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Open A SEP IRA: Rules And Contribution Limits

11 March 2010

I f you’re a self employed person or are looking at taking the plunge and becoming an entrepreneur, one thing you have to consider is how you will save for retirement. Since you won’t have the option of a 401k, there are several other retirement account type options that you will want to think about using. Among them are: SEP IRA SIMPLE Plan Solo 401(k) Keogh Plan Today I want to look at what many consider one of the better options for tax deferred investing for self employed individuals, the SEP IRA What Is A SEP IRA? First of all, let’s get the definitions out the the way. What does SEP IRA stand for? When I first started researching the topic I was reading lots of articles talking about how self employed individuals were taking advantage of the accounts, so I assumed it meant “Self Employed IRA”. After reading up on it a bit more I realized that my assumption was wrong. SEP IRA actually stands for Simplified Employee Pension Individual Retirement Arrangement . It is basically an easy way for small businesses to set up a retirement account option for their employees with minimal administrative costs or paperwork. The SEP IRA is pretty much like a traditional IRA account, although it does have some differences, especially as it relates to the contribution limits. The contribution limits for a SEP IRA are higher. SEP IRA Rules As an employer there are rules and regulations you need to follow when you open a SEP IRA . Most of the rules that apply to Traditional IRA s also apply to SEP IRA s. Among the SEP provisions: All eligible employees must be provided with plan benefits, and a separate IRA account. If you are self employed with no employees besides yourself, it isn’t an issue. If you have employees, it is something to consider. Part time employees who are 21 years of age who have worked 3 out of the preceding 5 years, earning $500 or more annually will be eligible. Only the employer can contribute to the SEP IRA. If you work for a company that provides one, only your employer can contribute to the account. You have until the tax filing deadline of April 15th to establish and fund your SEP IRA. Withdrawals from a SEP IRA are treated the same as withdrawals from an IRA account – with a 10% early withdrawal penalty, and taxes charged at your current rate. Only income from the business can be contributed – you can’t contribute money from your day job if you have one. SEP IRA Contribution Limits Contributions to the SEP IRA are subject to yearly limits, however, they are higher than many other similar account types. For example, for tax years 2009 and 2010 you can contribute up to 25% of an eligible employee’s compensation, up to a limit of $49,000 . Extrapolated from the 25% rule the income threshold for a SEP IRA is then $196,000. Example: Let’s say you make $100,000 a year and you’re self employed. Under a SEP IRA you would be able to contribute 25%, or $25,000 to your plan. No catch-up contributions are permitted for older employees. Benefits Of The SEP IRA There are several benefits to having a SEP IRA account. Among them: If you are an employee at a small business that has a SEP IRA plan, you are 100% vested in the contributions your employer makes, right away. The money is yours! Tax deferred investing! High contribution limits for self employed individuals. Easy to setup. Usually can be done simply by filling out IRS Model Form 5305-SEP Less paperwork and administrative costs after the plan is setup. Flexible annual contribution obligations – a good plan if cash flow is an issue. You can contribute 10% one year, and then 5% the next if you want. Do you contribute to a SEP IRA as a self employed individual, or do you have one through an employer? How has it worked out for you? Have we missed any important details about the SEP IRA? Tell us about it in the comments. This article was written by Peter Anderson. Peter Anderson is a Christian, husband to his beautiful wife Maria, and loves reading and writing about personal finance. You can find out more about him on the about page or check out his other sites at http://www.quicktofit.com and http://www.logosforwebsites.com . You can also follow him on Twitter at @moneymatters . Copyright

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Posted in 2009, 2010, 401k, Business, Cash, Debt, Email, Free, HMO, Object, Roth IRA, Saving, Taxes, TurboTax, auto, automatic, bible, costs, filing, finance, income, investing, ira, irs, life, money, news, obligation, personal finance, rate, retirement, retirement account, rule, sep, sep-ira, tax, workComments (0)

