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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.
Profit-Sharing Plans

David Wray, the president of the Plan Sponsor Council of America, once said that the purpose of profit-sharing plans is “to generate goodwill and a feeling of partnership” between employer and employee. Profit-sharing plans give employees a share in the profits of a company each year and can help to fund their retirements.

All funds contributed to a profit-sharing plan accumulate tax deferred, as with other defined-contribution retirement plans, but employer contributions are tax deductible only if the plan is defined as an elective deferral plan, which means that instead of accepting their profit shares as cash, employees defer the assets into retirement funds.

Profit sharing is attractive to business owners because of its flexibility. Employers can choose how much to allot to employees each year based on the amount of revenue taken in. There is no required minimum. If the company has a bad year, the employer has the option of giving very little or nothing at all to employee accounts.

Employees are usually enrolled automatically in profit sharing once they become eligible. Companies can choose eligibility requirements based on age and length of service. In 2012, a company is allowed to contribute up to 25% of an employee’s salary or $50,000 (whichever is less). This amount is indexed annually for inflation.

Typically, companies set up vesting schedules that dictate how long workers must be employed in order to claim profit-sharing contributions when they move to another job or retire. Once employees are fully vested, they can take the entire amount contributed on their behalf and roll it over to an IRA or to a new employer’s qualified retirement plan.

If you participate in a profit-sharing plan, you may begin withdrawing funds after age 59½ without incurring a 10% income tax penalty. Withdrawals are taxed as ordinary income. Some plans may allow early withdrawals. Profit-sharing providers have greater flexibility when it comes to deciding the terms of early withdrawal than do administrators of other plans, such as 401(k)s. However, the trend has been to permit no early withdrawals.

Generally, you must begin taking required minimum distributions after reaching age 70½. You can elect to withdraw the assets as a lump sum and be taxed on the entire value of the fund or you can set up a minimum distribution schedule based on your life expectancy.

Some companies offer a combination arrangement with both a profit-sharing plan and a 401(k). A conjoined plan allows employers to contribute as much or as little as they would like each year, while giving employees a way to supplement their retirement funds.

If you are a business owner, profit sharing may be a way to attract high-caliber employees. It provides retirement funds for your employees, yet allows you the freedom to choose how much you wish to contribute each year.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc.

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.



 
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Many Americans realize the importance of saving for retirement, but knowing exactly how much they need to save is another issue altogether. With all the information available about retirement, it is sometimes difficult to decipher what is appropriate for your specific situation.

One rule of thumb is that retirees will need approximately 80% of their pre-retirement salaries to maintain their lifestyles in retirement. However, depending on your own situation and the type of retirement you hope to have, that number may be higher or lower.

Fortunately, there are several factors that can help you work toward a retirement savings goal.
Retirement Age

The first factor to consider is the age at which you expect to retire. In reality, many people anticipate that they will retire later than they actually do; unexpected issues, such as health problems or workplace changes (downsizing, etc.), tend to stand in their way. Of course, the earlier you retire, the more money you will need to last throughout retirement. It’s important to prepare for unanticipated occurrences that could force you into an early retirement.
Life Expectancy

Although you can’t know what the duration of your life will be, there are a few factors that may give you a hint.

You should take into account your family history — how long your relatives have lived and diseases that are common in your family — as well as your own past and present health issues. Also consider that life spans are becoming longer with recent medical developments. More people will be living to age 100, or perhaps even longer. When calculating how much you need to save, you need to factor in the number of years you will spend in retirement.
Future Health-Care Needs

Another factor to consider is the cost of health care. Health-care costs have been rising much faster than general inflation, and fewer employers are offering health benefits to retirees. Long-term care is another consideration. These costs could severely dip into your savings and even result in your filing for bankruptcy if the need for care is prolonged.

