It’s possible to watch your earnings grow tax-free with a Roth IRA account, as the money you put into this individual retirement account is non-deductible.

When you make a contribution to your Roth account, the amount may have some taxes deducted; however, when distributing or withdrawing savings, any taxes are either deferred or removed completely. In order to take the most advantage of these features, you will need to know what rules are in place.

In order to be eligible for the Roth IRA rules, your earnings must be taxable as well as not exceeding $120,000 per year. This maximum amount increases to $176,000 if you are married and file a joint return, but drops to $10,000 if you are married but file your own individual tax returns. You are also not allowed to contribute more than $5000 to your Roth IRA account per year.

It’s important to note that the contributions you make to your Roth account will take away from the maximum allowable amount you may contribute to other IRA accounts. Keep track of all contributions made to IRA accounts over the year to ensure you are not exceeding your yearly limit.

When five years following your first Roth contribution have passed, you are free to take withdrawals from your account. The amount withdrawn will still be subject to taxes unless you have a disability or have reached 59 and a half years of age. If you’re buying your first home (or building it), you can also distribute the savings amount without any taxes being deducted. These factors change each year, so make sure you follow the Roth IRA rules whenever investing.

Don’t take the IRA rules for for granted, as they change with your income and the year of contribution. The Roth IRA rules can seem even more complicated, but if you keep up with things you will be okay.

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But, no matter which plan you choose, failing to diversify could make you lose.

Investment advisors see a danger inherent in 401ks. Employers are allowed to offer their employees company stock options, instead of matching contributions. It makes sense for the company, but not always for the employee.

When Enron went bankrupt, many of their employees lost their entire retirement packages, because their funds were invested solely in company stock. Not only were Enron’s matching contributions made using stock options, the employees were encouraged to invest their contributions in the company, as well.

In other words, there was no diversification.

In 2008, the severe stock market fluctuations (which some experts refer to as a “crash” and others call a financial “crisis”) caused millions of people to lose a great deal of money. Not all of the companies that were hit went out of business.

So, some investors have started recouping their losses. But, the crash or whatever you want to call it, is a real-life example of one of the biggest disadvantages of 401k plans. Most providers offer only stock options.

Most plan providers are simply stock brokers. They are referred to as financial institutions, but they aren’t like regular banks. The trustees or account custodians are mostly unfamiliar with investments outside of the stock market.

If you called up your trustee and said that you were interested in using your holdings to invest in a shopping center development, the trustee might say that investment type is not allowed. While it might not be allowed by the custodial company, it is allowed under the applicable IRS laws.

Another of the disadvantages of 401k plans that are not diversified is reduced earnings. You might not lose money, but you might not reach your earning potential, either.

Historically, the average stock market investment has returned 6-8% per year. Those figures are going to drop dramatically, once the 2008 figures are averaged in.

Bonds and treasury notes have long been considered the safest investments, because you are investing in the federal government. But, the annual returns are less than 2%. You can’t get wealthy on that, unless you already have a bundle.

You can avoid these disadvantages of 401k plans by choosing the self-directed approach. It is a simple matter of finding a financial institution that allows self-directed investing.

With that kind of account, you can be fully diversified. You can still choose stocks, but you should choose different ones, from different industries.

You can also invest in shopping center developments, residential real estate and many other options.

If you are unfamiliar with investing, you can always learn from others. There’s lots of free advice on the internet. Some of it is worth taking and could make you wealthy.

There aren’t any disadvantages of 401k plans that are self-directed. They just keep growing and growing.

To get started on accomplishing your retirement goals, choose a real estate turnkey company to invest your self-directed IRA money in real estate.

This is the best investment strategy considering today’s economic environment for building a secure financial future.

Isn’t your financial future worth it?

Ed Gosselin researches retirement investment strategies while advocating IRA real estate turnkey solutions as a means of diversifying your portfolio while maximizing your returns.

Learn more about retirement investment strategies to accomplish your financial goals, by visiting his website http://higher-ira-returns.com.

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There could be. It depends on the investment opportunities offered by the account provider and at what age you plan to retire. If the plan is a standard one, rather than a Roth-401k, there could be a disadvantage, too.

