Should I Choose a Roth or Traditional IRA?Posted on July 20th, 2018
Do you have questions about which type of Individual Retirement Account (IRA) is right for you? When deciding between a traditional IRA and a Roth IRA, consider factors to such as tax incentives, age restrictions, and income restrictions before making your decision.
One of the main differences between the traditional IRA and the Roth IRA is the tax incentives provided by each. When deciding which is right for you, focus on what tax bracket you plan to be in when you retire, and if that bracket will be higher or lower than the one you’re in now.
- Traditional IRAs – A traditional IRA is the best choice for you if you believe your tax rate will be lower in retirement than it is right now. With traditional IRAs, you are not taxed when you contribute money to your account. Taxes are paid when you withdraw the funds.
- Roth IRAs – Roth IRAs are the best choice for you if you believe your tax rate will be higher in retirement than it is now. When you contribute to a Roth IRA, you pay taxes on the funds as you put them in. You will not have to pay taxes on funds when you’re able to withdraw.
In addition to considering tax incentives when choosing between a traditional IRA and a Roth IRA, it is important to keep in mind that with a traditional IRA, there are age restrictions for contributions.
- Traditional IRAs – Anyone younger than 70 ½ with earned income can contribute to a traditional IRA.
- Roth IRAs – Roth IRAs don’t have age restrictions.
- Traditional IRAs – You can contribute to a traditional IRA regardless of how much money you make. However, the amount of money you contribute can’t exceed the amount of income you earned that year.
- Roth IRAs – For some high-income earners, Roth IRAs are out of the question. To contribute to a Roth IRA, single tax filers must have a modified gross income of less than $135,000 (in 2018). Married couples filing jointly must have modified AGIs of less than $199,000 (in 2018) to be able to contribute to a Roth IRA. The amount you contribute to a Roth IRA can’t exceed the amount of income tax you earned that year.
Both traditional and Roth IRAs allow their owners to begin taking penalty-free distributions at age 59 ½. A major difference between traditional IRAs and Roth IRAs is when the savings must be withdrawn:
- Traditional IRAs – Traditional IRAs require you to start withdrawing funds at age 70 ½, even if you don’t need the money.
- Roth IRAs – Roth IRAs don’t require withdrawals during the owner’s lifetime, which means that you can let your Roth IRA continue to grow throughout your life (tax-free) if you don’t need the money. To avoid incurring a tax payment, Roth IRAs require that the first contribution be made at least five years before the first withdrawal.
Since Roth IRAs don’t require that you withdraw funds in your lifetime, and beneficiaries aren’t required to pay taxes on withdrawals, Roth IRAs can be a good wealth transfer strategy.
- Traditional IRAs – Contributing to a traditional IRA lowers your adjusted gross income for that year, which can help you qualify for other tax incentives such as the child tax credit or the student loan interest deduction.
With traditional IRAs, if you are under 59 ½, you can withdraw up to $10,000 from your account to pay for qualified first-time home buyer expenses and higher education expenses, without paying the 10% early-withdrawal penalty. You are still required to pay taxes on the distribution.
- Roth IRAs – Roth contributions (but not earnings) can be withdrawn penalty and tax free at any time. Even before age 59 ½.
If you are under age 59 ½, you can withdraw up to $10,000 of Roth earnings penalty-free to pay for qualified first-time-home-buyer expenses, if at least five tax years have passed since your first contribution.
Roth IRAs can be invested in almost anything you want: index funds, lifecycle funds, individual stocks, or other investments.
Remember, whether you choose a traditional IRA or a Roth IRA, it is important that you begin contributing as soon as possible to accrue savings, and avoid withdrawing earnings before age 59 ½ to avoid penalties.
How to Achieve Financial Goals with a BudgetPosted on May 30th, 2018
Planning ahead for your finances can save you stress down the road, and ensure the success of your personal and professional goals. Outlining a monthly budget is one of the most effective ways to both organize your finances and chart your progress. The following guideline offers some helpful suggestions to stay organized and motivated as you chart your financial future.
The Importance of Setting Up a Budget
Assessing the amount of money you earn every month after taxes is the first step toward setting up a reliable budget. Next, you should determine how much is needed to satisfy monthly bills and necessary living expenses. Setting up a budget will go a long way toward helping you accomplish your financial goals as you streamline purchases.
