What is Individual Retirement Account (IRA)?

An Individual Retirement Account (IRA) is a kind of insurance policy which provides people tax benefits so they could earn for retirement plans and savings.

Various Retirement Accounts

Individual Retirement Account (IRA)

Every time you put money into your account, you’ll get tax deductions. This type of retirement account permits you to add a certain amount annually and invest this tax-free. This would entail no charges on taxes on your investment profit yearly.  In the event you decide to get your money from the account, the distribution from the Individual Retirement Account (IRA) will be incorporated in your taxable income.

Investing in bonds, stocks, ETFs, mutual funds, and any other type of investments is possible since IRA is an investment account.But if you get the money prior to withdrawal from work or position (example: age 59 years old and a half), you will most likely have to be charged a 10% fine.

Roth Individual Retirement Account or Roth IRA

The conventional IRA and Roth IRA have a lot in common. Yet, deposited amount are not susceptible to tax deductions and distributions that meet the qualifications will be tax-free. Roth IRA deposits are done following tax but whatever quantity created within the Roth is not charged with another tax. You could also get your deposited amount prior to your retirement with no fine. Investing in Roth IRA is a wise decision you make in terms of your extra money while expecting a favorable tax break eventually.

 Non-deductible Traditional Individual Retirement Accounts

Just like a conventional IRA, a non-deductible IRA is an investment plan that is tax-free. The deposited amount, though, is not tax-deductible. A portion of your deposit becomes tax-free return of the old deposit that is non-deductible when you begin with your deposit. All others are charged with tax just like a regular income. If the company you work for provides retirement plans, it is usually a non-deductible IRA most of the time. The only difference between the conventional IRA and the non-deductible IRA is on how they deal with the old deposited amount.

Roth 401(k)

This kind of account is given via the company or firm people work for. The deposited amount is gotten from the net income. This type is new so not all companies offer this to their employees.

401(k) Account

This is a company retirement account and it is, most of the time, given to workers as benefits. This kind of account enables you to provide a part of your gross income in an investment account that is tax-free. In case you give cash prior to it being charged with tax, your income where your taxes are based is decreased. For example, you have $90,000 and you gave $30,000, then your tax will be based on a $60,000 income. In the event you take back your money prior to you retiring, you will be fined 10% and it will be taxed.

It may take a while before your retirement but there is a need to enhance your financial mindset and invest in IRA’s the soonest possible time. You could begin to invest your money regardless if you will withdraw from work few decades from now.

Simply put, annual investment of your income on top of the percentage that goes up yearly multiplied to 20 years would mean a huge amount already. That is why, getting a retirement plan is a wise financial planning. The best way to start is now and not when it’s too late.


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The question “how much money to do I need to save for my retirement” is always a very popular one. Planning your retirement is a must. This way, you are sure that you will still have the same standard of living when you retire from your job.

Have you ever heard of “saving for the rainy day”? The rainy day will come soon. We are not young forever. Therefore, the act of making money cannot last for a very long time. When you’re old, you simply cannot do that anymore. So, while we are still young, we need to make sure that we have a retirement plan to stay on the safe side.

One of the best ways to help you determine how much money you should save, aside from the basic rule of thumb of retirement, is to make a more detailed estimate basing on your current situation. Therefore, you need to find out what expenses you will have in your retirement, including the ones that you won’t have. This includes pinpointing the sources of income you will lose and gain, and the changes of lifestyle that you may possibly have.

What you want to do during retirement can determine your income needs. Perhaps you want to move or buy another house, travel around the world, start a business, etc. The plans that you have in the future will determine how much money you need for your retirement.

The only glitch to this method is that it may only work best for those who are reaching retirement say five to ten years from now. it may be difficult to get a good, more real hold of your financial needs beyond 5 to 10 years because a lot of things may still change, including tax laws. For those who are in their early 20s or 40s, we may rely so much on our assumptions. A lot of us want to plan ahead, but we should also take considerations of the disadvantage in doing so. We do not want to retire broke, right? if you’re still not sure, you can consult a financial adviser. 

