Retirement

What If You Contribute Too Much To Your Roth IRA?

April 27, 2012
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What happens if you contribute too much to your Roth IRA? Believe it or not, it’s much easier to do than you might think. How? Suppose you max out your Roth IRA contribution at the beginning of the year, then as the year progresses, you receive a raise, a bonus, or perhaps your spouse goes from unemployed to employed. All of these events could increase your Modified Adjustable Gross Income (MAGI). If changes in your MAGI and what you earn are substantial, it’s quite possible that your maximum Roth IRA contribution limit for the year will decrease – maybe even to zero. Under such circumstances, if you’ve already made a Roth IRA contribution assuming a certain contribution limit and that limit subsequently decreases, then the result is an excess Roth IRA contribution. For instance, a few years ago, I inadvertently contributed too much to my Roth IRA. How? At the beginning of the year, I set up an automatic monthly withdrawal with my discount broker. Each month, the same set amount of money would be directly deposited into my Roth IRA from my bank account. This worked well for several months, then I came into a small windfall of cash.

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Roth IRAs vs. Traditional IRAs: For Filing Taxes and Your Retirement

March 22, 2012
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This is a guest post from Kellie Englehardt, she sent me this post yesterday and asked if I accepted guest posts. After reading this and gauging its usefulness for your tax return, I decided to publish immediately.  I sincerely hope at least some of my readers would definitely find it useful. usually I do not post on Thursdays, making an exception today. Enjoy and learn the following. This year, taxes are due April 17, less than a month away. With the deadline quickly approaching, many people are wondering how they can cut their tax bill. One thing you can do, according to the IRS, is contribute to an IRA. A contribution will not only reduce your taxable income, but it will generate retirement savings as well. It’s a win-win situation. The great thing about IRAs is that if you contribute before the tax filing deadline, the contribution counts toward your taxes. But that is no secret. In fact, Fidelity Investments estimates that 50 percent of all IRA contributions are made within 28 days of the tax filing deadline. “March is an excellent time to contribute to an IRA,” said Derek Overstreet, president of New Millennium Insurance Services in South Jordan, Utah. “Would

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Will Increasing Retirement age for Social Security Hurt Seniors?

March 21, 2012
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Will Increasing Retirement age for Social Security Hurt Seniors?

The following is a guest post The Social Security Income is the benefit provided by the Federal government. The Social Security program is funded by levying a tax on both the employers and the employees. This program was created by the Social Security Act of 1935 to provide benefits to old people, and survivors and their families. The money is paid to the person and his family on the basis of his employment records and his contributions to the whole government system. Retirement age for receiving Social Security The retirement age was previously 65 and the earliest when a person could start receiving Social Security retirement benefits was 62. But, recently the retirement age has been increased to 66 and is supposed to increase by two months each year starting from 2017. This will continue till the retirement age reaches 67 in 2022. However, till now the age to receive Social Security benefits for those who retire early is 62. The leaders of the deficit commission, Democrat Erskine Bowles and Republican Alan Simpson, proposed a continual increase in the full retirement age a few days ago. They proposed that the retirement age may be increased to 69 within about 2075. Similarly the early retirement age would also

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There is No Income Limit for Roth IRA Conversion As Such

March 12, 2012
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Do you earn too much to make a Roth IRA contribution? Are you bogged down by the Roth IRA limit for your income? The Roth IRA is a powerful retirement savings vehicle. Unfortunately, the IRS prohibits large number of individuals and married couples from making Roth IRA contributions because (in the eyes of the federal government at least) they earn too much income. If this describes your situation, you have been barred from making Roth IRA contributions (and probably Roth IRA conversions as well) for more than a decade. And while the Roth IRA income limits are still in effect, the restriction on your ability to make a Roth IRA contribution is not. The Roth IRA Income Limits Under the current Roth IRA rules, you’re prohibited from contributing a single penny to your Roth IRA if: You’re married, file a joint return, and earn more than $183,000 You’re married, file separately, and earn more than $100,000 You’re single, head of household, or married filing separately (and did not live with your spouse), and earn more than $125,000 If you fall into any of these categories, you’re out of luck, right? Wrong. You were out of luck until two years ago

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IRA vs 401(k), Should You Rollover?

March 5, 2012
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IRA vs 401(k), Should You Rollover?

