401K

by Edwin Ivanauskas | Tags: Personal Finance, Investing, Retirement

A 401K is a retirement plan sponsored by your employer. It is a defined contribution plan where you contribute a certain portion of your income into the account. 401K accounts are popular because of two main reasons.

As a retirement investment, the 401K has both advantages and disadvantages:
Pros:

• Tax deferred until withdrawal.
• Possibility of additional contributions from employers

Cons:

• Withdrawal penalties of 10% with certain exceptions.
• Lack of liquidity if the contributor needs the money for another purpose.

A further comparison of a 401K plan with other investments can be found here.

Benefits of a 401K

First they are a tax deferred plan, as an example let's say you put $4,000 dollars into the account over a year and earned $54,000 that year, only $50,000 would have to be claimed as income. On the other hand, the benefits upon withdrawal once you've retired are taxed as income. Second, employers may offer a matching contribution giving you a strong incentive to deposit into the 401K account because of the increase in assets gained if employers match the deposit.

The tax deferment option can be advantageous because retirees generally require fewer expenses than during their career so can live off of a smaller yearly income. This drives them to a lower tax bracket so they have to pay less on the withdrawals from their 401K than they would have paid during their working years.

Although a 401K is an employer provided benefit, if you were to change employers and your new employer has a 401K plan, you can transfer your old 401K plan to the new employer. If your new employer does not offer a 401K plan, it can be transferred to an IRA at another institution or the old employer may charge a fee to keep the 401K managed through them.

The money deposited in a 401K is distributed among a variety of assets that could include stocks, bonds, mutual funds, money market funds and others. The options available are based on the specific plan your employer allows and the proportion of funds in each can be regulated by the contributor manually.

Deposit Limits

401K contributions are limited to a maximum of $16,500 a year in 2009. People age 50 or older are allowed an exception to this limit in the form of "catch-up" contributions. These catch up contributions are limited to $5,500 in 2009. These limits are also imposed if more than one 401K (such as a traditional and Roth) are owned by the same person, there can be no more than $16,500 contributed to both accounts combined. These limits are set by the IRS and can differ from the limits set by your employer's plan which may limit it based on a % of yearly income.

Withdrawing Funds from a 401K

The current age requirement to begin withdrawing funds from a 401K is set at 59 ½. At this point withdrawals can freely be made with no penalty, but an income tax must still be paid. If withdrawals are made before this point, there is a 10% tax added on to the income tax for the withdrawal.

There are a few exceptions to this rule. Some plans may allow the employee to take a loan out from their 401K plan. Loan conditions can vary greatly based on individual plans offered by employers but won't exceed 5 years and will be a reasonable income rate. The income is then paid back and added to the 401K account but does not get the tax deferred treatment that regular deposits get.

In addition to the available loan, 401K plans will not suffer the 10% withdrawal fee if the contributor dies, is disabled or cannot work any longer. If upon leaving the employer which holds the plan, the employee cannot find another plan to transfer the funds to such as an IRA or a new 401K, the funds can be distributed without penalty.

Types of 401K plans

All of the above information was in reference to a traditional 401K plan, the following is a list of non-traditional 401K plans available and how they differ from the traditional plan.

Roth 401K

A Roth 401K differs from a traditional 401K primarily in that it is does not have a tax-deferred contribution. This means that an income tax is paid on all income before the contribution is made but at the time of withdrawal, no income tax is paid. There are additional restrictions associated with a Roth 401K. The $16,500 limit is imposed on a combination of traditional and Roth 401K that an employee may have so they cannot invest $16,500 in two separate accounts.

SIMPLE 401K

This is a type of 401K plan available to companies with 100 or fewer employees. The employees eligible must have received at least $5,000 in pay from the company in the last year. Traditional 401K plans have a requirement for the employer to test whether the higher compensated employees in the company are being treated as equally as lower paid employees. The SIMPLE 401K eliminates those testing requirements so allows small businesses to provide retirement benefits to their employees without high costs. One difference is that the SIMPLE 401K has a lower limit of $11,500 contribution per year in contrast to the $16,400 limit in a traditional 401K.

401K plans are popular among employees and are the major source of retirement income for 44% of all workers. It is important when planning for retirement to understand the different options available and fitting them to your personal preferences. You can read more about how a 401K fits into saving for retirement and retirement investing

After Retirement

by Edwin Ivanauskas | Tags: Personal Finance, Retirement

Retirement is an inevitable part of life for all working people; we will all be able to retire some day and for most of us it is something we look forward to. But what happens when we finally reach this stage in our life?