Factoring in higher costs for health care during retirement is vital, and you might want to consider purchasing long-term-care insurance to help protect your assets.
Lifestyle

Another important consideration is your desired retirement lifestyle. Do you want to travel? Are you planning to be involved in philanthropic endeavors? Will you have an expensive country club membership? Are there any hobbies you would like to pursue? The answers to these questions can help you decide what additional costs your ideal retirement will require.

Many baby boomers expect that they will work part-time in retirement. However, if this is your intention and you find that working longer becomes impossible, you will still need the appropriate funds to support your retirement lifestyle.
Inflation

If you think you have accounted for every possibility when constructing a savings goal but forget this vital component, your savings could be far from sufficient. Inflation has the potential to lower the value of your savings from year to year, significantly reducing your purchasing power over time. It is important for your savings to keep pace with or exceed inflation.
Social Security

Many retirees believe that they can rely on their future Social Security benefits. However, this may not be true for you. The Social Security system is under increasing strain as more baby boomers are retiring and fewer workers are available to pay their benefits. And the reality is that Social Security currently provides only 26% of the total income of Americans aged 65 and older with at least $57,957 in annual household income.1 That leaves 74% to be covered in other ways.
And the Total Is…

After considering all these factors, you should have a much better idea of how much you need to save for retirement.

For example, let’s assume you believe that you will retire when you are 65 and spend a total of 20 years in retirement, living to age 85. Your annual income is currently $80,000, and you think that 75% of your pre-retirement income ($60,000) will be enough to cover the costs of your ideal retirement, including some travel you intend to do and potential health-care expenses. After factoring in the $12,000 annual Social Security benefit you expect to receive, a $10,000 annual pension from your employer, and 4% potential inflation, you end up with a total retirement savings amount of $760,000. (For your own situation, you can use a retirement savings calculator from your retirement plan provider or from a financial site on the Internet.)

This hypothetical example is used for illustrative purposes only and does not represent the performance of any specific investment. The estimated total for this hypothetical example may seem daunting. But after determining your retirement savings goal and factoring in how much you have saved already, you may be able to determine how much you need to save each year to reach your destination. The important thing is to come up with a goal and then develop a strategy to help reach it. You don’t want to spend your retirement years wishing you had planned ahead when you had the time. The sooner you start saving and investing to reach your goal, the closer you will be to realizing your retirement dreams.

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.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc.

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.

 
Long ago, people realized that there is strength in numbers. For hundreds of years, we have been joining forces against all kinds of calamities — including financial troubles.

The concept of insurance is simply that if enough of us can pool our money to form a large enough fund, then together we can handle practically any financial disaster. Our motivation for contributing to this fund is our own eligibility to draw from it in the event of a disaster. One for all and all for one, so to speak.

An early example of the concept comes from the Code of Hammurabi, Babylonian laws dating back to 1700 B.C., which contain a credit insurance provision. For a little higher interest, the ancients could exempt themselves from repayment of loans in the event of personal misfortune. A citizen of the Roman Empire could buy life insurance through the Collegia Tenuiorum for slaves and wage earners, or the Collegia for members of the military. The funds provided old-age pensions, disability insurance, and burial costs. In spite of some complications and occasional bureaucratic snarls, the system has worked remarkably well through the ages.

Today, virtually all heads of families should carry life insurance. Most financial advisors also recommend automobile, health, homeowners, personal liability, professional liability and/or malpractice, disability, and long-term-care insurance.

Purchasing individual or family insurance coverage is probably one of the most important financial decisions you will make. A great deal of study and advice is needed to choose wisely. A few basic guidelines can safely be applied to most consumers. Beyond these, each individual’s needs are unique and should be carefully assessed by an expert.
1. How much insurance do you need?

A good rule of thumb is: Don’t insure yourself against misfortunes you can pay for yourself. Insurance is there to protect you in case of an event with overwhelming expenses. If anything short of a calamity does occur, it will usually cost you less in actual costs than the insurance premiums you would have paid.
2. What kind of policy is best?

