual funds will be their best option for cost-efficient diversification. Holding mutual funds outside of an IRA or 401(k) means that the investor will have some taxes, whether long term gains or short term gains, passed on to him or her from the mutual fund company every year that the fund experiences gains. Continue reading...
Accidental Death Benefits are paid only if the cause of death is deemed to be an accident. Sometimes a regular life insurance or health insurance contract will offer an Accidental Death rider. The rider is appended to the contract for a relatively inexpensive additional premium and will pay a specified death benefit if the insured’s cause of death results from an accident. There are several exclusions to the definition of accident, and usually these are things like dangerous activities (sky diving, cave diving), acts of violence and war, and accidents resulting from driving under the influence or other examples where the insured has willfully put themselves in danger, or committed a crime, will usually not be covered. Continue reading...
Variable Life Insurance is a permanent universal life policy that has a death benefit as long as the cash value and premiums are sufficient to pay the increasing cost per-thousand, while the premiums and cash value have the option of being invested in separate accounts which behave much like mutual funds. Often the policy-owner has a choice of many investment options, and can construct an entire portfolio within the policy. Continue reading...
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...
New Zealand and Australia, in particular, have instituted a tax regime for offshore investments that fall into the definition of Foreign Investment Funds (FIFs). FIFs will generally be mutual fund companies that are based overseas, but can also include cash value life insurance underwritten by a foreign company and some stock portfolios from overseas stock exchanges. The US has the PFIC tax, which is a passive foreign investment corporation tax. The PFIC category generally applies to mutual funds or pooled investment companies from foreign countries. Continue reading...
Any employer can offer a Defined Benefit plan, but not many do anymore. Before the introduction of Defined Contribution Plans, most large corporations such as General Electric, General Motors, etc. offered only Defined Benefit Plans. Over the years, it has put a huge burden on these corporations to guarantee the performance of these plans. If the plan has not performed according to the assumptions, the company would have to contribute the difference, which would have to come from their profits. In order to shift the burden to the employees, most companies now offer Defined Contribution Plans (such as 401(k)s, etc.) instead of Defined Benefit Plans. Continue reading...
Social Security retirement benefits are computed by finding the average monthly income of a worker during the highest-earning 35 years of employment, and then it plugs that amount into a formula for to determine their full benefit at Normal Retirement Age (NRA). A person may then choose to take benefits before or after NRA, with applicable reductions or additions. There are different equations for spousal benefits, survivor’s benefits, and maximum family benefits. Continue reading...
Social Security uses a formula that applies a factor to your average monthly income from the 35 years in which you earned the most. The benefit will be calculated for your Normal Retirement Age (67 for most people today), and you should receive statements in the mail keeping you updated on your projected or actual Social Security Retirement Benefits. Every year, you should get a statement from the Social Security Administration that provides you with exact numbers. The amount depends on the age at which you retire, and the contributions you made to Social Security over the years. The formula uses the 35 years in which you earned the most, and divides it by the total number of months in 35 years, which is 420, which leads to your Average Indexed Monthly Earnings (AIME). Continue reading...
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...
Social Security benefits are streams of income available for retired workers, their spouses, children and dependents, and survivors. It provides insurance against longevity, disability, and, to some extent, the death of the primary contributor. Social Security benefits are available to a worker and their dependents if the worker has triggered eligibility, which usually calculated as earning over $5,040 for 10 years, but is modified if the worker dies or is disabled at a young age. Benefits can be paid to multiple people within a household (and an ex-spouse) based on one worker’s contributions to the system, up to a Maximum Family Limit, which is somewhere between 150-180% of a worker’s full benefit amount. Continue reading...
IRS Link to Publication — Found Here IRS Publication 15-b outlines the different types of fringe benefits available to employees and describes which ones are taxable to the employee and which ones are not. Fringe benefits might include anything from the use of a company car to an employee life insurance policy paid for by the employer. Fringe benefits may be provided to regular employees or independent contractors (1099 employees). Some examples of fringe benefits include tuition reduction, group disability and cafeteria plans, and childcare benefits. Continue reading...
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...
Employers can contribute to an employee’s 401(k) on a matching basis. Some employers will make additional contributions to your 401(k) based on the amount of your own contributions. Matching can be done on a dollar-for-dollar basis, meaning that for every dollar you contribute to your account, they will add a dollar as well. It can also be done using a factor, such as ½, meaning they will contribute a dollar every time you contribute two. Continue reading...
There is a high possible contribution you can make to your own 401(k), but you still have to pay attention to the limits. As of 2016, you may contribute up to $53,000 annually to your Self-Employed 401(k), plus a $6,000 catch-up contribution if you’re over 50. If your spouse is also on the payroll, you are allowed to have a combined contribution of up to $106,000, or $118,000 if you’re both over 50. Continue reading...
After the payments begin, you'll receive Social Security benefits for the rest of your life. People worry that the Social Security system will run out of money, but as long as there are some workers paying into the system, it will be able to pay at least a reduced benefit to retirees. The system can be tweaked easily enough for full benefits to continue to all those to whom it is owed, barring some reductions for taxation on benefits and possible reductions based on income from other sources. After the payments begin, you’ll receive Social Security benefits for the rest of your life. It works like a pension. Continue reading...
Social Security benefits are calculated using the Normal Retirement Age (NRA), which is 67 for people born after 1960. If you take benefits early, your payment will be reduced by as much as 30% if taken at age 62. After NRA, your benefit will be increased by 8% for every year you defer benefits. You cannot defer taking Social Security past age 70. As a rule of thumb, the closer to age 70 you retire, the higher your Social Security benefits will be. Of course, there are some specific guidelines. Everyone has an NRA (Normal Retirement Age), which determines the age at which you can receive your full Social Security benefits. Continue reading...