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January 26, 2007
AA Batteries
I found it highly amusing when my parents handed me a rather heavy bag of AA batteries when we went down to see them for Christmas. They had bought quite a few things for my daughter for Christmas, and most of them took at least two AA batteries. They said that they know how expensive batteries can be, and they thought that if they did not supply the batteries that she might not get to play with many of her new toys. They may have been on to something because had we been the ones to buy the batteries, many of her toys would still be in the boxes they came in.
Toys are not the only things in our home that eat through the AA batteries. My digital camera will take this size battery, but I gave up on that long ago. I would barely begin taking shots and the batteries would die. I even toyed with rechargeable AA batteries for my digital, but they weren’t the greatest deal either. I finally went out and got one of the other recommended types of batteries for my digital camera. If I hadn’t, I might have had to give up something just to pay for the batteries.
We also have a lot of remotes that take AA batteries. Though these do not run through batteries as quickly, they certainly demand their fair share. I think that if it were not for rechargeable AA batteries we might be broke by now. As things become more and more complicated, the need for batteries goes up. There has to be a way to stop this expense from becoming impossible to keep up with. There are AC adaptors for such things, but my remote isn’t designed to use one. That would be silly anyway. I’m hoping they can come up with a way to make the batteries to last longer without jacking up the price too much.
Posted by KeyWestPublishing at 06:25 PM | Comments (0)
January 16, 2007
Tax Implications of Retirement Accounts
There are several retirement accounts with tax implications. 401K accounts, Keogh accounts, Roth IRAs and standard IRAs are some of the most important and widely know retirement accounts.
What is an Individual Retirement Account (IRA)?
An Individual Retirement Account (IRA) is a retirement investment into which you put contributions on which you do not pay taxes until you withdraw the money from the account after you retire. Usually, your tax bracket will be lower after retirement and so you won't have to pay as high a percentage of the money in taxes as you would have if the money had been taxed at the time it was originally earned. When you put money into an IRA, you get a tax deduction. When you take a "distribution" from that IRA later, it counts as taxable income. There are penalties for early withdrawal up to age 59 1/2.
You are required to start taking money out of your IRA no later than at age 70 1/2.
You should check with your accountant or the IRS to see how much you can contribute in the current tax year. How much of this money is tax deductible depends on your Adjusted Gross Income (AGI) and whether you are covered under an employer retirement plan.
There are other variations of the standard IRA, such as the "Simple IRA," a relatively new but popular employer based plan allowing employer contributions and a higher contribution by the taxpayer.
What is a 401K Retirement Account?
A 401K plan is named after a section of the 1978 U.S. Tax code. It is a plan offered by employers which allows you to automatically save a portion of your income for retirement without paying taxes now on the money you are saving. As with the IRA, the idea behind it is you'll be in a lower tax bracket after retirement and therefore will have less tax to pay on the saved money than you would pay now at your higher salaried income rate. You only pay taxes on the money when you withdraw it from the 401K account after retirement.
In its basic configuration, a 401K account is similar to a standard IRA, but in many employers' plans, there is a matching contribution from the employer which provides the real power to the plan. Beware. Many companies invest the 401K plan money heavily in their own company stock. If the company has an unusually bad financial problem, you might find this money in jeopardy as well as your job. The best 401K plans allow you to control the investment vehicles for your money.
Typically, at the time of retirement, a 401K plan is "rolled over" into a standard IRA, from which the retiree then makes withdrawals over time to provide retirement income.
What is a Keogh Retirement Account?
A Keogh retirement account is a tax deferred retirement plan for self employed people. If you are self employed, with a sole proprietorship or a partnership, then this is the plan you may want to consider setting up. Any type of qualified retirement account can be set up to cover self employed individuals. You should also look into 401K plans, and standard and Roth IRAs.
There are advantages and disadvantages to each. One advantage to the Keogh plan is that contributions are deducted from the gross income. Contribution limits are more liberal than those allowed with some other retirement accounts. As with other retirement accounts, tax is deferred until money is withdrawn, usually after retirement. In some cases, lump sum withdrawals may be eligible for 10 year averaging which can provide a tax benefit.
Another IRA type used for self employed sole proprietors is a SEP IRA which has less complex filing administrative paperwork and allows higher contributions.
What is a Roth IRA?
The Roth IRA came into existence in 1998 and is named after the late Senator William V. Roth, Jr. The chief advantage of a Roth IRA is obvious. Although there is no deferral of taxes on the money originally invested in a Roth IRA, as in other IRAs, all income earned by the investments in a Roth account is tax free when it is withdrawn. Another benefit is that you are not required to take distributions beginning at age 70 1/2 as with other accounts, so if you don't need the money to live on, it can continue growing and earning for you tax free. Also, a Roth IRA makes it easier in some cases to take early withdrawals without penalties compared to other retirement accounts.
For many people, the Roth IRA is a wonderful retirement investment account. Some employers offer Roth 401K plans.
There are, however, limitations on who may contribute and under what conditions. Individuals with higher incomes may not be able to use a Roth IRA. Check with your accountant or the IRS for current rules.
You need to plan early and do your homework thoroughly. Review your choices regularly since rules and types of accounts change over time. Don't wait until you are 60 to start planning for your retirement or you'll be sorry.
Posted by KeyWestPublishing at 12:43 PM | Comments (0)