Sallie Mae Bank Review

11 March 2010

Sallie Mae , normally known for their federal and private student loans, is entering the savings account area with a high yield savings account currently offering 1.35% APY with no monthly fees and no minimums. It’s your standard online bank offering with a pretty standard savings account rates . In scanning their list of offerings, the only thing that stands out is their 10% bonus for Upromise earnings, which can be substantial if you’re a big user of Upromise. Why Sallie Mae? I’ve been racking my brain to come up with an explanation of why Sallie Mae has started to offer banking services and I was at a loss until I remembered one key insight – most consumers, until recently, were completely unaware of high yield online banks. It wasn’t until Ally Bank made front page news that online banks started to get respect and awareness for your average consumer. It’s easy for “us,” readers and producers of personal finance blogs, for us to forget that because we get a daily dose of it. If you mentioned “ reward checking accounts ” to some of your friends, I bet you’d see some puzzled looks. Ultimately, I think Sallie Mae is leveraging their connection with students and parents to bring even greater awareness to the consumer. Upromise 10% Bonus If you use Upromise , you can get a 10% annual match on your earnings if you satisfy these conditions: You must link your High-Yield Savings Account to your Upromise Account and, within 90 days of opening your High-Yield Savings Account, either: (1) set up an Automatic Savings Plan with a monthly deposit of $25 or more, or (2) fund the account with $5,000 or more. Upromise will match 10% of your Upromise earnings posted as ”funded” to your Upromise Account during the calendar year of January 1 through December 31. Your 10% annual match will be deposited into your High-Yield Savings Account in February of the following year provided that both accounts remain active and are in good standing at the time of transfer. The Upromise bonus, a partnership that makes sense, is the differentiator for this account. If you earn a lot from Upromise, this normally dull 1.35% APY might be much much higher once you factor in the 10% bonus. If you don’t, then this account doesn’t really offer much else. Pedestrian CD Rates Their CD rates are competitive with the best CD rates but they’re not rate leaders (but they aren’t rate laggards either): 12 month – 1.50% APY 36 month – 2.20% APY 60 month – 3.00% APY There are no minimum balance requirements on CDs and standard fees for closing a CD before maturity (3 months interest if it’s a 12 month or less CD, 6 months interest for CDs over 12 months). Pretty standard stuff. Account Fees While there are no monthly fees and no minimums, there are fees associated with the account, set out in the Fees and Charges section of the Terms & Conditions : Excessive Transaction Fee – $10 (The “Truth-in-Savings” section applicable to your Account(s) sets forth transaction limitations.) Returned Deposit Fee – $5 Paper Statement/Statement Copy Fee – $5 per statement If you do open an account, be sure to avoid excessive transactions (more than 6 transfers a month ) and request paperless statements. What are you thoughts on this account? I’m especially interested in hearing from people who use Upromise a lot to get a sense of how much they’re earning in a calendar year. If the most active people are earning $1,000 a year, then an extra $100 is going to be great. If most people are earning $100 a year, then $10 is… eh, so so

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Posted in Action, Ally Bank, Banking, CD, Cash, Checking Accounts, HMO, Loans, Object, Product Reviews, SEC, Sallie Mae, Saving, auto, automatic, banks, consumers, december, entering, february, fed, fees, finance, january, money, month, news, personal finance, rate, savings, student loans, studentsComments (0)

