Wealth Building

The Roth IRA: A Tax Shelter in Southfield, MI

2009-04-22T12:09:00.000-07:00

Understanding the Roth IRA – A Wonderful Tax Shelter for Southfield, MI Residents

Many people do not save for retirement because they do not understand 401K and IRA talk. The terms and tax advantages are overwhelming and they don’t understand how the retirement account affects their income tax return.

There are many different types of retirement accounts including 401K plans, traditional IRAs, Roth IRAs, annuities and more. One of the most popular options is the Roth IRA, which was introduced under the Taxpayer Relief Act of 1997.

The Roth IRA offers several advantages, including tax-free growth and flexibility in making withdrawals. Contributions are made to a Roth IRA from earned income that has already been taxed by the Federal government; therefore, you do not pay federal income taxes on the withdrawals. There are no taxes paid on capital gains for a Roth IRA either.

The main difference between the Roth IRA and the traditional IRA is that with a traditional IRA, any contributions you make are tax-deductible and you do pay taxes on any withdrawals you make.

Contribution Limits to a Roth IRA

In 2008, people who are age 49 or younger could contribute up to $5,000; people 50 and over $6,000. Beginning in 2009, Roth IRA contribution limits will increase by $500 per year.

Southfield Residents Discover the Tax Advantages to the Roth IRA

Roth IRA owners are allowed to withdraw up to the total value of their contributions at any point in time without having to pay the 10% early withdrawal penalty or any federal income taxes.

People who have Roth IRAs are not forced to make withdrawals at any age; unlike other retirement plans that require a minimum distribution after the age of 70-1/2.

If a Roth IRA owner dies, and the surviving spouse has a separate Roth IRA, the spouse may combine the two Roth IRAs into one without penalties.

Under some circumstances, one may withdraw up to $10,000 without penalty to be used for the purchase of a home. The home must be their principal residence and they cannot have previously owned a home for at least 2 years.

If you are in a low tax bracket when you contribute to an IRA, and then, in a higher tax bracket when you withdraw the money, you still do not have to pay taxes on the distribution. This is a great reason to contribute the maximum amount that you can to a Roth IRA while you are in a low tax bracket. You will never be taxed again on that money no matter what tax bracket you are in.

Michael McGee is a financial advisor who understands all the terms and conditions and income tax advantages to investing in a retirement plan. Michael is well-qualified to analyze your financial situation and to advise you as to what type of investment account to have to secure your future.

Michael McGee shares wealth building tips while providing help with financial planning, self-directed IRA, real estate IRA, SIMPLE IRA, traditional IRA, Roth IRA, SEP IRA, 401-K plans, college funding, 529 college savings plan, tax shelter, investment savings, family savings, health savings plans and financial security for consumers and business owners in Oakland County, Pontiac, Waterford, West Bloomfield, Farmington Hills, Southfield, Royal Oak, Rochester, Troy, Novi, Wayne County, Detroit, Dearborn, Livonia, Redford, Romulus, Westland, Northville, Plymouth, Canton, Trenton, Taylor and neighboring cities and communities.

SIMPLE IRA Plan for Small Businesses and Employees

2009-04-22T11:29:00.000-07:00

Retirement Planning made Easy: SIMPLE IRA Plan for Small Businesses

Perhaps you have heard of SIMPLE IRA plan. Not simple (as in easy), but SIMPLE (Savings Incentive Match Plan for Employees of Small Employers). This is a retirement plan that is easy to administer and offers options that are both flexible and substantial. It is generally available to both for-profit and not-for-profit businesses that have less than 100 employees.

Requirements of the SIMPLE IRA Plan:

There are two basic requirements a business must meet to qualify for the SIMPLE IRA Plan:

100 or fewer employees who earned $5,000 or more the previous calendar year
Your business does not offer another retirement plan

A SIMPLE IRA Plan allows your small business to provide you and your employees a way to save for retirement while reducing income taxes. They offer lower start-up costs than other retirement plans and they are easy to operate.

