SEP IRA

Archive for June, 2006

Question: Save income in SEP IRA instead of sending full estimated taxes?

I am self-employed and have a question regarding estimated taxes. This year, my estimated quarterly tax payments are supposed to be:

Federal: $9730
State: $1730 (California)

Total: $45,840 just my part

I filed jointly in 2007 with my wife (who is employee at a large company) and our total taxable income was $166,471.00. I made around 100k and she made around 97k

Fed Marginal Tax Rate: 28%
State Marginal Tax Rate: 9.3%

My question is this. I want to save some of this money in a SEP IRA instead of just sending it to estimated taxes. How can I figure out how much (roughly) to send to the IRS quarterly and how much to put away in the SEP IRA? Will I be penalized for not sending the full amount quarterly?

Thanks

Answer: your accountant can do some tax planning for you. with such an income i would suggest to use the help of professionals (CPAs). they can save a lot of money even though they charge a lot i would consider that money wisely spent.

Question: In very simple terms…wht is the difference between IRA and ROTH IRAs?

I am leaving my job and intend to roll over my 401k into an IRA w/ fidelity. I was wondering which was a better deal. I make less than 50,000 a year and heard that a ROTH IRA was agood deal. Can someone tell me the difference plu the pros and cons of each one. Unfortunately im not very financially savvy so i will need someone to break it down in simple terms.

Answer: In very very simple terms, ROTH IRA is the best way to go! …. or you can read on.

Traditional IRA: Your contributions can be tax deductible. If you withdraw any money from it after age 59 1/2, you will pay income tax on it (except on the contributions you didn’t make tax deductible). Any non qualifying withdrawals before age 59 1/2, add 10% tax on top of your income tax. You must take the minimum withdrawal requirement at age 70 1/2 or there will be a 50% tax on it.

Roth IRA: Your contributions are not tax deductible. When you withdraw money from it after age 59 1/2, you do not pay any taxes on it. Any non qualifying withdrawals before age 59 1/2, add 10% tax on top of your income tax. You can hold the account for life and pass it to your heirs or beneficiary.

You can avoid the 10% early withdrawal tax if it used for:
1) Purchase of a first home (up to $10,000 can be withdrawn)
2) Higher education expenses
3) You are permanently disabled
4) You are terminally ill
5) You are unemployed and need to pay for medical insurance.