Four budgets you absolutely have to make

11 March 2010

A couple of days ago I went to a one-day financial planning class. I got a few nuggets out of the class and I’ll share one with you here. The instructor spent a few minutes on creating a working budget. This part was pretty standard. If you don’t have Quicken fired up, then Take a standard list of common spending categories, Gather up a month’s bank statements and pay stubs, and Categorize the month’s expenses. This produces a good starting point for a working budget. But that’s just one of the budgets he recommended drawing up. He recommended four separate budgets which cover the present, a couple of what-if’s, and the future. Here they are: The current budget. This is the one that is based (largely) on current expenses, with a tweak or two for spending categories that you know may be too high or too low. The dead-spouse budget. What if my wife died unexpectedly? How would the spending categories change? For starters, I’d need to consider day care for my daughter or some other arrangement. My time commitments would certainly shift around a lot, and that would affect how much time I could spend doing other things to make money outside of my job. Could I do the things she does now, or would I have to pay someone to do them for me? More budgetary considerations. The dead-me budget. What if I died unexpectedly? My income would go to zero. What would that mean for my family? How would they manage without my paycheck? Have I put in place enough other resources so that they can do what they need (and want) to do? These questions give rise to a whole new set of numbers. The retirement budget. What if I quit my day job? What other benefits that are tied to my job stay, and what ones go away? Do the income streams that remain add up to a comfortable existence? This budget is another whole set of numbers. What is the purpose of making these budgets? The main purpose, for me, would be to put the spotlight on holes in my current budget. Take away my paycheck, and what’s left? Take away my wife’s good works, and what slack do I have to assume? Do the numbers still work? If they don’t, then I have work to do so that they do work. Got money questions? Ask them at Cash Commons Related Posts: Do you budget by using The Force? A budget in your head isn't really a budget Budget, track expenses, then budget Not tracking our spending has repercussions What a great way to think about savings!

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Posted in 2010, Budgeting, Cash, Make Money, Object, Planning, Saving, budget, budgets, family, finance, financial planning, income, money, month, question, rate, retirement, savings, sep, spending, stay, workComments (0)

Do I Need A Long Term Disability Income Insurance Policy? What Do I Need To Know?