Broader is better. Purchase insurance that will cover as many misfortunes as possible with a single policy; for example, homeowners insurance that covers not only damage to the house itself but also to its contents. Carefully examine policies that exclude coverage in certain areas, the “policy exclusions.”
3. From whom should I buy?

Always buy from a financially strong company. Take the time to shop around for the best prices with the most coverage for your specific situation. You may be able to save money by buying multiple policies from the same agent.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc.

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.

 
What Types of Bonds Are Available?

Bonds are issued by federal, state, and local governments; agencies of the U.S. government; and corporations. There are three basic types of bonds: U.S. Treasury, municipal, and corporate.
Treasury Securities

Bonds, bills, and note issued by the U.S. government are generally called “Treasuries” and are the highest-quality securities available. They are issued by the U.S. Department of the Treasury through the Bureau of Public Debt. All treasury securities are liquid and traded on the secondary market. They are differentiated by their maturity dates, which range from 30 days to 30 years. One major advantage of Treasuries is that the interest earned is exempt from state and local taxes. Treasuries are backed by the full faith and credit of the U.S. government as to the timely payment of principal and interest, so there is little risk of default.

Treasury bills (T-bills) are short-term securities that mature in less than one year. They are sold at a discount from their face value and thus don’t pay interest prior to maturity.

Treasury note (T-note) earn a fixed rate of interest every six months and have maturities ranging from one year to 10 years. The 10-year Treasury note is one of the most quoted when discussing the performance of the U.S. government bond market and is also used as a benchmark by the mortgage market.

Treasury bonds (T-bonds) have maturities ranging from 10 to 30 years. Like T-note, they also have a coupon payment every six months.

Treasury Inflation-Protected Securities (TIPS) are inflation-indexed bonds. The principal of TIPS is adjusted by changes in the Consumer Price Index. They are typically offered in maturities ranging from five years to 20 years.

In addition to these treasury securities, certain federal agencies also issue bonds. The Government National Mortgage Association (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corp. (Freddie Mac) issue bonds for specific purposes, mostly related to funding home purchases. These bonds are also backed by the full faith and credit of the U.S. government.
Municipal Bonds

Municipal bonds (“munis”) are issued by state and local governments to fund the construction of schools, highways, housing, sewer systems, and other important public projects. These bonds tend to be exempt from federal income taxes and, in some cases, from state and local taxes for investors who live in the jurisdiction where the bond is issued. Munis tend to offer competitive rates but with additional risk because local governments can go bankrupt.

Note that, in some states, investors will have to pay state income tax if they purchase shares of a municipal bond fund that invests in bonds issued by states other than the one in which they pay taxes. In addition, although some municipal bonds in the fund may not be subject to ordinary income taxes, they may be subject to federal, state, or local alternative minimum tax. If an investor sells a tax-exempt bond fund at a profit, there are capital gains taxes to consider.

There are two basic types of municipal bonds. General obligation bonds are secured by the full faith and credit of the issuer and supported by the issuer’s taxing power. Revenue bonds are repaid using revenue generated by the individual project the bond was issued to fund.
Corporate Bonds

Corporations may issue bonds to fund a large capital investment or a business expansion. Corporate bonds tend to carry a higher level of risk than government bonds, but they generally are associated with higher potential yields. The value and risk associated with corporate bonds depend in large part on the financial outlook and reputation of the company issuing the bond.

Bonds issued by companies with low credit quality are high-yield bonds, also called junk bonds. Investments in high-yield bonds offer different rewards and risks than investing in investment-grade securities, including higher volatility, greater credit risk, and the more speculative nature of the issuer. Variations on corporate bonds include convertible bonds, which can be converted into company stock under certain conditions.
Zero-Coupon Bonds

This type of bond (also called an “accrual bond”) doesn’t make coupon payments but is issued at a steep discount. The bond is redeemed for its full value at maturity. Zero-coupon bonds tend to fluctuate in price more than coupon bonds. They can be issued by the U.S. Treasury, corporations, and state and local government entities and generally have long maturity dates.