Let’s take a look at your options.

Roth-401ks have only been available since 2006. Roth IRAs have been around since 1997. Traditional IRAs were written into the tax code in 1986. Standard 401k plans were actually an off-shoot of a tax law that had nothing to do with retirement plans.

Section 401 (k) of the Internal Revenue Code states that employees are not required to pay income taxes on what is referred to as “deferred” compensation. That is why the company that you work for can make a contribution, in your name, into your 401-k retirement plan, without increasing your taxable income for the year.

Section 401 (k) was added to the Code in 1978 and went into effect in January of 1980. Of all of the plans, it has been around the longest, nearly completely taking the place of company sponsored pension plans.

You see, there are “no” disadvantages of 401 k plans, as compared to old fashioned pension plans, at least from the company’s perspective. Since, you’ll probably never have the option of choosing a standard pension plan, there’s no reason to look at the advantage/disadvantage of one of those plans.

But, you could be offered the option of a Roth-401k, if the company has amended the plan to include that option. Most people feel that the Roth account is a better option, but not everyone feels that way.

The biggest advantage of Roth plans is that qualified distributions are never taxed and earnings from investments made within the account are never taxed. Some people say that the benefit may never be realized, if the account owner dies before retirement. While that’s true, any of us could die before retirement age. Does that mean that we shouldn’t save for retirement?

If you are going to say that dying young is one of the disadvantages of 401 k Roth plans, then you would have to say that you may as well spend all of your money, today. I like this saying: live in the moment, but plan for the future. If you don’t, you could end up a burden to your children or society. No one wants that.

There are no other “real” disadvantages of 401 k Roth plans. There are some perceived draw-backs, in that contributions to the Roth plans are taxed as regular income. Contributions to the standard plans reduce your income for the year, thus “possibly” lowering your taxes.

The main thing to be sure of, regardless of what retirement plan you choose, is that the investments made from within the account are fully diversified, not restricted to stocks, alone.

Some investment types, such as real estate, have higher earning potentials than others. There are disadvantages of 401 k plans that are not fully diversified. But, that’s the subject of another article.

To get started on accomplishing your retirement goals, choose a real estate turnkey company to invest your self-directed IRA money in real estate.

This is the best investment strategy considering today’s economic environment for building a secure financial future.

Isn’t your financial future worth it?

Ed Gosselin researches retirement investment strategies while advocating IRA real estate turnkey solutions as a means of diversifying your portfolio while maximizing your returns.

Learn more about retirement investment strategies to accomplish your financial goals, by visiting his website http://higher-ira-returns.com.

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Do you want to pay taxes now or after you retire?

Contributions to all traditional “non-Roth” plans are tax deductible or reduce your taxable income for the year that the contribution is made. Distributions, on the other hand, are taxed as regular income. In other words, after you retire, when you begin to take money out of the account, it will be taxed as regular income.

Many people are in lower income tax brackets after retirement. People aged 65 and over get to take additional income tax deductions. So, if your earnings are high and you expect to be in a lower income tax bracket after retirement, the traditional plans may be for you.

One of the disadvantages of 401k plan and traditional IRA usage for some people is that they continue to pay income taxes, after retirement. The wealthier you are after retirement, the more advantageous the Roth plans.

Do you want to begin taking distributions by the age of 70 ½?

People are working longer and living longer. They are healthier and more active. It is not unusual today to see people working past the age of 70.

One of the disadvantages of 401k plan and traditional IRAs is that account holders must begin taking regular distributions by the age of 70 ½. If they are still working, the distributions add to their annual income.

So, they often pay more taxes than they want to. If they don’t really “need” the money, they have to decide what to do with it; put it in a savings account, find another investment, etc.

There’s really no way to know how you will feel at the age of 70, but with Roth plans, there are no required distributions. You can save it for later life or leave it to your beneficiaries.

How much do you want to contribute on an annual basis?

There are maximum annual contributions to any tax-advantaged retirement account, regardless of the type. But, the maximum annual contributions to 401Ks are higher than the maxes for traditional accounts.