Conventional or Roth IRA- Choose Which Suits You Best

Nowadays, creating an Individual Retirement Account (IRA) is possible so long as you’re making money. An IRA is a retirement savings policy which you could get for yourself when you’re charged of a tax. So that would include salaries, wages and maintenance fees as well as other additional income. However, you should be 70 years old and younger to qualify on top of the other criteria.

The Difference between Roth & Conventional IRA’s

If you’re earning good money, Roth IRA is for you especially if you have the intention to withdraw the funds since all the deposits are tax-deductible and tax-free when you get them.

On the flip side, individuals who prefer to have their deposits being taxed automatically must get the conventional IRA. In this case, they no longer need to pay future taxes since it was already deducted from their current income but that would mean they will earn less.

For a year, there will be a deposit limit of $5,000 per year for both conventional and Roth IRA’s but for individuals above 50 years old, you can deposit for up to $6,000 annually.

If you want to create an IRA, you got three options: a banking institution, ma brokerage firm or a mutual fund company. There is no specific amount required to do so. You can even have an initial deposit of $25 to $100. There are also other banking institutions that offer stocks but for mutual funds, it usually requires an initial deposit of $1,000 or more. Brokerage firms, on the other hand, are for skilled investors who would like to invest in bonds, stocks and mutual funds.

Conventional IRA: Withdrawal Policies

The rule indicates that you should be at least 59.5 years old to be able to get your deposited amount; otherwise, you will be fined 10% on top.

Another rule is what we call the MDR rule (Minimum Distribution) that takes effect when you reach 70.5 years old. You must be able to get the sum of the amount of cash to get yearly utilizing the expectancy table, ensuring that there is no remainder amount in your IRA account in the event you reach the expectancy age.

Roth IRA: Withdrawal Policies

In order to create a qualified distribution, you have to be at least 59.5 years old. In the unfortunate event that you become physically challenged, you will be allowed to get your deposited amount. You may also use the cash as a home buyer.

If you work in an institution that offers no retirement benefits, then conventional IRA is for you. There are a good number of retired individuals who have lower tax brackets in comparison to when they were still working.   It is necessary to have not just one source of retirement savings because you cannot predict changes in the tax rate in the future.

An IRA helps you prepare for your retirement from work so it will be most favourable if you grab every opportunity to save money while you are still young and capable to earn. It is among the various facets of financial planning that you need to possess and it helps a lot to have a n excellent investment specialist whom you can work with to reach your financial goals.

For more information on this subject you may contact Deborah Koval, your financial expert.

Many business owners use basic cash management techniques to keep track of the money involved that come in and come out in the businesses. Basically, these involve expenditures, debts, and profits- of course. This is important because it helps businessmen know whether or not the business is making any profit at all. When it comes to business, keeping track of all the monetary records is really a must.

Expense tracking is one of the techniques of basic cash management that businessmen use. The business owner will be able to keep track of the money that goes out by using this technique. This is used when procuring additional supplies, distributing salaries of employees, and paying loans. The remaining money after subtracting the rest of the expenses from the business’s income is typically the net income. It is detrimental not to record every cent that goes out, for you may never determine the exact profits.

Another cash management technique involves tracking accounts receivable- all of them. Account receivables are the money that comes from returned investments or sales.

When you keep a record of the incoming money, you will have the chance to control a good cash flow. This is vital in business.

Another good financial technique is to start a credit line. When your business has this, you won’t have to immediately worry when profits don’t come as they should; you still have money to run the business as it is. Having a backup plan when running a business is a must.

Cash management basics basically aim to account all financial transactions for business to run smoothly. Inventories are also important. This is the total amount of goods and materials in your business. It is important for businessmen to have an inventory, so that they will know how much their business is really worth.

Get expert advice on finances with Deborah Koval.

A split-annuity strategy involves purchasing two types of annuity contracts: immediate and deferred. The immediate annuity would provide a current income stream during the early years of retirement, and the deferred annuity would have the potential to provide a future income stream.

An immediate fixed annuity earns a guaranteed rate of return and immediately pays a regular income for the duration specified in the contract. Meanwhile, the funds in a deferred fixed annuity accumulate tax deferred until they are needed. Once the immediate fixed annuity has been depleted, the deferred fixed annuity can be used to generate a regular income stream. Of course, any earnings withdrawn from the deferred annuity would be taxed as ordinary income.

