Single Point of View

Single Point of View is our way to occasionally share planning ideas relating to personal finance. Our goal is to pass along concepts that you may not be exposed to on a daily basis.

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DEADLINE: Switching from a SIMPLE IRA plan to a 401k

So here are the numbers for 2015: If a company currently has a SIMPLE IRA plan, the employee can defer up to $12,500/yr., plus an additional $3,000 if they are over age 50. The employer can choose to make a 2% non-elective contribution (more about this at the IRS website ) or match employee contributions, up to 3% of compensationSIMPLE IRA Summary: The absolute maximum combined employer and employee contribution is $31,000   In a variation of a 401k plan, you can defer up to $18,000,  plus an additional $6,000 if you are over age 50. Employers can contribute additional funds, such as matching contributions and profit sharing.401k Summary: The absolute maximum combined employer and employee contribution is $59,000   This can all be fully tax deductible if you wish.   For those that have a SIMPLE IRA plan in place now, and want to switch to a 401k, here are items to consider: ...
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IRS Guidance on after tax 401k contributions and Roth conversions

The last quarter (or so), we tend to be very focused on tax planning. (Not to be confused with tax accounting in the first quarter or so). With that, it is very timely that last week the IRS issued guidance (Notice 2014-54) on rolling out after tax contributions from a 401k plan. KEY POINT In its guidance, the IRS stated that a retirement plan participant has the ability to convert their "after tax" account into a Roth IRA tax free. Here is a link to the referenced notice:http://www.irs.gov/pub/irs-drop/n-14-54.pdf  Background: 401k-Employee Contribution Types To understand the significance of this, we must first understand the types of employee contributions that may go into a plan. For more information on contribution types, see the IRS link below.Pretaxhttp://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-ContributionsAs a plan participant, you have the option of contributing to your plan on a pretax basis. This will allow you to take a deduction on your personal taxes.AftertaxYou may...
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NerdWallet: Maximizing Contributions

imageI am 32 and max out my retirement savings every year through 401k and IRA. I also save an equivalent amount that I put into savings/investment accounts. How should I think about trading off between maximizing my contributions to retirement accounts versus putting less in my retirement accounts so I have more liquid assets to put towards a downpayment? The bottom line is my net worth is now divided equally between liquid and illiquid (retirement) accounts. I would like to buy property, and I need more cash for a downpayment on my dream home.   2 people found this answer helpful Shaun Erickson CFP® Boston, MA It's all about priorities.  If the dream home is a priority for you, you will need to calculate out how long it will take you to get there under your current savings plan vs. how long it will take you if you diverted funds from retirement savings.  The...
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NerdWallet: 401(k)

imageWhat happens to your 401k if you quit your job/move to another company?   Shaun Erickson CFP® Boston, MA When you leave, you will typically be given information on your options for your 401k plan.  Generally, you have a few options: 1) Leave it in the plan (not all companies allow this option) 2) Cash out (pay tax and potential penalty if under certain age) 3) Roll over to an IRA or your new company retirement plan (if it allows rollover contributions) You will need to check your specific plan rules to determine how things like company profit sharing contributions are handled (it is possible there is a vesting schedule on these which means you could forfeit that value if you leave prior to vesting).  You can get a lot of info on your plan's specific rules in the Summary Plan Description which your employer should provide to you.
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NerdWallet: Traditional IRA

imageIf I'm around the limit for a Roth IRA (110k single I believe), should I open a traditional IRA as well? I'm starting to max my 401k and want to open an IRA as well and start maxing it. 1 person found this answer helpful Shaun Erickson CFP® Boston, MA You should discuss the benefits of this with your tax advisor.  If you are contributing to a 401k plan, you are probably not eligible to deduct any contributions to an IRA account. Some people who are over the Roth contribution income limits will make a non-deductible IRA contribution, then immediately convert it to a Roth IRA (sometimes referred to as a "backdoor" Roth IRA Conversion.  You should research all of the pros and cons of this technique prior to implementing, especially if you have other traditional IRA accounts which could make a portion of this conversion taxable to you.
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