There is now a Roth-401k and a Roth-IRA, but the maximum annual contributions are the same, whether the account is a Roth or a traditional type.

Any disadvantages of 401k plan usage may be outweighed by the higher maximum annual contribution and the employer matched contributions. If your earnings are high and you want to save more, 401ks are the way to go.

Does your account provider limit your investment choices?

Now, that you have learned about the advantages and disadvantages of 401k plan usage, you might want to investigate all of your investment options.

Some account providers limit the types of things that you can invest in.

With today’s markets, the average number of years that people are living after retirement and the inflation rate, you cannot afford those limits.

To get started on accomplishing your retirement goals, choose a real estate turnkey company to invest your self-directed IRA money in real estate.

This is the best investment strategy considering today’s economic environment for building a secure financial future.

Isn’t your financial future worth it?

Ed Gosselin researches retirement investment strategies while advocating IRA real estate turnkey solutions as a means of diversifying your portfolio while maximizing your returns.

Learn more about retirement investment strategies to accomplish your financial goals, by visiting his website http://higher-ira-returns.com.

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Remember, these things have happened to other people.

So, they could happen to you.

#1. You fail to redeposit the funds within 60 days.

The check could get lost in the mail. You could have some kind of family emergency. You might be in the process of moving and somehow lose the check. All of those things have happened to account holders at one time or another. Something interferes with them finding a new account provider and the next thing they know, they are in trouble with the IRS.

Failing to open a new account and redeposit the funds within 60 days is one of the 5 biggest 401k rollover mistakes, because, when if it happens, the entire value of the account will be taxed as regular income for that year.

The IRS will make exceptions, in some cases. For instance, victims of hurricane Katrina were given a full year to redeposit the funds. But, unless there is a blanket exemption like that one, the process is long and drawn out. The best thing to do is to pick a new account holder, before you initiate a roll-over and take precautions to insure that the check is deposited within the 60 day period.

#2. You take more than one roll-over in a 12 month period.

That does not mean more than once per calendar year. That means more than once during “any” 12 month period. I am personally familiar with an investor that rolled over his account, found himself happy with the results, but then found another investment with higher returns. He initiated another roll over 11 months after the first.

That is one of the 5 biggest 401k rollover mistakes, because the funds must be included with your income for that year.

In other words, you pay more taxes.

#3. You choose to take a roll-over instead of a transfer.

A transfer and a rollover are different transaction types. For people that have already decided on a new account provider, one of the 5 biggest 401k rollover mistakes is simply to take a rollover, instead of making a transfer.

When you are not the “middleman”, the first two mistakes cannot happen.

#4. You put the funds into a Roth, instead of a traditional account.

This is only a mistake if you are aware that you will need to include the account value in your annual income tax return. Contributions to a regular 401K are not taxed as regular income for that year.

Contributions to a Roth are, but qualified distributions from within a Roth are never taxed. Learn the rules, before you consider going from a traditional account to a Roth.

#5. You fail to consider all of your investment options.

Failing to consider all of your investment options, which could include self-directing into real estate, may be the biggest of the 5 biggest 401k rollover mistakes.

If your account is not earning 12% per year or more, then you might want to try something different.

To get started on accomplishing your retirement goals, choose a real estate turnkey company to invest your self-directed IRA money in real estate.

This is the best investment strategy considering today’s economic environment for building a secure financial future.

Isn’t your financial future worth it?

Ed Gosselin researches retirement investment strategies while advocating IRA real estate turnkey solutions as a means of diversifying your portfolio while maximizing your returns.

Learn more about retirement investment strategies to accomplish your financial goals, by visiting his website http://higher-ira-returns.com

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This method of compensating employees has two tremendous upsides. The first upside is a partial solution to the conflict of interest you and your managers deal with on a regular basis. That is, your attempt to keep your employees motivated and working efficiently, while under traditional plans, employees are gaining little to nothing from increasing the firm’s bottom line.

