Mark Bole wrote:
- quote -

But be careful who you do business with if you do this. H&R Block got
busted for setting up IRAs that charged more in expenses than they would
earn in returns.

-Will

flagsposters[at]gmail.com wrote:
- quote -

This is actually a very complicated question!

Right now it sounds like you could do something very simple, like
contributing to a Traditional IRA or Roth IRA, up to the $4,000 annual
contribution limit. If you want to set aside $4k or less, you could just
leave it at that. Between the two: your income right now is pretty low
and if you expect it to steadily increase you might opt for the Roth
IRA. You don't get a tax deduction now for your contribution, but all
your future earnings are tax-free. If this business takes off you'll
eventually be very fond of the phrase "tax-free."

But you have many more, and potentially much better, alternatives
because you own a business. Rather than go into all of them (some really
only would make sense with a lot of $$ flowing through the business)
here's what you'd get with the SEP...

With a SEP-IRA, you can contribute, effectively, 20% of your
self-employment income to a specially-coded IRA, up to $44k in 2006
(special because it allows bigger contributions than that $4k with a
regular IRA). And alongside the SEP contribution, you could ALSO make a
Roth IRA contribution of up to the $4,000 maximum. Meaning, right now
you could probably set aside much more than you want to.

The down-side of a SEP, if you want to call it that, is that you need to
think about plans for employees, and whether they'd be included in
whatever retirement plan you set up for your business. If you make very
large contributions to your own SEP-IRA you'll eventually be on the hook
for making proportionally large contributions for your employees. You
can control this a bit, and that would be something to discuss with
whoever helps you set up the plan (BTW setting up a SEP is very easy
once you figure out these details - you basically sign a form, throw it
in a folder, then set up the IRA to receive contriutions. You have until
your tax-return filing deadline to set up and contribute to a SEP, which
is the latest deadline of any of these plans).

If you talk with Fidelity or Vanguard you'll find entire groups (and
sections of the company web sites) that address small-company plans.
These days you can open them at essentially no cost, if you do some of
the legwork yourself.

As for the idea that you're too young to start your retirement savings:
crazy talk. It is true that you have a limited tax benefit because your
income (and, therefore, income tax bracket) is low. But that's today and
it sounds like you're growing income 30% per year. Time to start
planning for your FUTURE tax bracket. And even if your tax bracket is
low, a Roth almost always makes sense...0% tax on investment income
beats anything north of that.

-Tad

PS I used to recommend an excellent www.nolo.com book called "Creating
your Own Retirement Plan" but they stopped updating it a couple years
ago. An old copy is still good for seeing the general options, but the
details on contribution limits are now out of date.

"Elizabeth Richardson" < wrote in message
- quote -

funds, is $1000.

BeachBum

- quote -

1) If you are taking ownership of campnay in about a year, do you know
how much of "owners income" is rolled back into the business?

1a) I think limits to Roth IRA are $4000 for the year, and will be
increasing to $5000 within 2 years... if what I read 4-5 years ago is
correct.

2) T Rowe Price has lower account minimums. I opened a TRP Roth IRA
with $50 deposits into 4 different mutual funds, then increased this
monthly deposit as my budget allowed (I currently contribute $500/month
for 8 months).

2a) The Vanguard funds you are looking at appear to be good funds. I
own Total Stock Market Index and International Value in my 401k.

(answered, but not directly asked):
3) the difference between most retirement type plans include:

a) are deposits to account taxed? SEP- NO/ ROTH-YES
b) are gains taxed each year? SEP and ROTH- NO
c) are withdraws taxed? SEP-YES, ROTH-NO*

*Roth withdraws are not taxed if you follow the rules (not difficult,
but passing on).

- quote -

You need to do some more reading at Vanguard. I believe you can open an IRA
account with less cash if you sign up for automatic deposits. I haven't read
this stuff for several years now, but I would be surprised if they had
changed it much.

Elizabeth Richardson

flagsposters[at]gmail.com wrote:
- quote -

I don't know anything about your company and the work it does. But
almost any business enterprise needs additional capital to grow, whether
it's for marketing, buying depreciable assets, etc.

- quote -

Where you open your IRA is strictly a matter of consumer choice, since
you can always move it or change your investment choices later. Some
financial institutions only want your business if you start with a
minimum balance, since they incur some fixed overheads to service your
account. Others might let you start small if you commit to automatic
monthly contributions from your checking account. If you expect an
income tax refund of $300 or more, at least one of the national tax prep
companies will be happy to divert your refund into an IRA at their
affiliated bank for 2006, prior to the Apr 16th, 2007 deadline. A bank
or brokerage you already do business with should be more flexible than
starting with a new one.

-Mark Bole

Mark Bole wrote:

- quote -

Mark,
I want to get something started in either a SEP-IRA or Roth IRA. I
don't want to keep waiting.

1.) If I did open a ROTH IRA and hit the limits during the year, is it
logical to invest the rest of my income into the company?

2.) I was looking over a ROTH IRA at Vanguard and it said something
about a $3000 minimum initial purchase. Does this mean I need to
immediately fund $3000 into the IRA in order to get it started? The
funds I was looking at were: Vanguard STAR, Total Stock Marked Index
and International Stock Index.

- quote -

Yes.

On the other hand, SEP money is taxed when ultimately withdrawn, but Roth
money isn't if you follow the rules.


[Disclaimer: I'm not a tax pro.]

flagsposters[at]gmail.com wrote:
- quote -

The point I was getting at, as well as another poster, is that
retirement savings through your company are generally a better option
than standalone IRAs. So much so, that once you become covered by a
company retirement plan (checkbox on your W2), your IRA contribution
options become much more limited -- the government's idea being not to
allow too much of a good thing.