What now?

For most of us, we do not sit around and plan what we will do once we reach the magic age of 65 and decide to stop working. You may think that you will travel the globe or wile the days at home with your spouse, but let's face it, at some point you will need to get up and actually do something and the funds are probably not going to be readily available to go on that trip.

Jobs available for senior citizens

No matter what skills you have or have used in the workforce, you will surely be able to find a job. For example, if you are a retired teacher you can become a tutor. If you used to be a doctor or a nurse you can go on overseas medical missions or volunteer your time at a hospice.

If you don't need a substantial income after retirement you may want to pick up a hobby such as painting, writing, dancing, etc. After retirement you will have lots of time on your hands and if you do have the money to travel you should do it because who knows when you will have another opportunity to do so.

Volunteering

Volunteering is a great way to spend your "golden years" because it not only gives you something to do; it also gives you an opportunity to help others and gives you a feeling of satisfaction. There are many different types of volunteer work available such as working at a hospital or a hospice; there are many people in need of help at these places some of them only need companionship.

If you like the outdoors there is always something to do in your community such as planting trees or flowers or painting an old sign. You can even volunteer at a school or daycare to read to children. There are many different things to do in the community; you just have to find what you are interested in.

Life after retirement can be the best of your life, it is important to plan ahead now while you are still working so that you can ensure a better future for you and your family. Having money may not seem all that important to you, but you need it in order to survive. The power bill, electric bill, phone bill, etc. all have to get paid one way or another but keep in mind that you will be able to get a job after you are 65 if you so choose. The golden years can be some of the best years of your life, just make sure you are prepared for it.

Auto Insurance

by Edwin Ivanauskas | Tags: Personal Finance, Insurance

Imagine getting into your car, driving and then suddenly someone side swipes your car. What would you do? What if you or the other driver had no insurance? There are several things to look for in car insurance these could save you thousands of dollars.

It's the Law - Liability Insurance

If you own a vehicle then it is law that you have at least liability insurance on that vehicle. This covers the vehicle of the other driver if you were to hit them. Your car would not be covered but theirs would be. This is the minimum insurance that you must have on your vehicle at all times.

Under-Insured insurance

If someone hits your vehicle and the other driver did not have enough insurance to cover your damage on your vehicle then this would cover your vehicle.

Full coverage

Full coverage insurance is meant to cover your vehicle and someone else's if you are in a wreck and at fault. Read your policy carefully, full coverage is based on how much you base your coverage at. You may have a five hundred or a thousand dollar deductible that you have to pay to even get your coverage to kick in and if you have your coverage capped out at forty thousand and you were to hit a fifty thousand dollar car, then you are responsible for the other ten thousand dollars.

Comprehensive

Comprehensive insurance is meant to protect your vehicle from non driving related damages. This can include anything from vandalism and theft to weather damage.

Medical

If you, the driver of the other vehicle or perhaps a passenger of yours gets hurt, the medical will take care of medical bills, time off from work, and fees associated with it. Make sure that you know the maximum payouts on this or you may find yourself under insured.

Property Damage

This portion of your auto insurance protects you against damage to property such as hitting a house, retail store or any non-moving property that can be damaged during an accident.

Uninsured

Uninsured insurance usually goes with the under insured but both are equally important, as this will protect your vehicle in case the other driver was not insured.

Exclusions

Most auto insurance companies do not have exclusion policies. An example would be if you married someone with a suspended license then you may not be able to get insurance through that company even though you have a perfect driving record. If they do have an exclusion letter, you would need to sign it stating you will be the only one driving your vehicle.

When looking for auto insurance check to see if you receive discounts for being ticket free and also for multiple vehicles. If you have a student driver, you may also receive a discount based upon his grades which is usually a B or higher.

Auto insurance is based on the year and make of your vehicle, your driving record, and your age. Get at least three separate quotes before deciding which auto insurance is right for you. Make sure that you protect yourself with enough coverage as well as keeping the deductibles low enough, that you can pay them in case of an accident.

A final note is to consider add towing insurance and rental insurance to your plan. Most people think that this is automatically added into the full coverage but most of the time it is not. Safe driving can get your premiums lowered the longer you are with your auto insurance agency.