By combining an immediate annuity with a deferred annuity, you can receive both current retirement income and tax-deferred growth potential. Of course, the guarantees of annuity contracts are contingent on the claims-paying ability of the issuing insurance company.

An annuity is a financial vehicle used for retirement purposes. It is a contract with an insurance company that can be funded either with a lump sum or through regular payments over time. In exchange, the insurance company will pay an income that can last for a specific period or for life, depending on the terms of the contract.

Generally, annuities have contract limitations, fees, and charges, which can include mortality and expense charges, account fees, underlying investment management fees, administrative fees, and charges for optional benefits. Most annuities have surrender charges that are assessed during the early years of the contract if the contract owner surrenders the annuity. Withdrawals of annuity earnings are taxed as ordinary income and may be subject to surrender charges, plus a 10 percent federal income tax penalty if made prior to age 59½.. Withdrawals reduce annuity contract benefits and values. Any guarantees are contingent on the claims-paying ability of the issuing company. Annuities are not guaranteed by the FDIC or any other government agency; they are not deposits of, nor are they guaranteed or endorsed by, any bank or savings association. For variable annuities, the investment return and principal value of an investment option are not guaranteed. Variable annuity subaccounts fluctuate with changes in market conditions; thus, the principal may be worth more or less than the original amount invested when the annuity is surrendered.

In retirement, most people rely on a combination of Social Security, retirement plans, and personal savings for income. A split-annuity strategy can help supplement these income sources. This is one way to add some stability to your financial future and may help ensure that you don’t outlive your assets.

Variable annuities are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the variable annuity contract and the underlying investment options, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

You may contact Deborah Koval. She's an expert on this subject.

Note: Please be advised that this is a re-post from Deborah Koval.

Before making any investment decision, one of the key elements you face is working out the real rate of return on your investment.

Compound interest is critical to investment growth. Whether your financial portfolio consists solely of a deposit account at your local bank or a series of highly leveraged investments, your rate of return is dramatically improved by the compounding factor.

With simple interest, interest is paid just on the principal. With compound interest, the return that you receive on your initial investment is automatically reinvested. In other words, you receive interest on the interest.

But just how quickly does your money grow? The easiest way to work that out is by using what's known as the “Rule of 72.”1 Quite simply, the “Rule of 72” enables you to determine how long it will take for the money you've invested on a compound interest basis to double. You divide 72 by the interest rate to get the answer.

For example, if you invest $10,000 at 10 percent compound interest, then the “Rule of 72” states that in 7.2 years you will have $20,000. You divide 72 by 10 percent to get the time it takes for your money to double. The “Rule of 72” is a rule of thumb that gives approximate results. It is most accurate for hypothetical rates between 5 and 20 percent.

While compound interest is a great ally to an investor, inflation is one of the greatest enemies. The “Rule of 72” can also highlight the damage that inflation can do to your money.

Let’s say you decide not to invest your $10,000 but hide it under your mattress instead. Assuming an inflation rate of 4.5 percent, in 16 years your $10,000 will have lost half of its value.

The real rate of return is the key to how quickly the value of your investment will grow. If you are receiving 10 percent interest on an investment but inflation is running at 4 percent, then your real rate of return is 6 percent. In such a scenario, it will take your money 12 years to double in value.

The “Rule of 72” is a quick and easy way to determine the value of compound interest over time. By taking the real rate of return into consideration (nominal interest less inflation), you can see how soon a particular investment will double the value of your money.

1 The Rule of 72 is a mathematical concept, and the hypothetical return illustrated is not representative of a specific investment. Also note that the principal and yield of securities will fluctuate with changes in market conditions so that the shares, when sold, may be worth more or less than their original cost.The Rule of 72 does not include adjustments for income or taxation. It assumes that interest is compounded annually.Actual results will vary.



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Note: Please be advised that this is a re-post from Deborah Koval.

In general, Americans are not sufficiently prepared to pay for long-term care. Many of them go through their lives simply hoping that they won’t ever need it. Unfortunately, in the event that you or a loved one does need long-term care, hope won’t be enough to protect you from potential financial ruin.

Also, the odds that you will need some kind of long-term care increase as you get older.