10 March 2010

S ince I found out that I’m soon going to be a father, I’ve been thinking a lot about how I’m going to provide for my family in the event that I were to die , or to become disabled. A week or so ago I wrote about how I’m currently looking for the best term life insurance for my situation. I’m also looking into buying some good long term disability insurance as well because if I become disabled, I won’t receive life insurance, but I’ll still need to provide for my family. Today I thought I’d talk a bit about long term disability insurance, how it works, what to look for, and what kind you should buy. Before we get started, I thought I would share this audio clip from the Dave Ramsey Show. In the clip Dave Ramsey talks with a caller about why long term disability insurance is so important. [See post to listen to audio] Long Term Disability Insurance – Do I Need It? In my opinion everyone should probably consider buying long term disability insurance. If you were to become disabled during your working career, you will still have expenses to pay for. If, however, you no longer have an income to rely on, you’ll be left high and dry. That’s where long term disability insurance comes in. While I was doing some reading up on long term disability insurance I found an article on GoodFinancialCents.com that quoted the following stats: From the Life and Health Insurance Foundation for Education, November 2005 : If you are between the ages of 25 and 55, you are more likely to become disabled that die 60-percent chance at ages 30, 40 and 50 that one in a group of five people will suffer a long-term disability before age 65 . There is a 1 in 3 shot that before they age of 35, that will be disabled for more than 3 months during the rest of your working days. Another study sponsored by the Social Security Administration found that: A 20-year-old worker has a 3-in-10 chance of becoming disabled before reaching retirement age. The numbers should be a sobering wake-up call that disability insurance really is an important part of a financial plan. So, where should you look for coverage? Where Do I Get It Disability Insurance? There are a variety of places that you can go to get disability insurance, and depending on who you buy it through your rates can vary drastically. Some of the options: Employer : Many employers offer a company sponsored group plan that you can take advantage of. Because the insurance is offered at group rates you can save quite a bit. The options can be limited, however. For example, at my place of employment they only offer short term disability insurance, and it is tied to employment. Professional Associations : If you’re a part of a professional group or association, often they offer a discounted group rate on insurance of different kinds, sometimes including disability insurance. Independent Insurance Broker Or Agency : If you don’t have an option to buy through your work or other group, you can get insurance through an independent agency or broker. AccuQuote.com , Insureme.com and others have options that you can look into online. Do your homework and you can find a policy that fits your needs, and that doesn’t break the bank. How Much Disability Insurance Coverage Should I Get? One thing you’ll need to figure out when buying long term disability insurance is how much money you’ll need to cover your expenses if you do become disabled. If you’re already doing a zero based budget , you probably know what your fixed monthly expenses are. Based on the figure you come up with you’ll need to find a policy that covers that amount. Long term disability insurance plans are usually limited to 75% of your income , but different policies will have different payment amounts. Be sure to find out what your policy pays out, and if it isn’t enough to cover your expenses, you may want to keep looking, or buy additional coverage. If your policy pays out at 75% of your income and you made $4000/month before your disabling event, you would then receive $3000/month from your insurance policy. You will pay a premium on your policy that is based on your age, occupation, health and other factors. You may need to undergo a physical exam before a policy is written. Many policies are also capped at a certain payout amount, so be sure to ask about that when shopping around. Disability Insurance Elimination Period The cost of your insurance policy will depend on a variety of factors, one of which is the elimination period. The elimination period is how long you choose to wait before receiving benefits. For example, if you choose a policy that has a 3 month elimination period, you’ll probably pay more than if you have a 6 month elimination period. If you’ve planned ahead and have an emergency fund of 3-6 months as suggested by Dave Ramsey and others, you should be OK in choosing a longer elimination period for your disability insurance , and in return have lower rates. Choose the highest elimination period you feel comfortable with. How Is Disability Defined By Your Policy? When you buy your insurance policy you need to be sure what type of a policy you’re buying, and how disability is defined b your policy. Depending upon the policy you may or may not be covered for certain disabling situations. Here are the different definitions of disability : Own occupation . The most comprehensive definition of disability, this type of policy pays benefits if you aren’t able to perform the material and substantial duties of your own occupation due to sickness or injury, even if you are able to do some other kind of work . It’s a common misconception that this type of insurance always costs more, which isn’t necessarily the case (although it may be) Income replacement . Policies with income replacement coverage define disability as sickness or injury that doesn’t allow you to perform the duties of your occupation and typically stipulates that you are not currently engaged in any other occupation . Gainful occupation . These policies define disability as the inability to perform the material and substantial duties or your occupation, or any occupation for which you are deemed reasonably qualified by education, training, or experience. Be sure you know which type of insurance you’re buying when you look around. Personally I’ll be looking only for a policy with “own-occupation” coverage. When Should I Buy Coverage? Realistically you can have a disabling event at any time in your working career. Looking at the stats we quoted earlier in this article should really be an eye opener, I know it was for me! In my opinion it’s a good idea to have long term disability coverage as soon as you start working, and especially if you have others who are depending upon your income. What do you think about long term disability insurance? Do you currently have coverage? If so, what kind do you have? If you don’t have coverage, why not? Tell us your thoughts in the comments! This article was written by Peter Anderson. Peter Anderson is a Christian, husband to his beautiful wife Maria, and loves reading and writing about personal finance. You can find out more about him on the about page or check out his other sites at http://www.quicktofit.com and http://www.logosforwebsites.com . You can also follow him on Twitter at @moneymatters . Copyright

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Posted in 2009, 2010, Debt, Economy, Email, Health Insurance, Home, Object, Opinion, PPI, SEC, Saving, Shopping, bible, budget, career, children, costs, discount, education, emergency fund, employment, family, finance, health, income, index, insurance, insurance coverage, insurance plan, irs, life, life insurance, money, month, news, occupation, percent, personal finance, rate, retirement, savings, social, step, typically, university, ways, week, workComments (0)

