2011 Q3 | Choosing the Right 401(k)

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 | Avoid Higher Medicare Premiums

2011 Q3 | Avoid Higher Medicare Premiums

For several years, upper-income Medicare enrollees have had to pay higher-than-standard premiums for Medicare Part B, which covers doctors’ bills and other outpatient charges. Starting in 2011, those same seniors also owe elevated premiums for Part D, which covers prescription drugs. These added charges use income “cliffs,” meaning that you pay the full amount if you go over the threshold by even $1. Many Medicare enrollees pay $96.40 a month for Part B, and some others pay $110.50 or $115.40 a month. (This depends on when they enrolled in Part B and whether the premium is deducted from their Social Security checks.) However, you will pay much more this year if your modified adjusted gross income (MAGI) exceeds certain levels.

2011 Q3 | Tax-Free Savings Bonds

2011 Q3 | Tax-Free Savings Bonds

The interest from savings bonds you cash in may be tax-free. That can be the case if you use the money for college tuition and fees. Several conditions apply. For example, you must have been at least age 24 when you bought th bonds. Either you or your spouse must own the savings bonds. The bond proceeds may be used for the owner’s education, the owner’s spouse’s education, or the education of a dependent for whom the owner claims an income tax exemption. Income limits exist for this tax benefit. For completely tax-free income, your modified adjusted gross income (MAGI) in 2011 must be no more than $106,650 on a joint tax return or $71,100 on other returns. The tax