Bonds are subject to interest-rate, inflation, and credit risks, and they have different maturities. As interest rates rise, bond prices typically fall. The return and principal value of bonds fluctuate with changes in market conditions. If not held to maturity, bonds may be worth more or less than their original cost. Bond funds are subject to the same inflation, interest-rate, and credit risks associated with their underlying bonds. As interest rates rise, bond prices typically fall, which can adversely affect a bond fund's performance.

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.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc.


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.
 
 
Charitable lead trusts are designed for people who would like to benefit a charity now rather than later. You may have heard about some charitable trust strategies before but decided against them because you wanted to make an immediate gift to charity.

With a charitable lead trust, your gift can have an immediate impact, and you’ll be entitled to other benefits as well. These trusts will enable you to take advantage of tax benefits and still make a significant gift.

If you are accustomed to making outright contributions to your favorite charity, or if you typically sell an investment and give all or a portion of the money to charity, you may be attracted to the special advantages of using a charitable trust.

Avoiding capital gains taxes on an appreciated asset is a very appealing benefit for investors. It is also a way for charitable organizations to receive a much larger donation because they are not required to pay tax on capital gains. Once the trust is established and the assets are transferred, the trustee can then sell the assets and reinvest the funds.

You also get an immediate charitable income tax deduction based on the “life expectancy” of your gift. With a charitable lead trust, you are giving the charity the income from the asset and not the asset itself. Your deduction will be based on the rate of return the charity can expect to receive, the duration of the trust, and the IRS tables used in the calculation. Your write-off will be limited to a portion of adjusted gross income but can be carried forward to future years.

With a charitable lead trust, the income from the reinvested assets will then go to the charity. The charity will receive distributions for the duration of the trust. You may specify a set number of years or the life of you or someone else. At the end of this period, the remaining assets are paid to you or your beneficiaries, for example.

A charitable lead trust may also help reduce family squabbles over inheritance. If you were to actually gift the asset to the charity upon your death, your heirs may feel somewhat cheated. By giving income to the charity during your lifetime and having the remaining assets paid to your beneficiaries upon your death, you may avoid much of this potential controversy.

If you are interested in increasing your gift to a charity and your tax benefits during your lifetime, a charitable lead trust may enable you to accomplish your goals.

By taking the time to plan your charitable gifts, you may be able to take advantage of some special tax benefits and make charitable giving a real win-win situation.

The use of trusts involves a complex web of tax rules and regulations. You might consider enlisting the counsel of an experienced estate planning professional and your legal and tax advisors before implementing such strategies.

Please contact Deborah Koval. She's an excert for this one.

Note: Please be advise that this is a re-post from Deborah Koval.
 
Financial advisors are those who are experienced and trained to help people with their financial plans and investments. That includes tax arrangements to retirement plans. The financial advisor can be paid through commission or in every transaction made.

If you’re partly convinced that you don’t need a financial advisor like Deborah Koval, think again. Put it this way: you don’t simply fix your own teeth, or diagnose what’s the problem with your eyes on your own. However, you can seek for consultations on how to fix them and maintain them so you won’t have to deal with any more problems in the future. That is the same thing with financial advisors. So you better be prepared on how to choose a good financial advisor, so that you can get started working on your finances, including, of course, your goals.

There simply too many investments to choose from, and without proper knowledge, training, and experience, how will you know which one is best for you through making decisions backed with thorough knowledge of these things? You simply can’t pull this off on your own. You need an expert. A mistake in your decision making can affect your future entirely. So leave your future in the hands of an expert. Consult the professional advice of a financial advisor.

First of all, you must work with your financial advisor. After all, it is your goals that he will be working on. So make sure your goals are clear to him. You must remember that your financial advisor is only there to give you advice, hence the name, and not make decisions for you. You must learn how to make decisions based on the advices given by your financial advisor. Do not leave everything to him.