More Advantages of the SIMPLE IRA Plan:

Low start-up and administrative costs
Easy to operate – no requirements to file annual financial reports
Easy to set up through your financial institution
Employees contribute with payroll deductions on a tax-deferred basis
The business owner may match employee contributions or contribute a fixed percentage of all eligible employees’ wages
You may qualify for a tax credit of up to $500 per year for the first 3 years to offset the costs associated with the SIMPLE IRA Plan

Setting up the SIMPLE IRA Plan:

Setting up the SIMPLE IRA plan is simple (as in easy) for small business owners to do. You may choose one financial institution to handle all your employees, or you can allow your employees to choose their own. This is an important decision as the financial institution becomes a trustee to the retirement account.

No matter who makes the choice, the institution must be a bank, mutual fund, insurance company that issues annuity contracts or other financial institutions that are approved by the IRS in order to qualify as a trustee. They must agree to receive and invest contributions and provide the employer with an updated summary description of the plan every year.

Once you have chosen the financial institution, review their SIMPLE IRA plan document and choose a model form or other plan document. There are basically two choices of model forms:

IRS Form 5304-SIMPLE: This is the form you will use if employees are allowed to select the financial institutions that will receive their contributions.
IRS Form 5305-SIMPLE: This is the form to use if you require that all contributions be deposited with a designated financial institution.

Complete and sign the IRS form or plan document. This will be your guide; a legal document that describes your employees’ rights and benefits. It will describe the requirements for your employees to be eligible to contribute to the plan. You can limit the employees covered to include those who earned at least $5,000 during any 2 years prior to the current year and who are expected to receive at least $5,000 during the current year.

How the Plan Works:

You provide information to your financial institution on your employees who are eligible to participate in the plan as described in your plan document. Contributions to the plan are deposited into IRA accounts.

SIMPLE IRA plans operate on a calendar year basis; an employer can set up the plan as late as October 1. A SIMPLE IRA plan is set up for each employee. Employees must receive notice of their right to participate with payroll deductions and employer contributions. Employees must be provided a copy of the plan document and summary description.

Employees can make contributions in any amount as long as they do not exceed the legal limits that are in place during the current tax year. The amount is subject to change every year. The maximum amount was $10,500 for 2008 and is $11,500 for 2009. Employees age 50 or over can make a catch up contribution of up to $2,500 for 2008 and 2009.

Employees can change their contribution levels during the plan’s election period. The election period must be at least 60 days long and extend from November 2 to December 31 each year. In addition to the 60-day election period, a plan can have more election periods during the year.

There are several ways that employer contributions can be determined and employees must receive notification each year before the beginning of the 60-day election period.

Employee contributions must be deposited with the financial institution serving as trustee for the plan within 30 days after the end of the month in which the amounts would have been payable to the employee. Contributions must be made by the due date for filing your business’s Federal income tax return.

The US Department of Labor and the IRS provide additional information on retirement plans on their websites at www.dol.gov/ebsa and www.irs.gov/ep

Michael McGee shares wealth building tips while providing help with financial planning, traditional IRA, self-directed IRA, Roth IRA, SEP IRA, 401-K plans, college funding, 529 college savings plan, tax shelter, investment savings, family savings and financial security for consumers and business owners in Oakland County, Pontiac, Waterford, West Bloomfield, Farmington Hills, Southfield, Royal Oak, Rochester, Troy, Novi, Wayne County, Detroit, Dearborn, Livonia, Redford, Romulus, Westland, Northville, Plymouth, Canton, Trenton, Taylor and neighboring cities and communities.

Wealth Building: How People in Metro Detroit Save a Million Dollars

2009-04-22T09:22:00.000-07:00

How to save a Million Dollars in Detroit

Saving a million dollars really isn’t all that hard to do. Think of is this way. Are you able to save up $1,000? Sure you are; that’s easy! Well, just do this $1,000 times and you’re there! Of course, the interest dividends you receive along the way will help too.

