SEP IRA

Posts Tagged ‘simple’

Question: What is the difference between a TSP and a SIMPLE IRA? They have different Contribution limits?

I am talking about the Thrift Savings plan that federal employees have access to. Does anyone have a good comparison?
I have a good understanding of SIMPLE and ROTH IRAs, so if you could relate to that, I would be grateful.

Answer: I’m not a financial advisor but I’ll give this my best shot.

My understanding of the Thrift Savings Plan (TSP) is that it is an employers sponsored plan similar to a 401K in the private sector. So one of the main differences is that an Independent Retirement Account (IRA) is, as the name implies, independent, ie. not sponsored by an employer and therefore is set up by the individual employee. I believe the Federal Government may offer some type of “matching” funds, ie. if the employee puts money into the TSP the government will match it up to a certain level. If this is the case it is WAY better to invest in that than in an IRA for which you would receive no matching money from the government. I do not know if the TSP puts in before or after tax dollars. If you work for the Federal Government you can ask your personnel office for help. If you search for it online you should probably find many details.

Finance & Investment Tips : What Is a IRA Account?

Question: Regular 401k, Regular IRA, and my wife’s Roth IRA plus our Investment?

I’m using simple terminology to help others who may benefit from my questions.

Facts: our planned retirement age 62, won’t live in USA, we will have 5 sources of income: my 401k + IRA + military pension, her IRA , & our investments.

Unknowns: Social Security for us, & my employer’s pension; not planning on them.

1. I have a regular 401k. Would like to know what mandatory US government deductions (e.g., taxes) will I owe on each withdrawal? A simple line-item answer is fine.

2. Same question for my traditional IRA, & for my wife’s Roth IRA.

3. Our investments are made with after-tax dollars. Since I already paid taxes on that money before investing it, when I reach 62, will I have to pay taxes on my withdrawals? If so, would that be double-taxation: the money was taxed before I invested it & then the gov’t will tax it again upon withdrawal? Remember: I also paid tax on the dividends and capital gains thru the years.

4. Do RMDs apply to IRAs & 401Ks?

Answer: regular 401ks and traditional 401ks get added together and taxed as ordinary income. If you take lump sum distributions then they may withhold 30% becasue you won’t be residing in USA (that’s a MAY).

Roth IRA is different. Assuming it’s in for the right amount of time it’s a non-taxable event.

After tax dollars that have had dividends and capital gains already paid on would not be taxed at all. Treat that no differently than you are currently doing so.

RMD’s apply to 401ks and traditional IRA’s but not to ROTH IRA’s. ROTH IRA’s also have better estate planning options than the 401k and traditional IRA.

Retirement Plans & Investments : How to Open a SIMPLE IRA

Question: Can we buy a 180-200,000 dollar home?

Combined income yearly is 55,000. His credit score is around 750 and mine is 700. Our monthly bills are 1 car payment of 250.00 and 1 credit card with a 500.00 balance…. That’s all! No student loans or anything… I also have a SIMPLE IRA that I contribute 100 dollars to a month (if that helps any). We have 19,700.00 in savings (willing to spend for down payment). Now, the problems are….He has only been at his job for year and 2 months…and I have only been at my job for 9 months. Our jobs are good, I have a retirement plan thru them, already received 2 raises since I started and I have health benefits…the last problem…I’m 21 and he is only 23 and I have a feeling that no bank will loan us money for being so young… We have been dating for 5+ years and want to move out together…but DO NOT want to pay rent…rather own…and with houses being as cheap as they are and interest rates being low AND maybe with the help of a FHA loan….Tell me what you think Thanks!

Answer: You can afford it, yes. But you don’t have a lot in savings in case something would happen. You have a great start with your age and credit scores but be very careful. Unexpected things do happen so you need a back up plan.

One thing people overlook is the line of credit. Open this immediately on your house and then don’t touch it. Then if one of you gets sick or something else happens, you can use that credit to pay your mortgage until you are back on your feet again.

Start saving as much as you can right away. Look at your budget and decide what you can cut in all areas. For instance, if you eat out 8 times a month, cut it in half. Take that money and put it into savings. But look at every aspect and save as much as possible. If you get into this habit now, you will be so glad you did.

Every time you get extra money, from taxes, raises, gifts, etc, use a portion to pay off any debt that have interest on them such as credit cards, then put the rest in savings. Put aside just a small portion to use for something you want or for a vacation.

When you need to make a purchase, first see if you can save for it before buying. Like a new car or a trip. Use discretionary funds for emergency purchases. Like if the frig broke. Discretionary funds should be part of your budget. Money set aside for emergencies like that. Don’t dip into your savings.

Once you have accumulated a nice savings (and you have a great start) then talk to a financial planner about investing. Go with someone who has a lot of experience and will do both low risk and high risk investments. The most money should be in low risk but there should be a mixture.

I think you have a wonderful start to a great financial future with security. Many at your age are just thinking of things they can buy. Short term goals. Kudos to you both!!!

I have to also mention that you must consider what would happen if you broke up. Or are you planning to get married? Lenders will have some difficulty with your age and being non-married. Unfortunately, many couples of that age don’t stay together. They will not take into consideration how long you have been together, only that you aren’t married. And you must protect yourself as well.

Will you be prepared to buy him out if something happens? I don’t want to put a damper on your plans but these are the things that cause financial problems and can wreck your credit for a long time so just make sure you look at everything involved.

Hard Rocket – Shut Up (Simple Plan Cover) – Abertura do Ira!