However by offering ESOPs to employees, they feel tied to the firm due to the benefits of an increase in the company’s stock price. It’s a manager’s dream, and often results in a very loyal and highly motivated workforce. Their hard work and performance will be reflected in the company’s valuation, which may result in net wages that exceed traditional payment plans.

Most venture capitalists insist that their portfolio companies offer ESOPs. In addition to motivating workers, venture capitalists have found that employees who agree to ESOPs are focused on long-term growth versus short-term cash. In their experience, these types of employees tend to be your best workers.

The other benefit of ESOPs is the financing aspect of stock ownership. With an ESOP, you’ll potentially be able to pay your employees LESS than the market dictates. This is because you are partially compensating them with equity.

Thus, ESOPs save your firm valuable dollars by cutting down salary expenses. These dollars could then be used in more crucial areas that require heavy cash flow in order to succeed, such as marketing or product development costs. Start-ups benefit greatly from ESOPs due to characteristically needing cash and lacking established revenue streams.

However there is a notable downside to ESOPs. As with any stock transaction, you give up some percentage of ownership in your company. On the other hand, the upside to ESOPs, both direct from cost savings and indirect in terms of motivation, has shown to be a successful management tool for businesses. If you are looking for creative ways to finance your business venture then ESOPs may be worth your consideration.

Growthink recently released a report for entrepreneurs entitled “The Definitive Guide to Raising Capital from Creative and Alternative Financing Sources.” For more information on creative business financing visit http://www.growthink.com/products/creative-financing-guide.

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Why Convert?

Before converting your traditional IRA into a Roth IRA, ask yourself whether you anticipate being in a lower, higher or the same tax bracket during retirement? If retirement withdrawals or other sources of income will keep you in the same or higher tax bracket, why not pay taxes on your retirement account now so you can enjoy the benefits of a lower tax rate? This is exactly what a Roth conversion allows you to do. Here are three more tax implications to consider:

1. Tax rates are incredibly low by historical standards. Most experts anticipate tax rates to increase in the near future to allow the government to fund liabilities such as Medicare, Social Security, and the economic stimulus package. If rising tax rates are a concern, why not convert a traditional IRA to a Roth, pay taxes at today’s low rates and enjoy tax-free growth going forward?

2. Converting now, after asset values have dropped 40%, will minimize taxes. Investors will only pay taxes on today’s deflated values, which is more cost-efficient than paying taxes on 2007 investment values.

3. The government does not require minimum distributions from Roth IRA accounts. This enables money to continue to grow tax deferred for as long as possible. At death, a Roth IRA transfers to heirs tax free; a traditional IRAs does not.

Other Factors

Investors who convert in 2010 have the option of splitting the tax bill between 2011 and 2012. When converting, ALWAYS pay the tax liability with other income to keep as much money growing tax-free as possible. Lastly, be conscious of IRA conversion distributions lifting you into a higher tax bracket. An investor can partially convert an IRA during multiple years to avoid a large infusion of income in a single year.

Poor Timing Can’t Hurt You

What if an investor converted to a Roth IRA in early 2008 when values were high? Unfortunately, the tax bill is based on the value of the assets when the conversion took place, which means a tax liability likely exists on money that has since been lost.

Thankfully, that ill-timed conversion can be reversed through a process called recharacterization. Recharacterizing makes it like the conversion never happened, and the inflated tax bill simply disappears. The IRS will allow Roth conversions to be recharacterized until October 15th of the year following the transaction.

However, if converting a traditional IRA to a Roth IRA was a good strategy before, a conversion still likely makes sense. Fortunately, after recharacterizing back to a traditional IRA to minimize a tax bill, an investor can elect to convert the account back into a Roth at the beginning of the year following the initial conversion, or if the year has already ended, 30 days after the recharacterization.

This strategy provides protection if investment values continue to decline. Thus, don’t delay converting to a Roth out of fear the market has yet to hit bottom.

Potential Pitfalls

Converting a traditional IRA to a Roth IRA is likely not beneficial for investors who believe they will be in a lower tax bracket during retirement than during their working years. After all, why pay taxes now at a higher tax rate to avoid having to pay taxes later at a more favorable rate?