Don’t waste your time thinking that you will never have money in the bank because you don’t make enough. As long as you are receiving a steady paycheck, you can deposit money to your savings account each week, whether you just deposit the loose change or a whopping $50 - $100! Make it a rule to pay yourself first; always deposit something to your savings account.

Wage Earners in Detroit can Save a Million Dollars

If you have a very low wage job, then your goal is not to save a million just yet; your goal is to have more than you had last week. As you continue on this path, your money will grow. Slow growth is better than no growth. The important thing is to start now; do not wait until things get better. You’ve likely heard the saying, “the more you make, the more you spend.” This is true with too many people.

While you may want to improve your lifestyle as you get pay raises or job promotions, keep in mind that you also need to increase the amount of money you save each week or each pay period. Do not put the entire pay increase toward new toys and living expenses if you really want to get ahead.

Wealth Building and Investing in Metro Detroit

Once you have enough money in the bank to allow you to pay your bills for 3 – 6 months in the event of job loss, you should feel secure enough to look into investing in some stocks or mutual funds. These can be set up in a number of ways. The best way is to have an automatic withdrawal, a set amount on the same day each month, from your checking account to your stocks, so they build at a nice rate.

Seek the help of a financial advisor who can fill out your financial analysis based on your income, your age, family size, living expenses and future goals. A good financial advisor will be able to steer you in the right direction to keep you moving forward toward your goal of one million dollars! You should be able to complete this goal and continue onto two or three million dollars as one million dollars really isn’t what it used to be.

Michael McGee shares wealth building tips while providing help with financial planning, self directed IRA, real estate IRA, SIMPLE IRA, traditional IRA, Roth IRA, SEP IRA, 401-K plans, college funding, 529 college savings plan, tax shelter, investment savings, family savings and financial security for consumers and business owners in Oakland County, Pontiac, Waterford, West Bloomfield, Farmington Hills, Southfield, Royal Oak, Rochester, Troy, Novi, Wayne County, Detroit, Dearborn, Livonia, Redford, Romulus, Westland, Northville, Plymouth, Canton, Trenton, Taylor and neighboring cities and communities.

Saving Money in West Bloomfield: Wealth Building Tips to Teach Your Children

2009-04-22T09:03:00.000-07:00

Wealth Building Tips to Live by in West Bloomfield

Parents are learning the hard way that they should have taught their children to be more responsible with their money. Unfortunately, many are compromising their retirement savings to help their children make ends meet or to put grand children through college. Here are some tips to avoid being forced to support your children through their adult years and then to support your grand children too!

Children in West Bloomfield Start Learning to Save at a Young Age

It’s never too early to begin saving for a down payment on a home or for retirement. Children are impressionable; they look up to their parents and want to please them, to a point. Begin teaching your children to save their money very early in life; when you start giving them an allowance.

Depending on their level of maturity, you should be able to start this when they are very young; 4 or 5 years old. Start them out with $1.00 per week that they can use for whatever they want, but they have to put aside a quarter a week. Use a piggy bank, jar or other container. When it’s full, roll up the quarters and deposit them to a savings account. Most banks offer “minor accounts” which are accounts for children that do not have minimum balance restrictions.

As they get older, and their allowance is increased, their contributions to their savings accounts should also be increased. Be sure to make it clear that they are saving for their future and that they will not be allowed to spend this money.

Your children will likely want other things, like game systems, a computer or a car. They will need to open another savings account that they manage for these items; however, they must deposit to their home/retirement account first. They may gripe about it, but hopefully, they have already developed good habits and accepted the fact that this is how it is going to be. They’ll be very thankful for this teaching when they grow up and need the money.

Education and Career before Marriage and Children in West Bloomfield

Star-struck teenagers fall in love and think that their love is all they need to survive. Even young people in college think they can handle school and marriage. Some can; however, in most cases, this is a recipe for failure, in school as well as in the marriage. The number one cause of divorce is financial trouble.