Splitting your monthly income into three categories is a popular budgeting method. Under this system, half goes toward absolutely necessary expenses like housing, transportation, utilities, and food, 20% covers retirement and debts, and the last 30% is spent on personal expenses, such as entertainment, personal care, or charity, to name a few examples.
As far as personal purchases are concerned, you should really weigh the overall value of what you’re spending money on. Is the purchase an impulse? Does it benefit your daily life in any way beyond instead gratification? One popular sentiment many apply to their spending habits is the idea that memories are more valuable than individual material goods.
The Big (and Small) Picture
As you establish your financial goals, it’s helpful to organize a plan that addresses each goal in smaller, bite-sized installments. We can easily overwhelm ourselves with long-term goals, so assessing what can be realistically accomplished within the near future may ensure long-term success.
Along with drawing up a budget, creating a financial calendar will help organize your tax schedule, whether you have upcoming appointments or need to remind yourself to pay quarterly taxes on time. This visualization can also help you track long term goals through smaller, more immediately achievable tasks, while also allowing you to track your current status. Knowing where you stand will help you stay current on financial goals. Tracking your net worth can also prevent the resumption of bad spending habits and stop current ones in their tracks.
Making the Most of that 20%
The simple act of listing your debts will help you form a plan of attack. Focusing on interest rates instead of what you owe will allow you to effectively prioritize the payoff of individual debts. The bill with the highest interest rate is costing you the most money, so it should take top priority on your list. Once that debt is paid, apply the same method to the next item.
Tax Planning- Why and How- Proactive Tax PlanningPosted on March 8th, 2018
Many business owners and taxpayers are accustomed to the idea of “reactive” taxes. In this style of filing, you make your various expenditures throughout the year, see your company’s sales and expenses, and determine how much you owe at the end of the year. However, this form of filing often leads to business owners owing more in taxes. As a result many accountants work with businesses to curb the amount you would owe during tax season.
Why engage in Proactive Planning?
Proactive tax planning allows a business owner to limit tax liability by working within the various state and federal tax laws. Not only does this approach save business owners money, but allows your accountant more time in finding the best deductions and tax credits each year.
The tax landscape is always changing, and implementing an effective tax plan can also help to ensure that your business’ books are kept up to date. This continuous knowledge of the state of your business and the developing tax laws can also help you find beneficial reductions to how much you need to pay.
Business owners looking to expand, incorporate, or otherwise change their business model during the year are especially well served by an adaptive tax plan. This way, you will be able to account for the change in your company and can have a strategy in place to mitigate the corresponding differences in the tax code.
How to start your Proactive Tax Plan
The first step in planning for the upcoming tax season is to find an experienced accountant or CPA. Hiring a professional will allow you to keep your attention on your business ventures, without needing to focus too much on current tax laws. Additionally when creating your tax plan, it is always beneficial to allow your tax professional to assess the current state of your company to strategize a savings plan.
If you have questions about tax planning or are looking for a strategy that is tailored to your specific income or business, contact our firm today
Year Round Tax Planning for Reduced LiabilityPosted on October 6th, 2017
April 15 is a stressful day of the year, and especially when attempting to cram in months of tax preparation in a few days. If receipts and records are not well-organized, keeping track of deductible expenses grows increasingly difficult. This limits the size your return, or can even cause you to pay taxes incorrectly, which incurs liability that the IRS can penalize. A stressful tax season is entirely avoidable, but it requires time, effort, and planning.
Keeping Records for a Successful Tax Season
Detailed records, either physical or digital, is beneficial when it comes to successfully submitting your tax payments. Invest in organization for you receipts and records, either with a physical filing cabinet, or web-based resources. Online services such as QuickBooks are available to digitize all records and to make financial transactions accessible 24/7. Records are important for they keep individuals and small businesses aware of their cash flow and tax deductible items that will save money each April.
Stay Up-to-Date on Tax Code
Tax Law Changes frequently enough to affect how much an individual owes the state or federal government. It’s easy to stay on top of these changes by attending free classes in your community, doing online research, or speaking to a tax professional. Keep abreast of the changes to avoid surprising bumps in taxes owed, and doing so on a regular basis will ensure year-long tax prep success. Quarterly reviews of your taxes are recommended to make sure your information is accurate.