Self-Insurance as an Option
To self-insure — that is, to cover the cost yourself — you must have sufficient income to pay the rising costs of long-term care. Keep in mind that even if you have sufficient resources to afford long-term care now, you may not be able to handle rising future costs without drastically altering your lifestyle.

The Medicaid Option
Medicaid is a joint federal and state program that covers medical bills for the needy. If you qualify, it may help pay for your long-term-care costs. Unfortunately, Medicaid is basically welfare. In order to qualify, you generally have to have few assets or will need to spend down your assets.

State law determines the allowable income and resource limits. If you have even one dollar of income or assets in excess of these limits, you may not be eligible for Medicaid.

To receive Medicaid assistance, you may have to transfer your assets to meet those limits. This can be tricky, however, because there are tough laws designed to discourage asset transfers for the purpose of qualifying for Medicaid. If you have engaged in any “Medicaid planning,” consult an advisor to discuss any new Medicaid rules.

Long-Term-Care Insurance
A long-term-care insurance policy may enable you to transfer a portion of the economic liability of long-term care to an insurance company in exchange for the regular premiums.

Long-term-care insurance may be used to help pay for skilled care, intermediate care, and custodial care. Most policies pay for nursing-home care, and comprehensive policies may also cover home care services and assisted living. Insurance can help protect your family financially from the potentially devastating cost of a long-term disabling medical condition, chronic illness, or cognitive impairment.

A complete statement of coverage, including exclusions, exceptions, and limitations is found only in the policy.

Long-Term-Care Riders on Life Insurance
A number of insurance companies have added long-term-care riders to their life insurance contracts. For an additional fee, these riders will provide a benefit — usually a percentage of the face value — to help cover the cost of long-term care. This may be an option for you.


You may contact Deborah Koval. She's an expert on this subject.

Note: Please be advised that this is a re-post from Deborah Koval.

Lewis Carroll, the author of Alice’s Adventures in Wonderland, once said, “If you don’t know where you’re going, any road will get you there.” This is certainly true when it comes to investing: If you don’t know where you’re headed financially, then it is not as vital which investments make up your portfolio. If you do have a monetary destination in mind, then asset allocation becomes very important.

The term “asset allocation” is often tossed around in discussions of investing. But what exactly is it? Simply put, asset allocation is about not putting all your eggs in one basket. More formally, it is a systematic approach to diversification that may help you determine the most efficient mix of assets based on your risk tolerance and time horizon.

Asset allocation seeks to manage investment risk by diversifying a portfolio among the major asset classes, such as stocks, bonds, and cash alternatives. Each asset class has a different level of risk and potential return. At any given time, while one asset category may be increasing in value, another may be decreasing in value. Diversification is a method to help manage investment risk. Asset allocation and diversification do not guarantee against loss. So if the value of one asset class or security drops, the other asset classes or securities may help cushion the blow.

Dividing your investments in this way may help you ride out market fluctuations and protect your portfolio from a major loss in any one asset class. Of course, it is also important to understand the risk versus return tradeoff. Generally, the greater the potential return of an investment, the greater the risk.

As a result, the makeup of a portfolio should be based on your risk tolerance. Generally, you should not place all your assets in those categories that have the highest potential for gain if you are concerned about the prospect of a loss. It is essential to find a balance of asset classes with the highest potential return for your risk profile.

Other factors that are important to developing an asset allocation strategy are your investment goals and time horizon. When you are considering how to diversify your portfolio, ask yourself what you want to accomplish with your investments. Are you planning to buy a new car or house soon? Do you aspire to pay for your children’s college education? When retirement rolls around, would you like to travel and buy a vacation home? These factors should all be considered when outlining an asset allocation strategy.

If you require a specific amount of money at a point in the near future, you might want to consider a strategy that involves less risk. On the other hand, if you are saving for retirement and have several years until you will need the funds, you might be able to invest for greater growth potential, although this will also involve greater risks.

Whichever asset allocation scenario you decide on, it’s important to remember that there is no one strategy that fits every type of investor. Your specific situation calls for a specific approach with which you are comfortable and one that could help you pursue your investment goals.

You may contact Deborah Koval. She's an expert on this subject.

Note: Please be advised that this is a re-post from Deborah Koval.