The New Credit Card Legislation

10 March 2010

The new credit card legislation went into effect. You should see a change on your credit card bill. Any balance you carry will now state how long it would take to payoff if you only paid the minimum balance. Many of the changes probably felt like waves crashing on a shore to many credit card holders. These came well before the deadline. These changes included spikes in rates, other fees, or even cancellation of the account. It’s entirely likely the whole new reform law will do as much harm as it does good. For instance, it will likely be much tougher to get credit for those who carry bad debt. Credit cards may return with annual fees as a result of the change. Don’t expect the credit card companies to wave the fee either, since they’ll be trying to makeup for lost income. The new reform bill also changes how credit card companies can make changes to a card. They can no longer stick consumers with a giant retroactive interest rate on an entire balance. Card holders are also given more time to opt out of crazy changes to their accounts. Credit card companies can no longer hide behind the fine print. There are new limits to almost every angle of your credit card, including how banks can charge for overlimit fees, how higher interest rate portions of the bill get paid faster now, and no more double-cycle billing. However, one thing did not make it into the new credit card bill. There is no cap on interest rate. As much good as the new law has done, it would have been better than nice if a cap had been placed on credit cards. I’m sure the industry lobbied hard against that part of the law. Even though the interest rate cap is not there, I think the new law should help to regulate an industry that seems to have enjoyed their way for a long time now. We’ll see what type of impact it has on the future of the credit card industry. The New Credit Card Legislation

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Posted in 2010, Credit Cards, Debt, Law, Legislation, Object, arm, banks, consumers, credit, credit-card, fees, health, income, money, rate, reformComments (0)

American Express Purchase Protection Perk

10 March 2010

Did you know that if you buy something with an American Express card and it’s lost, damaged, or stolen within the first 90 days, American Express will replace the item or reimburse you up to the amount of the purchase price? My friend Michelle just came back from a skiing trip with her family in which she managed to get an oil stain on her brand new ski jacket. She had no idea how it got there but she took it to the cleaners and they were unable to remove the stain. Her husband remembered that their American Express Blue offered Purchase Protection and decided to give them a call. Why not right? As it turns out, they’re protected by a consumer protection most people forget about – American Express Purchase Protection . How does it work? Use your AMEX card when you pay and you get 90 days of protection against accidental damage or theft. You file a claim and the protection replaces the item or reimburses you up to the amount of the purchase price. There’s a limit of $1,000 per occurrence and up to $50,000 per cardmember account per year. You can file an American Express claim online or call 1-800-322-1277 and you’ll be asked to provide proof of theft, accidental damage, or vandalism. They were sent a claim form to fill out and needed to provide additional documentation such as receipt of purchase, AMEX statement with the purchase, and description of the damage. Had the jacket been stolen, instead of damaged, they would’ve had to include a police report as well. American Express has a reputation, among merchants, of having the highest processing fees out of any of the issues. Not coincidentally, they offer some of the best consumer protections like return protection and purchase protection. Her husband told me that they make most of their major purchases using their American Express card because of these types of protections. Between the 90 day product insurance and the doubling of the manufacturer’s warranty up to a year (which many issuers offer), there are two excellent reasons why I can see an AMEX beating out a comparable cash back card. Every American Express card I looked at on their site included this Purchase Protection insurance policy and I totally forgot it existed. Have you ever used it? Heard of a friend who used it? American Express Purchase Protection Perk from personal finance blog Bargaineering.com .

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Posted in American Express, Cash, Chase, HMO, Object, Purchase, comparable, credit, family, fees, finance, insurance, irs, money, move, personal finance, sep, told, workComments (0)

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Open A SEP IRA: Rules And Contribution Limits

Sallie Mae Bank Review

Four budgets you absolutely have to make

Posted in 2010, Budgeting, Cash, Make Money, Object, Planning, Saving, budget, budgets, family, finance, financial planning, income, money, month, question, rate, retirement, savings, sep, spending, stay, workComments (0)

Do I Need A Long Term Disability Income Insurance Policy? What Do I Need To Know?

The New Credit Card Legislation

Posted in 2010, Credit Cards, Debt, Law, Legislation, Object, arm, banks, consumers, credit, credit-card, fees, health, income, money, rate, reformComments (0)

American Express Purchase Protection Perk

Posted in American Express, Cash, Chase, HMO, Object, Purchase, comparable, credit, family, fees, finance, insurance, irs, money, move, personal finance, sep, told, workComments (0)

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