Hire Tax Professionals The hardest part of preparing for taxes year-round is doing so while managing other areas of your life. Taking control of tax preparation ties up your time and energy that is needed elsewhere. Our affordable services will grant peace of mind, financial stability, and precise tax preparation for year-round success. The tax code is infamous for being complex and challenging for most individuals, but professional help can untangle your tax complexities and enable you to receive the return you deserve. This will keep your finances in check and ensure that the IRS doesn’t follow up with audits or penalties.
Small Business Tips:Posted on July 6th, 2017
How to expand your business Congratulations on successfully starting your business! If you’re ready to take the next step, but don’t know exactly how to go about that, here are some ideas for thinking about growing your business. Depending on the industry your business is in, and the type of business you own, the available resources, time, and money on hand, will determine the proper idea or ideas that is right for you and your business.
Open another location – If you’re first business location is successful and under control, consider expanding by opening a new location. Look for specific areas in which your customer demographic prevalently frequents or is well known. Collaborate with other businesses – By opening yourself up to another business that is similar or related to your own industry, take advantage of that network relationship and collaborate on a joint event. It’s a chance to market yourself to new customers that may have not known of your business.
Diversify your product – Look into seasonal voids, is there a product similar to your own that can be introduced? Diversifying is a great way to increase sales and profit margins. Seasonal or complimentary products or services, or offer to export other colleague’s products.
Turn your business into a franchise – If your business model is easily replicated, and you want to see your business grow quickly, think about franchising. As the owner, now referred to as a franchiser, of the name or trademark sells that right to a franchisee. However, be prepared to work through various regulatory and legal rules and obstacles when it comes to franchising your business. Look into the federal government rules, as well as state requirements, in order to sell your business.
Expand to the internet – In this digital age, it’s important to have a superior online presence to maximize your exposure to new and old customers. Look into creating a website so customer can discover your business through an online search engine. Understand your limitations, resources available, and your capacity as a business owner before looking to grow your business. However, with a successful business plan, market savviness and dedication, there is always room to grow!
Helpful Tips for Any Small Business OwnerPosted on March 22nd, 2017
People looking to start small businesses face a daunting task. With the dominance of larger companies, global competition provided by the internet, and the increasing number of competitors within other small businesses, you may feel overwhelmed. However, these simple yet effective tips should help keep you ahead of the curve and competitive in the modern market.
1) Make Yourself Known: A great way to get your name out is through community outreach efforts, or even sponsorships of local sports teams. These efforts go beyond regular marketing efforts in that they allow local communities to know you, as well as your business, and make purchasing your goods and services personal.
2) Have a Plan: Before even starting your business, have a strong business plan that acknowledges your company’s niche, market potential, and values your current assets. This can help you in deciding a direction for your venture, and can cut back on unnecessary expenditures in the future.
3) Quality over Price: With the constant presence of corporations like Walmart and Amazon, trying to price match competitors can lead to a loss of profit, as well as confidence. Instead of trying to compete fiscally, focus on honing your service in a way that these companies cannot. Not only will your product benefit from your drive for excellence, but patrons will overlook price differences for superior quality products and service.
4) Acknowledge Missteps: Nobody likes to be wrong, but being able to accept flaws in your business’ model or your product are essential in setting yourself apart from your competitor. Accept criticisms as opportunities to improve. Adaptability is essential in the modern marketplace.
5) Use Technology: With the internet and technologies focused on the management of small businesses, the barrier for marketing and sales in greater regions has more or less been lifted. Be sure to use all of the resources at your disposal, whether this means creating a web-based storefront, or managing your accounts with programs like QuickBooks.
While these strategies are just the tip of the iceberg in terms of establishing a successful business, they are helpful in getting your business a leg up over the competition.
5 Budgeting Tips to Save CashPosted on March 22nd, 2017
Saving money is a difficult commitment to make, but it provides benefits in the long run. Life throws unpredictable events at us, and preparing our budgets to account for accidents or emergencies grants peace of mind. Saving is also one way to hold off on wanton spending that drains accounts rapidly. The following tips to save money can inspire balance in your daily financial habits.
Stick to a 30 Percent or Less Rule
It’s hard to save money without setting up a cap on your spending. When payday rolls around and there are new products or items grabbing our attention, it’s incredibly difficult. We recommend setting a limit of 30 percent of your paycheck to spend on entertainment and leisure. This reserves 70 percent use for essentials. Use 30 percent as a starting point and decrease the limit to save even more money as you become more confident in your saving strategy.