Just like individuals, the government, corporations, and banks often need to borrow money for a short time to make ends meet. Unlike most individuals, however, the scale of this borrowing is phenomenal.

The money market is the name given to the arena where most of this short-term borrowing takes place. In the money market, money is both borrowed and lent for short periods of time.

For example, a bank might have to borrow millions of dollars overnight to ensure that it meets federal reserve requirements. Loans in the money market can stretch from one day to one year or beyond. The interest rate is fundamentally determined by supply and demand, the length of the loan, and the credit standing of the borrower.

The money market was traditionally only open to large institutions. Unless you had a spare $100,000 lying around, you couldn't participate.

However, during the inflationary era of the 70s, when interest rates sky-rocketed, people began to demand greater returns on their liquid funds. Leaving money in a bank deposit account at 5 percent interest made little sense with inflation running at 12 percent. The money market was returning significantly higher rates but the vast majority of people were prohibited from participating by the sheer scale of the investment required.

And so, the first money market mutual fund came into being. By pooling shareholders’ funds, it was possible for individuals to receive the rewards of participating in the money market. Because of their large size, mutual funds were able to make investments and receive rates of return that individual investors couldn't get on their own.

Money market mutual funds typically purchase highly liquid investments with varying maturities, so there is cash flow to meet investor demand to redeem shares. You can withdraw your money at any time.

For a minimum investment, sometimes as low as $500, money market mutual funds will allow you to write checks. The check-writing feature is most often used to transfer cash to a traditional checking account when additional funds are needed. These funds are useful as highly liquid, cash emergency, short-term investment vehicles.

Money market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money market funds seek to preserve the value of your investment at $1 per share, it is possible to lose money by investing in money market funds.

Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

You may contact Deborah Koval. She's an expert on this subject.

Note: Please be advised that this is a re-post from Deborah Koval.

John F. Kennedy once said, “Change is the law of life. And those who look only to the past or present are certain to miss the future.” This is certainly true of preparing for retirement. If we continue to expect that the ways of the past will see us through to our futures, we will be left behind. The methods that helped prepare us for retirement are quickly disappearing, and we must start using others.

Today’s companies are rewriting the retirement rules for working Americans. Traditional pension plans, which gained prominence in the 20th century, are rapidly disappearing because of the high costs involved in funding them. Some corporations are defaulting on their plans, and an increasing number of companies have underfunded or at-risk plans.

To help protect employees with corporate pensions, the federal government has enacted laws requiring employers to meet a 100% funding target for their defined-benefit plans. Companies that sponsor pension plans are also required to pay higher insurance premiums to the Pension Benefit Guaranty Corporation (PBGC), which was created by Congress in 1974 to help protect American workers from the risk of pension default. Premiums have increased because the PBGC itself is facing a deficit as a result of more companies defaulting on their pension plans.

Because of these costly requirements, it is becoming less and less attractive for companies to provide traditional pensions to retirees. Employers with underfunded plans may simply choose to eliminate them, and even companies with healthy plans may decide that defined-benefit plans are not worth the cost. As a result, it is likely that more companies will offer defined-contribution plans like the 401(k) to attract new employees and to help employees fund their own retirements.

Thus, it is important to be aware that you may have less help from your employer and will probably have to rely more on your own savings and investments to fund your retirement.

The government has tried to help by raising contribution limits to most employer-sponsored retirement plans. You can contribute money to these plans on a pre-tax basis. Your contributions and any earnings accumulate on a tax-deferred basis. Of course, remember that distributions from most employer-sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% federal income tax penalty.

A number of companies are taking steps to help workers fund retirement. Many have instituted automatic-enrollment in their defined-contribution plans to encourage more employees to participate. Some are enhancing the benefits of their plans by increasing the amount they contribute to employee accounts and/or enhancing matching contributions.

Many companies that still have traditional pension plans should be able to pay their promised benefits. But in light of recent trends, it would be wise to consider all possible sources of retirement income when reviewing your retirement strategy. With the changing retirement landscape, there may be no better time than now to size up your current situation. Your company-sponsored retirement plan will be just one piece of your retirement funding pie.



You may contact Deborah Koval. She's an expert on this subject.

Note: Please be advised that this is a re-post from Deborah Koval.