2016 1st Quarter Newsletter
2011 Q3 | Choosing the Right 401(k)
Many companies offer employees a choice between two 401(k) plans. The version with which you’re probably most familiar As before, you can choose to defer some salary and defer the income tax as well. You’ll also defer the tax on any investment earnings. However, when you withdraw tax-deferred earnings and tax-deferred investment income, you’ll owe income tax. You’ll probably owe a 10% penalty on withdrawals before age 59 1/2, too. Another option you may have is a Roth 401(k). With this account, you’re not deferring income tax, so you’re contributing after-tax dollars. Again, you wont owe tax on any investment income inside the plan. After you’ve had a Roth 401(k) for 5 years and after age 59 1/2, all withdrawals
2011 Q3 | Adjusting for the AMT
Many taxpayers owe the alternative minimum tax (AMT) rather than the regular income tax. Officially, the AMT has two tax rates: 26% and 28%, depending on your income. The AMT also has an exemption amount that phases out with AMT income over $112,500 (over $150,000 on a joint return). As the AMT exemption phases out, your tax rate actually might be 32.5% or 35%. Thus, some taxpayers who pay the AMT will owe as much as 35 cents in tax for every extra dollar of income they report, as opposed to the “official” 26 or 28 cents on the dollar. The higher the AMT rate, the greater the benefit of deferring tax with a traditional 401 (k).
2011 Q1 | More Flexibility in Retirement Planning
Some provisions of the Small Business Jobs Act of 2010 are not restricted to small companies or to job creation. Instead, they provide more choices for retirees and preretirees. An annuity alternative The new law gives individuals the option of annuitizing a portion of an annuity, an endowment, or a life insurance policy. That is, you can partially convert one of these financial instruments to a stream of income while the remainder is left alone. The annuity period must last for 10 years or more, or for the lives of one or more individuals. Example 1: Carol Thomas, age 70, has invested $100,000 in a deferred annuity. This is a type of investment contract that permits investment income to grow