Children need to be taught that good things come to those who wait. High school and college years are much more enjoyable and productive if they remain single and unattached. Remind them that they still have a lot of growing up to do before they are ready for marriage. Of course getting them to believe this may be difficult. One suggestion is to remind them of a time when they thought “boys were gross” or “girls had cooties.” Then, they grew up and their opinions changed. Assure them that their opinions will continue to change as they grow and mature.

Avoid Debt when Possible

Don’t be so quick to use credit cards unless you already have the money to pay for your purchases when the bill comes in. Credit card interest is usually very high; therefore, allowing credit card debt to build up is senseless. Avoid draining your savings to pay credit card bills. As soon as your children are old enough, they should have a checking account and they should know how to manage it.

Most people are not able to buy a new car without a car loan; however, they can shop around for a good rate. If your teenager has been saving money in the bank since early childhood, chances are good that you and they have a good relationship with the bank and that you will be able to get a good interest rate. Check into different terms, like 3-year, 4-year or 5-year loans. Compare the rates and finance charges of different loans and make a good down payment. Make additional principal payments each month and pay off the loan as quickly as possible. Hopefully, the car is still in good shape when it is paid off; this way, the money that was being used for payments can be put into savings.

Pick the Right Career

If you have been fortunate and you and/or your spouse are very successful, remember, your children may not want to follow in your footsteps. Sure, you may like the idea of your children taking over the family business, but if forced into it and they don’t like the idea, the business will likely crumble.

Be sure your children know who to seek for guidance and advice when they approach college age. Teachers, guidance counselors and family members can be helpful in offering advice, but the ultimate decision is up to the child.

If your children make wise choices and enter a career they love, they will likely be successful and do you proud. They will be on the right path to building their own wealth so you can relax and enjoy your retirement savings without having to support them during their young adult years.

Time to buy a Home in West Bloomfield

Encourage your children to live at home as long as they are still in school. Sure, they will want to be on their own, but as soon as they move out, their savings will likely be depleted. Sharing an apartment and splitting bills with friends will sound ideal; however, this rarely works out for the best. When one cannot meet their obligation, the fighting and arguing starts, resentment builds and the friendship crumbles, along with their credit scores.

Teach your children (now, young adults) that homeownership is far better than renting. Explain equity building and how this is also the beginning of their retirement savings. Hopefully, with all they’ve been taught since early childhood, this will not sound as foreign to them as it does to many young adults today.

In addition to everything you have taught your children teach them not to live beyond their means. If your child qualifies for a $200,000 mortgage, they should begin looking at homes priced around $130,000 to $150,000, or less, to allow them to continue saving. Savings and quality of lifestyle are equally important; savings should increase as quality of lifestyle improves.

Do not wait until your children are entering college or working to begin teaching them about saving money. It is important that they begin developing good habits and money management skills at a very young age. They also need to learn about credit at an early age; preferably, before they are old enough for that first credit card.

Michael McGee is a financial advisor who can continue educating your children when they are old enough to make their own financial decisions and to open their own retirement account. Michael can help you with everything from college planning to retirement planning, establishing a 529 college savings plan, traditional IRA, Roth IRA, SEP IRA, 401-K, family savings and more.

Michael McGee shares wealth building tips while providing help with financial planning, traditional IRA, self-directed IRA, Roth IRA, SEP IRA, 401-K plans, health savings plans, college funding, 529 college savings plan, tax shelter, investment savings, family savings and financial security for consumers and business owners in Oakland County, Pontiac, Waterford, West Bloomfield, Farmington Hills, Southfield, Royal Oak, Rochester, Troy, Novi, Wayne County, Detroit, Dearborn, Livonia, Redford, Romulus, Westland, Northville, Plymouth, Canton, Trenton, Taylor and neighboring cities and communities.