Bankruptcy

by Edwin Ivanauskas | Tags: Personal Finance

Bankruptcy has become an increasing fact of life with layoffs and increasing medical bills. No one wants to file bankruptcy. It once was something that we rarely heard about. Now it can take up an entire page in the weekly newspaper. If you are thinking of filing bankruptcy here are some things that you will need to know. With the economy in a slump we are all having bad times and you are not alone. Many people are choosing bankruptcy in order to save the little that they do have.

What is bankruptcy?

Bankruptcy is protection under federal law from all your creditors and unpaid bills that you have accumulated over the years. Bankruptcy can even protect you from foreclosure. When you file bankruptcy, you are telling the courts and the creditors that you can no longer afford to pay them, or you cannot pay them as much as they are asking without hurting your credit.

Types of Bankruptcy

Chapter 13- If you choose to file chapter 13 then you have property (house) or a car. It is an item that you do not want to lose. Filing chapter 13 provides you a safety net to repay your creditors and save your home and car. With a chapter 13 you are given three to a five year plan to repay your secured debt so that you may keep your home and car.

Chapter 7- If you choose to file chapter 7 then you are choosing to get rid of all unsecured debt, such as medical bills, credit cards, and utilities. With chapter seven you may be forced to turnover your home and car. They are not protected. You can ask them if you can sign a reaffirmation agreement in which you will continue to pay for your home and car even though you are filing bankruptcy.

Things to know

When you file for bankruptcy whether it be chapter 7 or chapter 13, you are granted an automatic stay which means any creditor that you had calling or harassing you, is no longer allowed to.

When you file bankruptcy, you must go to a pre-file credit counseling briefing. If you do not attend this, then you cannot file bankruptcy.

You always want to speak to a bankruptcy attorney for legal advice regarding which bankruptcy is going to be the right one for you. Bankruptcy does affect your credit even though it professes to give you a clean slate. You may have a harder time rebuilding your credit once you have been discharged from your bankruptcy. Some utility companies may require a deposit once you have filed a bankruptcy. Bankruptcy can affect your life in many ways. It is important that you speak with a good bankruptcy attorney and choose the best options for you.

Bankruptcy is not always the best answer but it is an option that is there if you need it. Take your time and speak with an attorney and ask many questions. Be prepared to list all of your debt. That means down to the hundred dollars you owe a magazine company. A bankruptcy can take up to six months to discharge so don't be frustrated. Your attorney will be there for you during the entire bankruptcy process from start to finish.

Business Insurance

by Edwin Ivanauskas | Tags: Personal Finance, Investing

Whether you have a small two person family owned company or a business with four hundred employees, you need Business Insurance. You cannot protect yourself and your business without it. Sad to say that if someone trips over a crack in front of your store or if they were to fall on a piece of carpet that was slightly lifted, you are at risk of losing everything that you have worked for. We live in a lawsuit happy world where it is not if you will get sued but rather when you will be sued.

Businesses are arguably at a higher risk from people looking for ways to make an easy dollar off of a mistake that they think you have made whether it is in a business transaction or a sidewalk not cleared leading to your door. No one likes to think of this, yet it is what you need to think about when deciding the types of insurance that you need to carry to protect yourself and your business.

Surety Bond

This is a insured bond that protects your business for a certain dollar amount. This is also used in government contracts. For instance if you have a loan company and you are sued, you must have a surety bond that the government recognizes in case you are sued by a customer. This insures that if you lose that case, the government has the right to access that money to pay that client.

Liability

This type of insurance protects your small business from ruin if you are sued from someone getting hurt or thinking that you have done some type of service wrong according to their contract. This will protect you and help with the legal fees which will accrue.

Flood insurance will protect your business from water damage due from natural flood damage or if the sprinklers go off and ruin your office.

Casualty Insurance

This type of coverage covers the loss to a business. If you have damage to your business belongings or property then casualty coverage covers this.

Auto insurance

Insurance for any company owned vehicle that you may use for the business. This is especially needed when you have multiple drivers using company vehicles for deliveries, etc.

Depending on the size of your company an Insurance agent or broker is someone who can help you decide which Business Insurance you will need and how much based on the type of business that you have and how large your company is. A package insurance plan is more economic for you as a business owner and will help keep your business needs in perspective. Insurance is as important as the business you are in and there is never enough of it. Take the time to research and discuss your Business Insurance needs with your agent or broker and make sure that you are getting the best insurance for your money. It is well spent.