Establish Financial Goals
Nothing helps curtail personal spending and establish a direction more than creating a strategy. By writing down financial goals, such as paying off your car by a certain date, you lay a foundation for future success. Knowing where your money flows is liberating and strengthens resolve in saying no to frivolous purchases.
Manage Personal Cash Flow Daily
Dedicating one minute a day to looking over your bank account makes you aware of where you spend the most. This also promotes comfortability in managing one’s finances. Get cash out daily or weekly to keep to a specific spending amount, which is a research-proven technique that keeps your cash account stable. When swiping cards is the go-to, the convenience causes individuals to spend much more.
When new products appear on the market, whether a new gadget or guilty pleasure, it important to hold back the impulse to buy it. Impulsive shopping tends to influence purchasing habits and tricks us into buying items we don’t need.
Pay off Larger Debts First
When paying off credit card debt or loans, it’s beneficial to chip away at a loan with a higher interest rate. If you wait to pay, amounts owed increases exponentially. Although paying off smaller amounts of debt with smaller interest rates seems more manageable, they won’t cost as much as high interest debt. By hedging larger loans and limiting the traction their high interest gains, the debt is more manageable over time.
How to make the most of your 401(k)Posted on March 22nd, 2017
If investing in your future is something that rests entirely on your shoulders, know that there are options. If you have employer-sponsored plans like 401(k)s, it’s imperative to that you properly optimize that plan to its fullest. But saving for retirement is a process, and its best to understand your avenues even if you’re just starting out. So here are some tips on how to start preparing for retirement.
– Consider maximizing your contribution which is matched by your employer in the 401(k) program at your company. In some cases you could get a 50 percent return on your investment. By having the money taken directly out of your paycheck, you have an easier time saving money without really thinking about it. If you match your contribution and had a direct deposit set up to add more, you will be on a good path towards affording retirement.
– Consider opening a Roth IRA or Roth 401(k) account with an investment firm. There are tax differences between the two, so it is important to discuss the pay taxes now vs. late discussion with an advisor or tax accountant.
– Look into a myRA – A singular investment option by use of U.S. Treasury retirement savings bond. This is a great option for those who do not have a 401(k) account at work, but have dispensable income. The myRA is convenient in that it accept smaller contributions, with low-balance fees and a higher interest rate than a savings account. Contribute your next tax refund, payroll deduction, or a deposit from a checking or savings account. You have options in size, just know with this plan that once you save $15,000, the money must be rolled into a private Roth IRA.
Start saving and keep saving! Whether you’re saving for retirement or for another goal – don’t give up. If you’re just starting to save, start small and try to increase the amount each month, know you’re options as you get into more opportunities to save more money for that end goal.
Do You Need to Fill out Schedules C & EPosted on March 6th, 2017
Reducing Tax Liabilities for High Income EarnersPosted on January 6th, 2017
Preparing for end-of-the-year taxes can be daunting, but understanding good tax-planning practices can help to increase your chances of receiving higher returns on your investments. Income from investments can be one of the best places to look when searching for places to cut costs and increase your revenue. Creating a proactive tax-plan can prevent you from paying thousands of dollars in unnecessary taxes.
While high-income tax payers are required to pay the most income tax, there are a few practices these individuals can engage in to lower the amount they pay at the end of the year. Purchasing stock for at least one year prevents you from paying additional costs from unnecessary taxes. Allowing your stock to become eligible for long-term treatment helps to reduce the amount you pay in taxes. Failing to hold stock for at least a year causes you to pay short-term capital gains on investments rather than just the 15 to 20 percent of normal capital gains tax, in short paying more.
Regular reviews of your taxable assets makes sure you’re aware of all the areas that may be costing you extra money. Routine checks develop good practices and habits that help to reduce what you pay. Reduce the amount of taxable interest, which means reducing amount of money stored in low-profit areas. Banks give their clients close to nothing, while clients are still required to pay at least half of that interest in taxes. Utilizing high-profitable places to store you money will not only increase your dividends, but also reduce the amount of taxes you pay. Give away assets, that is, giving or donating assets to charities and family members using appreciated stock, may reduce the amount of taxable income you own. Neither party associated in the exchange is required to pay capital-gains taxes when the stock is transferred. Additionally, family members may be qualify for a different tax bracket that are lower than your costs, in turn reducing the overall amount of gains lost through the process. Since the New Year is just around the corner, it’s best to engage in proper tax-planning practices to best increase your chances for reducing the amount of money you pay and increase the amount of profit you actually keep.