Your hired financial advisor must be completely aware of, aside from your goals, your lifestyle and your assets. Therefore, you must hire an advisor that you trust. Consider this when you’re thinking about how to choose a good financial advisor that can successfully help you with your goals. If you don’t trust your advisor with these things, you won’t go anywhere. With all the things that you need to consider: your lifestyle, your retirement goals, your short term goals, cash flow, your every day expenses, etc, a good financial advisor can help you balance things out, especially in your investments. He can give you options that won’t lead you to your destruction- financially.

One of the reasons why you need to have a financial advisor is time- your time. When you don’t know how and what decisions to make, you may end up thinking about things for a long time and even do an extensive research just to help you make the correct decisions. That effort cannot amount to the knowledge of financial advisors that they gained for years through studies, and more knowledge gained through experience and service to other people.

These financial advisors have studied for years about business and finance. They need to be certified for them to practice their profession. They examine financial trends every day. They gather and study different funds available and other options for financial planning, budget, and retirement. They have a good grasp on these things. That’s what makes them qualified and more reliable when it comes to making decisions that concern finance and investments.

You need to have a very good grasp of the industry, or else you’ll end up in unfortunate situations such as selling too early or too late, settling with the wrong insurance, feeling uneasy with your decisions, etc. You must understand that things change rapidly in the financial world. Instead of doing these things by yourself, you can hire a financial advisor who can make things clear to you. Instead of doing all these things on your own, start thinking on how to choose a good financial advisor, so that you’ll save yourself from all the efforts and the biggest probabilities of making the wrong decisions.

Again, you need to look for a financial advisor that you can trust. It is important that you have confidence in your financial advisor. A good financial advisor will never give advices that are unstudied. You and your family’s future depends on how well you and your financial advisor work together to achieve all your financial goals.

NOTE: This is a re-published content from Deborah Koval.



 
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In April, the International Monetary Fund (IMF) forecasted global economic growth of 3.5% for 2012, noting that the U.S. economy had gradually gained momentum, whereas China and other emerging economies appeared to be headed for gradual slowdowns. However, the IMF also warned that if the debt crisis in Europe deteriorated into a worldwide financial crisis, the fallout could produce a 2% drop-off in global growth over two years.1

More recent economic data released in May suggests that growth slowed more than expected in a number of the world’s major economies, primarily because problems in Europe have recently re-emerged.

There are significant differences in the economic challenges facing government leaders in Europe, Asia, and the United States, yet expanded world trade and globalization in general have made the fates of many nations more interdependent.

All Eyes on Europe

In mid-May, Greek political parties were unable to form a coalition government, and a caretaker government was named until new elections take place in mid-June. The outcome is likely to determine whether Greece will abide by the deal reached to restructure its debt under conditions set by the European Union (EU), the International Monetary Fund, and the European Central Bank. Voter anger over austerity measures and resulting political instability have reignited uncertainty about whether Greece will stay in the eurozone.2

Eurozone unemployment has risen to record highs (10.9%), and strict austerity programs in a number of European nations have held back growth more than expected. Europe barely avoided a recession during the first quarter of 2012, but 11 individual nations in the EU are judged to be in a recession.3

China

Economic data measuring trade, investment, spending, and output for April was surprisingly weak, prompting government action to help promote lending and speed up economic growth. The People’s Bank of China lowered the share of deposits that banks must hold in reserve (the required reserve ratio) by 0.5%.4

Until recently, Chinese leaders seem to have been more concerned about fighting inflation. However, China’s economic growth slowed from 8.9% to 8.1% in the first quarter — the slowest pace in nearly three years — when an uptick was expected.5–6 Reduced European demand for Chinese goods has been cited as a reason for the slowdown; the eurozone is the largest market for Chinese exports.7

When balancing growth and inflation, China’s authoritarian government may be able to act more decisively than democratic societies. Elected leaders often negotiate or justify policy moves and contend with public backlash. But Chinese leaders grapple with many of the same risks as other nations in the global marketplace.