Another group that may not benefit from a Roth conversion are individuals who will likely have a large amount of itemized deductions on their federal tax returns during retirement. Itemized deductions such as mortgage interest, health care costs (only amounts over 7.5% of adjusted gross income can be deducted), state taxes, and donations can be used to offset income. The IRS does not consider withdrawals from a Roth IRA to be income, so itemized deductions cannot be used to offset Roth distributions. Conversely, itemized deductions can be used to offset traditional IRA distributions.

For example, an individual who converts to a Roth IRA and then has a large amount of medical expenses later in life would ultimately pay taxes up front and fail to take advantage of itemized deductions which would have reduced income taxes on traditional IRA withdrawals. In this case, the individual would have been better off deferring income taxes until he or she had itemized deductions to offset income from traditional IRA withdrawals.

Not sure of the value of your future itemized deductions? A great strategy would be to convert a portion your traditional IRA to a Roth IRA to achieve “tax diversification.” A tax diversified individual would have the option of withdrawing money from a traditional IRA account in years when there were itemized deductions to offset the income, or taking tax-free withdrawals from the Roth account in years when itemized deductions were not available.

Lastly, what if the federal government has a change of heart about the tax free status of Roth IRAs? If everyone converts to a Roth now, the government will experience a decline in revenues from traditional IRA and 401(k) withdrawals down the road. To meet its obligations, the federal government could potentially begin taxing the gains on these Roth accounts. Of course, no one knows the future, but this is another area where tax diversification can be useful. A portion of a tax-diversified investor’s portfolio could still be tax free if rules governing Roth accounts remain the same, while the investor won’t have all his eggs in one basket if an unforeseen rule suddenly makes Roth accounts less appealing.

Bottom Line

Everyone should at least consider a Roth IRA conversion during the next year and a half. Many factors can make these conversions more or less appealing, so it’s best to speak to a financial planner with a fiduciary obligation to do what is in their client’s best interest to determine if this strategy would be beneficial for your situation.

Lon Jefferies is an investment advisor representative with Net Worth Advisory Group, a fee-only financial planning and investment advisory firm in Salt Lake City, Utah.

He specializes in developing custom financial plans, implementing investment strategies, and providing ongoing support and service in order to help clients reach their financial goals. He can be contacted at (801) 566-0740 or lon@networthadvice.com.

Visit the Net Worth Advisory Group website at http://www.networthadvice.com and read Lon’s blog at http://www.utahfinancialadvisor.blogspot.com.

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There are two numbers you need to collect before determining your personal maximum contribution limit. First, find out how much of your salary your employer’s plan will allow you to contribute. For example, if your employer has set up a plan that allows you to contribute up to 10% of your salary and you make $45,000 for 2009, then your employer’s limit will be a yearly contribution up to $4,500.

This is not necessarily your personal limit because there is also a maximum contribution level set by the government. Your limit will be the lower amount between your employer’s allowance and that set by the government. The government rate is really a guideline for those that make well over $100,000, as it is usually set quite high.

As far as the 2009 401k limits, the IRS has determined that no one can contribute more than $16,500.

For our example, since the employer’s limit is lower, that would be your contribution maximum for all of your 401k plans for the year. The government set limit would not apply to you.

Also, there is something called a “catch up contribution” for anyone over the age of 50. This allows for an extra $5,500 over the course of the year. This is as of the latest 2009 401k limits. Again, this is collective over all of the 401k plans held.

The 401k contribution limits change every year and are a reflection on the changing cost of living in the country. It is important to check each year to determine how much you are allowed to contribute and how you wish to split up the total amongst all of your 401k investment plans.

When it comes to your 401k plan there are a number restrictions and rules in place. One such rule is the contribution limits. You may check the site for the most recent 2009 401k Limits, as well as other retirement accounts like the IRA.

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The maximum amount allowed to be contributed is different every person, depending on two different numbers. First, you have to determine what percentage of your income your employer’s plan will allow you to invest. This will be in percentage form. For example, someone who makes $45000 a year and has a plan that states they can contribute up to 10% of their income would be allowed to contribute up to $4, 500 in 2009.