IRA vs. 401 (k) , should I rollover my previous employer’s 401 (k)? I am contributing to 401(k) plans up to 5% of my salary to get full employer match. I am also contributing $5,000 annually to an IRA account. If I leave this job and join another one I’ll have another 401 (k) account from my new employer. From TD Ameritrade to ETrade, all IRA administrators run incentive programs to encourage people to roll over. I am trying to find an answer to the question: Should I leave my money where it is or should I roll it over to Individual Retirement Account? While there are benefits and drawbacks to both options. IRA seems more flexible, where as, 401(k) is easier to tap in to during an emergency. But that’s not all about the differences. Let’s do some homework before making a rollover decision. Before going on to the comparison, let’s be clear that this article is not about where you should put more money from your paycheck. You should contribute to 401 (k) to take 100% of employer match. Another point to consider, you can’t contribute more than $5,000 a year in an IRA (including Roth IRA), where as

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What is IRA, A Beginners Guide to Traditional IRA

February 8, 2012
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This write-up is for the beginners and the young adults. This is also for the people who just arrived from over seas to work in United States. It took me 3 year upon arrival in this country, to understand IRA concept fully, or understand up to an extent where I can take informed decisions. The best place to learn about IRA is from the horse’s mouth, that is from IRS website. But, if you are a beginner, you probably are facing the same issue I faced, lack of proper explanation in terms of a novice’s language on the IRS site. When I read it for first time, it was in Greek and Latin! Here’s is my attempt to make Traditional IRAs simpler for you. Now please concentrate on the following sentences. Definition: The individual retirement account is a personal, tax-deferred account for people who are employed, and their spouses. You can set up an IRA at almost any bank, brokerage, insurance company, or mutual fund. There are a wide variety of investment options to choose from, and your earnings are untaxed until they are paid out of the account.   What Is IRA? Beyond definition IRA stands for Individual Retirement Account.

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How Much Do You Need in Retirement Saving? A Calculation

February 3, 2012
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How Much Do You Need in Retirement Saving? A Calculation

Do you know how much you need in retirement saving every year to get to the comfortable level? If you do a calculation, you may come to a surprise that you are probably over saving. Let me explain my calculation. Let’s assume that my salary is $100,000 per year. I contribute $10,000 per year to employer 401(k) plan. Let’s also assume that I get employer match of up to 5% of my gross income, which means the absolute amount of $5,000 per year. In addition, I have an IRA account where I max out with $5,000 per year. My annual retirement contribution comes to be $20,000, combining contribution to 401(k), IRA and company match. In addition to that, I get an annual profit-sharing contribution deposited to my 401(k) accounts. this amount depends on economy and company performance. For calculation shake, let’s consider the average of last 3 years, which is slightly more than $2,000 per year. So with imaginary salary, I am saving $22,000 per year towards retirement. Is my retirement saving excessive? When I retire 30 years from now (I am not looking at early retirement), at 7% annual rate (this is grossly accepted long-term stock market return rate)

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Don’t Give Up, Get Even With Your Financial Frustration

December 12, 2011
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The following is a guest post For many, preparing for retirement is not always their number one financial priority. Plus, with the market ups and downs, retirement investing can be a challenging process. With this volatility, investors may notice large swings in their account from day to day, making it hard to see progress toward their goals. No matter how discouraging retirement planning can be, you should never give up preparing for your financial future. Take a moment to understand the following things about retirement preparation before you let your frustration dictate your future savings: Retirement investing is like vacation planning. Retirement investing and vacation planning both require you to spend some time researching, planning and saving. When you plan to go on vacation, the first steps are usually researching destinations, comparing flights and hotels and eventually making purchases. The same goes for retirement planning. The first thing you would do is decide on a goal for your retirement. Then you would work out your savings rate and research the available investments, comparing and choosing a match for your retirement needs and wants. After you figure out which investment options work best for your financial situation, you begin to allocate your assets. Just as you wouldn’t show up to the

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When Is The Right Time To Retire

October 21, 2011
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When Is The Right Time To Retire

Millions of people each day wonder if they have enough money to comfortably retire. You have worked practically your whole life; therefore, it is time to relax to do the things that you have always dreamed of. In order to be able to retire, you need to calculate your retirement savings and make sure that you will continue to have adequate insurance coverage. Financial freedom for retirement is possible, but it requires planning. The best way to start planning is to save. Invest in a 401 (k) or Roth IRA, and save more money that you feel that you will need. These investments also have tax advantages. Stocks are a good investment for long-term growth. Many employers have a retirement plan, so it is wise to invest some money in that. It is never too late to start saving, but the sooner, the better. There are many online calculators in which can assist you with planning for retirement. All you do is enter your age, salary and savings, and the calculator will tell you the age in which you can retire but, no calculator can tell you the accurate amount you need to save before retirement as you’ll never know

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Non Financial Things To Consider Before Retiring Early

September 9, 2011
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One of the most discussed items in the personal finance arena is Financial Independence. It is a state in which you don’t have to work to earn a living anymore. Your savings will make a living for you. For most Americans, financial independence never comes and they are forced to take retirement. For the rest, it comes only in retirement. People wrote books and established blogs to discuss the financial benefits and pitfalls of retiring early. I am not going to talk about those in this post; after all, it is your decision whether or not to retire early. But I will strongly advocate considering a few things before putting in your paperwork and waving your hands in ecstasy. Yesterday I talked about the things you should be doing when you are young and just have joined the work force. Now, after doing all those nice things diligently, you should be in a situation where you are now contemplating an early retirement after having saved enough money. You aspire to retire as you probably have enough savings to cover Your life expenses (and your partner’s) til you die. An interesting formula of 4% withdrawal from your retirement savings per year

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