Investing Guide

Recently, an investment savvy friend of mine, looking to start his young graduate on the road to wealth, was evaluating the benefits of a Roth IRA vs traditional IRA.

You see, setting up investment funds for young people is the latest trend in graduation gifting. Not only does the growing value of one of these accounts provide the gift that keeps on giving, but it helps teach young people about the importance of saving and investing.

Of course, making the decision to give such an important gift may not be as straightforward as it first appears. There are some important issues that you must first take into consideration before heading over to your banking institution.

First, and most important, is your relationship with the graduate. How well do you know their current financial needs? Continue reading ‘What You Need To Know About Investment Gifting For Your Graduate’ »

As April 15th rolls around, tax experts are often asked, “Why don’t we pay taxes on IRA investments?” An Individual Retirement Account, or IRA, can be an excellent option for saving. A traditional IRA account is not tax-free, rather it is tax-deferred. Traditional IRA investments defer the payment of capital gains tax until the owner begins to withdraw from the account. In other words when someone opens an IRA, they do not pay taxes on it immediately. They keep reinvesting and letting it grow until they retire. Then, when they withdraw the funds during retirement, they do pay taxes on it. They pay higher taxes because the fund has grown, but are usually in a lower tax bracket because their taxable income is much less after retirement.

Sometimes, when clients ask their tax adviser’s, “Why don’t we pay taxes on IRA investments?” they are told about the benefits of a Roth IRA. Anyone who is more than ten years away from retirement should consider a Roth IRA. This type of IRA can also be used for investment purposes so long as no cash is withdrawn before retirement age. This type of IRA is usually preferred over the traditional kind, because it frees the purchaser from taxes on the accumulated growth. Continue reading ‘Answering: Why Don’t We Pay Taxes on IRA Investments?’ »

A friend of mine recently came to me with a question about helping her mom do a Roth conversion as part of her estate planning. You see, her mother wanted to be able to leave the monies in her individual retirement account to her heirs, without using any of the funds, herself, for retirement.

Before I could give her an answer, I had to ask a couple of questions.

First, I needed to know how old her mother was. This information was important because the laws governing traditional IRAs require the owner to begin taking minimum distributions from the account at age 70 ½. Her mom was 68, so she still had time to do a Roth conversion.

Now, I needed to know if her mother was married and, if so, was her spouse her sole beneficiary? My friend’s father was still living, so there were a couple of things her mother needed to consider with regard to doing a Roth conversion. Continue reading ‘Estate Planning With a Roth Conversion’ »

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Like a knife, a Roth IRA is neither inherently good nor inherently bad. In the hands of a thug, a knife can be a deadly weapon. In the hands of a skilled surgeon, a knife is a life-saving device!

Roth IRAs are a special type of individual retirement account (IRA). When “traditional” IRAs were originally made available, it was on a tax-deductible basis. You could contribute up to $3,000 and if you were not participating in another retirement plan or did not make too much money, you could deduct the $3,000 on your tax return.

For 2010 and 2011, the amounts are $5,000 for people under 50 years old and $6,000 if you are 50 or older. If you are a participant in another retirement plan, you cannot contribute to a normal IRA if you make more than $109,000 in AGI (married filing jointly), or $66,000 (single). In a Roth IRA, you cannot contribute if you make more than $177,000 in AGI (MFJ) or $120,000 (single).

Under a Roth IRA, the difference is that these contributions are NOT tax deductible. The tradeoff is that if you meet certain conditions, such as holding the account for at least five years, then the increase in value of the account (interest, dividends, and capital gains) are ALSO not taxable!

Generally, the younger you are, the better it is to start putting into a Roth. The number of years of tax-free earnings will far outweigh the benefit of a traditional IRA. Conversely, the older you are, the less advantageous the few years of tax-free earnings will be. Your income tax bracket also comes into play here. If you are going from a high income tax bracket in your earning years and into a low one in your retirement years, perhaps the deferral is not as attractive.

In 2010, there was a big frenzy to convert traditional IRAs to Roth IRAs. The government was putting this forth as a taxing measure to offset some spending. If you converted to a Roth IRA, be sure to speak with a tax advisor to get the best tax treatment on the conversion.

My biggest concern over Roth IRAs is what I like to call the “Social Security dilemma.” They TOLD us that Social Security would never be taxed, until they needed the revenue from it! I fear that the same thing will happen to Roth IRAs. That they will not allow the tax deduction up front, but will later decide that Roths were a “bad investment” and decide to tax the earnings down the road!

For all of your investment, retirement and financial questions make sure to contact a trusted and experienced financial advisor.

Reno CPA Tim Nelson has been helping individuals and businesses with their tax preparation and financial planning for years. Tim has a passion for numbers, so that you don’t have to. Visit Tim Nelson’s Website to download the FREE Business and Tax Preparation Organizer.

To see what else Tim is talking about, visit Tim’s Blog.

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If you’re looking to save for your future, an individual retirement account, or IRA, is one of the best investment vehicles you’ll find. IRAs offer workers a low-risk way to save and earn interest. Though financial experts agree that people should begin saving for retirement as early in their careers as possible, many workers have difficulty setting aside additional funds each month for far-off times. An IRA is a good solution, as you’ll earn interest on your investment and, in many cases, receive tax benefits on your contributions. By setting up an IRA now, you’ll be better prepared for retirement. To begin planning for your retirement, consider one of the following types of IRAs.

Traditional IRA
Without a doubt, the most common type of individual retirement account is the traditional IRA. When you open a traditional IRA, any contributions you make are tax-deductible. The amount you contribute is subtracted from your taxable income, so you could pay reduced taxes or even drop to a lower tax bracket. Most IRAs limit your contributions to 5,000 dollars per year, though you can sometimes contribute more if you are over the age of 50. Eventually, you will need to pay taxes on the money you withdraw from your IRA when you reach retirement, as withdrawals are considered to be taxable income. Continue reading ‘Choosing the Right Individual Retirement Account for Your Future’ »

A rollover happens when an employee leaves one jobs retirement plan and wants to put their money into an IRA account. IRA rollover basics need to be followed closely when transferring money. These rules are in place to avoid tax issues. There are three ways to complete a rollover with a Traditional IRA.

The first rollover option is to take a cash distribution. When a cash distribution is made a check is made payable to the employee. Because the payout is being made to an employee, both federal and state taxes will be levied against the amount. Twenty percent will be automatically withheld to prepay any estimated tax amount. An additional early withdrawal fee may also be applied if the employee is under the age of 59 and 1/2. Continue reading ‘Know Your 2011 IRA Rollover Basics’ »

The information that I am about to go over may be very elementary for some. When I discuss this with some financial people, they scoff at the subject and say things like, “NO DUH!” and “Everyone already knows this!” But what I have found is that most consumers DON’T know this, and as a matter of fact, I myself was not taught this concept. So, I will base this, on what people are being told.

Many people nowadays are being told something like this. Save money on your taxes by putting as much money as you can into a qualified (tax deferred) account. Let your money grow tax free so that you can reap higher benefits in the end. But is this true?

Let’s put that theory to the test.

Let’s say that you have $200 a month to invest in an account. You can put it in a tax sheltered account, or you can put it in a regular account. Let’s assume that you will get 12% return for 30 years and that the tax rate is 20%. Continue reading ‘IRA – Individual Ripoff Account’ »

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