You have to find out this amount from your employer, but it is not necessarily going to be your personal maximum contribution. The IRS also sets a maximum contribution which no one in the country can exceed. This is just one number that applies to everyone, but it is aimed more at those who make in excess of $100, 000.

The IRS 401k rules mandated 401k contribution limits for the current year at $16,500.

In our example above, the $4,500 set by the employer is lower than the IRS mandated number. This would mean the IRS number does not apply and the employer’s limit must be followed.

If you are over the age of 50, you also have the option of participating in an optional catch up contribution. This allows you to contribute up to $5,500 extra since you are closer to retirement age. Once again, this amount has to be reached collectively across all of your 401k and Roth 401k accounts.

The current year’s 401k contribution limits are a direct reflection on the standard cost of living in the country. This rate changes every year, so it is important to keep up with it to ensure you are contributing the right amount to all of your accounts.

You’ll want to make sure you don’t exceed the 401k contribution limits when making your contributions. Similarly, when it comes to the 401k rules there are certain things set in place, so always consult a qualified advisory before making a major move.

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The money is then used for a down payment on the property that is needed. An additional load will be obtained by the contractor to cover the rest of the balance of the project. The loan from the IRA will be repaid in full upon completion of the property. An additional benefit to using the funds in the IRA is that the two people will be able to split the profits when the apartment complex is sold. Now, there may be some questions that will arise regarding whether this is a viable deal. First, is the loan from the IRA secured by the property? Second, is the agreement to split profits part of the deal for the contractor to obtain the IRA loan?

If the IRA loan is secured by the property, then the IRA will be in the safest position possible. If this is the case, and the IRA owner makes a deal to split the profits, there will be a problem with the IRA owner receiving current benefits from the deal that involves the IRA account. On the other hand, if the loan is not secured, then the deal is unrelated to the IRA and to the contractor. This means that the unsecured loan proceeds can be used by the contractor for any purpose. If the loan is secured and there is no agreement to split the profits, any deal thereafter is not subject to prohibited transaction rules.

This IRA loan does not violate any IRA rules and it is not seen as a method to get around any prohibited transactions. A different approach can be taken, however. The loan from the IRA can be secured by another property that is in no way related to the apartment complex. This is a way to avoid a nexus between any property and the IRA account will remain in a secure position. The proceeds from the loan can still be used for any purpose by the contractor.

The deal between the two individuals to split the profits is not related to the IRA. If the owner of the account would like to have part of the sale profits go to the IRA and a portion to them, the account owner would have to be partners with the IRA. The owner would have to partner with the IRA 50-50 if he or she wanted to split the profits between themselves and the account. The alternative to this is to arrange an agreement with the contractor to repay the loan and receive 25% of any proceeds when the complex sells. This would mean that as soon as the loan is repaid, the IRA would own the agreement with the contractor and he or she would receive 25% of the sales profit. In addition, the IRA account owner could make another deal with the contractor to personally receive 25%. If the loan is conducted in this manner, the owner of the account is not dealing with any assets in the IRA. They are simply dealing with the contractor on a separate deal.

No matter how the transaction is structured, the owner of the IRA account will benefit from the deal. It is important to comply with IRA codes and at the same time, meet the objectives of the parties involved. Make sure rules are followed so no IRA penalties are incurred.

Best IRA Rescue provides services on your Roth IRA, IRA investments & traditional IRA and will help you reduce your inherited and beneficiary independent retirement account taxes in your estate assets. Roth on ROIDâ„¢ is your advanced Roth IRA retirement planning strategy. It is Cash Value Life Insurance and one of the best IRA tax-savings strategies with benefits of a guaranteed death benefit, guaranteed principal, tax-free growth, and tax-free distributions from policy loans. Traditional IRAs and ROTH IRAs cannot invest in life insurance. Please contact us if you have any questions. Rocco Beatrice, CPA, MST, MBA

Best IRA – IRA Loan: Profit Splits
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toll-free: 888-93ULTRA (888-938-5872) tel: +1.508.429.0011 fax: +1.508.429.

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