Under a company plan, not only will your own salary deferral
contributions generally be much higher than the annual limits for IRA's,
but profit-sharing by the company can kick that much higher still.

I asked about number of employees since that can have an affect on what
types of plans you (the company) can implement, and what the rules are
for participation by all employees.

Back the your main point, namely how little advice or knowledge you are
finding "from the people around you" -- while retirement savings are
almost never a *bad* idea, you have so many potential major life events
yet ahead of you -- changes in your health, career, family status, and
so on -- that you should stay as flexible as possible. As one simple
example, if you are going to grow this company and take over ownership
in the next few years, perhaps your top goal should be to plow capital
back into the business, rather than locking it up for forty years in an IRA.

-Mark Bole

John A. Weeks III wrote:
- quote -

To answer some of your questions:

1.) Yes, all of the standard taxes are withheld from each paycheck
(SSI, etc) and I get a "commission" each month.

2.) I was planning to open a traditional IRA at Vanguard.

So, John, you're saying that the best way to do this right now is to
have the business owner establish a SEP-IRA that I can use? The
advantage of the SEP is a higher limit, as compared to a Roth IRA or
traditional IRA, correct?

Mark Bole wrote:
- quote -

Hi Mark,
My answers:

1.) Is your company going to have more than one employee the next year
or two?
I believe I will eventually need to hire an additional full time
employee in the next year. Currently I am the only employee.

2.) 401k? My business does not have one. That's why I'm seeking advice
on what type of IRA to invest in.

By the way, I''m single, have no debt (just paid it off last month),
transfered all my excess funds to a high yielding money market fund and
now need advice on the next step which is an IRA

Hoping to do this right....i'm shocked at how many people around me
don't know anything about this. Yes, I'll seek professional help
soon...just want to go in with some basic knowledge.

Thanks!

flagsposters[at]gmail.com wrote:
- quote -

Perhaps the CPA knows more about the rest of your financial situation.
Do you have consumer or student debt? Home ownership? Marriage and
dependents?

Is your company going to have more than one employee the next year or two?

If you were an ordinary wage earner, I'd say just contribute as much as
you can to your 401k, without carrying any non-mortgage debt. So, try
whatever is comparable in your case. If you were a sole proprietor with
no employees, you could open an individual 401k, but not sure what rules
apply to your corporation.

If your company can't or won't do a retirement plan, then go for the
Roth IRA, because you have so many years before retirement to get
tax-free earnings from aggressive investments.

-Mark Bole

In article <1156616482.152937.300730[at]h48g2000cwc.googlegroups.com> ,
flagsposters[at]gmail.com wrote:

- quote -

Are all the standard taxes withheld from each paycheck? That
includes federal withholding, state withholding, SSI, and FICA?
If so, then you are traditional employee. Your options are a
ROTH IRA and Traditional IRA. Since you are in a very low tax
bracket, you will get little tax break from a traditional, so
consider going with the Roth.

In addition, you should talk to the business owner about setting
up a retirement program for the business. The owner can establish,
for example, a SEP IRA, and employees can contribute pre-tax.
The contribution limits are far higher than the Roth or Traditional
IRA, so it is a far better deal. Do find a company to manage your
program that has extremely low fees. There are other programs
out there, all having their own pluses and minuses, so, again,
get some professional help.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

John A. Weeks III wrote:
- quote -

Hello guys, thanks for your feedback. Yes, let me clarify: I am an
employee (associate officer), not the owner...yet. I was under this
mindset that was "self-employed" and therefore that caused me all of
this confusion. Under the current situation, I appear to be an employee
that gets salary based on commission since income varies per month.

In article <1156604273.837057.147180[at]b28g2000cwb.googlegroups.com> ,
flagsposters[at]gmail.com wrote:
- quote -

You are going to have to have a session or two with your
attorney first. You are confused about your ownership
arrangement, first stating that you are self-employed,
later that you are an employee, and later that ownership
is being transferred. Those are all different classes of
business, and each has their own retirement options. You
also might be creating a huge taxable event depending on
how you transfer ownership, so get professional help up front
rather than paying them to later tell you that you have a mess.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

flagsposters[at]gmail.com wrote:
- quote -


I can't answer your question directly, but I think that you need to
clarify something first....

You asya that you've been self-employed for two years, then later you
say that your the only employee of your Dad's business. Which is it?
You can't be both at the same time. I think that will help determine
the answer to your question.

Oh -- and I would reommend getting a new CPA. It's NEVER too early to
invest in your retirement. Earnings over time is your biggest ally.
The earlier you start, the better.


======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding. "Trim" means that except for a FEW lines to add context, the previous post is deleted.

Hi everyone,
I am 25 years old and have been self-employed for over 2 years now
(first year part time, second year full time) and 2006 is the start of
my third year in business. I am the only employee in this business and
my dad is the owner. My dad plans to transfer over ownership to me in
about a year...and the reason why he did it this way was because I had
no business credit, etc when starting off.

I want to start investing into an IRA and was getting a ton of
different opinions on how to start. I even had one CPA tell me that I
was "too young" to start investing. I know this is not correct....but
what could possible be a reason for saying that? Isn't it the earlier,
the better?

During my first year, I made 14,000 after taxes, but during the second
year i made 30,000 and so far this year I'm slated for about 40k or so.
I am not sure if that info is needed, but figured I'd lay it out there
in case.

My question: What IRA is best for me? SEP-IRA? Roth IRA?

I am currently reading Personal Financing for Dummies....don't laugh.
Help!