India

The inflation rate in India (9% for most of 2011) is still the highest among the emerging-market nations known as BRICS (Brazil, Russia, India, China, and South Africa). Inflation has been cooling, but prices rose faster than predicted (7.23%) in April.8

Efforts to lower inflation, along with fewer exports to Europe, caused economic expansion to sag to a three-year low of 6.1% in the December quarter. In response, India’s central bank cut interest rates for the first time since 2009.9

Fiscal deficits and political gridlock have also put India’s investment-grade status at risk. Standard & Poor’s recently lowered the country’s credit outlook from “stable” to “negative.”10

Will U.S. Fortunes Follow?

So far, the trouble in Europe has affected Asia more than the United States. Exports account for less than 15% of the U.S. economy, compared with 30% for China.11

Still, if conditions in Europe worsen, the situation could continue to affect trade and growth around the world. Therefore, U.S. consumer and investor confidence is likely to depend on how the situation in Europe ultimately unfolds.

Investing internationally carries additional risks such as differences in financial reporting, currency exchange risk, as well as economic and political risk unique to a specific country. This may result in greater investment price volatility. All investments are subject to market fluctuation, risk, and loss of principal. When sold, investments may be worth more or less than their original cost. Investments seeking to achieve higher yields also involve a higher degree of risk.

http://www.deborahkoval.com/HOT-TOPIC-Watching-for-Weakness-in-the-Global-Economy.c3676.htm


 
As long as you’re earning money, you can open up an individual retirement account (IRA). An IRA is a retirement savings plan that you can open as soon as you’re earning taxable income. Examples of taxable earning are salaries, wages, separate maintenance payments, and bonuses. Aside from the criterion, you should also be below 70 years old to start an account.

Roth Vs Traditional IRAs

Roth IRA is a good choice if you’ll have high income in the future when you need to withdraw the funds. The contributions of Roth IRA are not tax deductible. However, when you withdraw them, they are tax-free.

On the other hand, traditional IRA is best for those who need to have their contributions that they make now deducted. They do not need to worry about paying their taxes in the future because their income will be lesser.

For a year, the contribution limit for both Roth and traditional IRAs is $5,000 per year. However, if you’re 50 years old up, you can contribute as much as $6,000 every year.

You have three choices when you want to open an IR: a bank, a brokerage firm, or a mutual fund company. You certainly don’t need a huge amount of money to open an IRA. Some start off with $25 to $100. There are banks that allow you to invest in stocks. Mutual funds, however, commonly require a $1,000 investment or more. The brokerage firm is for investors who have experience who wish to invest in bonds, stocks, or mutual funds.

Withdrawal rules for Traditional IRA

There is the 59 ½ rule. This rule states that you must wait until you turn 59 ½ years old for you to withdraw. If you don’t, you’ll face a 10 % tax penalty addition.

The other rule is called MDR rules (Minimum Distribution) that start when you turn 70 ½ years old. You should be able to calculate the amount of money to withdraw each year using an expectancy table, making sure that the remaining balance is zero in your IRA account when you finally reach the expectancy age.

Withdrawal Rules For Roth IRA

To make a qualified distribution, you need to be 59 ½. If you become disabled, you are qualified to make a withdrawal. You can also plan to utilize the money as a home buyer.

A traditional IRA is best for those who work in a company that does not offer retirement plans. A lot of people have lower tax brackets when they reach retirement compared to the time when they were still employed. It is very important to have different sources of retirement savings because it is difficult to foretell tax rate changes in the future.

An IRA makes you prepared for the future. You need to save your money while you are still capable to earn. It is one aspect of financial planning that you need to have, and it is best if you have a good financial advisor to help you with it.

Check out Deborah Koval. She’s an expert on this subject.