Rich Carreiro wrote:
- quote -

Seems to be. Thanks for the tip.
http://www.accountingweb.com/cgi-bin/item.cgi?id=102546

According to the Joint Committee On Taxation's paper "Technical
Explanation of HR 4, 'The Pension Protection Act of 2006'", the Act
directs the Secretary of the Treasury to "modify the annual return
filing requirements ... [so that] if the total value of the plan assets
... at the end of the plan year does not exceed $250K, the plan
administrator is not required to file a return."
http://www.house.gov/jct/x-38-06.pdf (p. 254, pdf p. 264)

- quote -

I agree it shouldn't be too difficult, but it's a lot worse than opening
a SEP-IRA, and many sole proprietors loathe doing any paperwork (that's
just not why they are in business). Agreed that the EZ *is* a whole lot
simpler than the full 5500.

- quote -

Not that I know of, but the plan still exists unless you formally shut
it down (terminate it). Beyond that, I may have overstated the
consequences, and I'm still checking. (Having converted the 401(k) plan
at my last company from one provider to another, I tend to have an
automatic negative reaction to anything that says "terminate a 401(k)
:-)

--
Mark Freeland
BnetOnewsX[at]sbcglobal.net

Mark Freeland <BnetOnewsX[at]sbcglobal.net> writes:

- quote -

(1) I have heard rumors that the Pension Protection Act increased
the filing threshold to $250K. Is that true?
(2) A solo 401(k) can file a 5500-EZ, which doesn't appear to
be a particularly annoying form, plus many solo 401(k)
custodians will give you all the info/docs/numbers you
need to fill out the form.

- quote -

Can you explain more what you mean by "you can't simply
leave it sitting"? Certainly the deferral contribution
can be $0 (since it is elective). Is there a mandatory
"employer" contribution?

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

Mark Bole <makbo[at]pacbell.net> writes:

- quote -

They have the same MAXIMUM limit, yes. But if you're not
making enough to hit the maximum, the solo 401(k) is a win.

Example: if you are a sole proprietor and your
net earnings (after SE tax) are $80,000:
* A SEP-IRA would let you put away 20% x $80,000 = $16,000
* A solo 401(k) would let you put away $15,000 + 20% x $80,000 = $31,000

[The 20% is not a typo -- because for sole proprietors the figure
that you take 25% of is computed after the 25% contribution. When
you solve the recursion formula, it comes out to 20%. See IRS Pub 560.]

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

Rich Carreiro wrote:
- quote -


Also, "both" is an option. You can contribute to a Roth IRA and a
SEP-IRA or 401k in the same year, as long as you meet the income
requirements for contributing to a Roth, after adjusting for your
deferrals to the other plan.

My general rule is to get as much money into Roth IRAs as possible,
because they're one of the very few tax-free ways of accumulating
wealth. And you might not qualify to contribute, before long. You're
pulling in $78k at age 26, plus whatever those investments
generate...what will that be by 32? Right now single people can't
contribute to a Roth once your income is over $110k.

Look at it this way...shifting dollars from a taxable investment account
into a Roth IRA -- in effect, merely changing the pocket you're keeping
the cash in -- will make permanently tax-free a portion of the earnings
on your $45k in investments.

So you might even think of these separately. Look at your
self-employment income and required cash needs, and figure how much you
can save towards your "employer" retirement plan, either a SEP or
solo-401k ($15k would be great if you can swing it). And put your annual
$4k into a Roth, just to shelter your investment income from taxes. Yes
they're both retirement savings, technically, but you have some
alternatives for tapping into those Roth dollars before the usual age 59
1/2 so it's not like they're locked away for good (not that you should,
but it's nice to know the option is there).

And generally...the savings choices you make at age 26 matter a lot more
than those you make at 46. Now's the time to live low and sock it away,
you could have enough saved by age 35 that "you'll have some
alternatives." $4k, given your income and available assets, would be spit.

-Tad

joetaxpayer wrote:
- quote -

If the goal is to maximize permitted contributions (and I'm not sure
that it is, because the maximum permitted by law may be more than
OnMyOwn can afford to contribute), then use an individual (solo)
401(k). This allows the same contributions by the "company" (the, um,
contractorship) as a SEP ($15.6K), and allows an additional $15K in
"employee" contributions.

There are various downsides to an individual 401(k) - additional filings
once the total value exceeds $100K, you can't simply leave it sitting
and open a SEP next year (but you can do the reverse - open a SEP one
year, leave it sitting and open a solo 401(k) the next year), etc. But
it is the way to maximize permitted contributions.

The employee contributions (up to $15K) can be made into a Roth 401(k),
meaning that the original question - Roth or deductible - still remains
unanswered. My short answer is: if your goal is to maximize
contributions, then a Roth vehicle lets you contribute more (because you
are contributing more valuable post-tax dollars), but if you are not
going to max out, then there is no difference, assuming that tax rates
now and in retirement are the same. Given the current sizeable budget
deficit, and the fact that tax rates now are historically low, I expect
taxes in the future to be higher, long term, on average. That would
suggest prepaying taxes (Roth) is a good idea. But who knows for sure?

Finally, someone else mentioned a SIMPLE. The deadline for opening one
this year is already past.
http://www.irs.gov/retirement/articl...1420,00.html#5

http://personal.fidelity.com/product...ans.shtml.cvsr
(comparison of different self-employed plans)

http://www.troweprice.com/common/ind...your_Individua
(T. Rowe Price offers individual Roth 401(k) plans)



--
Mark Freeland
BnetOnewsX[at]sbcglobal.net

"OnMyOwn" <OnMyOwn.com[at]giganews.com> wrote in message
news:Z-KdnczsuIJQ793YnZ2dnUVZ_rydnZ2d[at]comcast.com...
- quote -

Nifty comparison chart for you:
http://www.dol.gov/elaws/pwba/plans/final.asp

You have more choices than just an IRA.

OnMyOwn wrote:
- quote -

earn.

suggestion 1: keep 6 months expenses in cash account. Figure out what
you spend each month (food, rent, utilities, debt payments) and
multiply by 6. Keep this money in the CDs (have 6 CDs, one maturing
every 6 months for example) or in the savings account. The idea is if
you stop working, for a short period, you will not go broke.

suggestion 2, fund a retirement account. I would suggest making sure
at least 10% ($7800) get set aside for retirement each year. SEP or
Roth would be the two account types I would consider. Reasons:
SEP allows you to contribute more and gives you an immediate tax break
(I assume this works like 401k and if you contributed 7800, you would
get taxed on 78000-7800=70200 each year). You would have to pay taxes
on withdraws in retirement.
Roth allows a max contribution of 4k per year (increases to 5k in
2008). The 4k is in "after taxes". Meaning you will pay tax the year
you earn the money. Qualified Roth withdraws are tax free.

step 3- keep up the good work of saving and spending less than you
earn.

If you expect to make more money in retirement than you do while
working, a Roth makes a lot of sense (pay taxes when tax rates are
lowest). However betting on future tax rates is a "risk". Using the
SEP gives you a current tax break the year you earn the money. less
risk in that regard.

If you used a "solo 401k", I would expect you could contribute to both
the Roth and solo 401k (I contribute to a 401k and Roth each year, I
expect rules would be similar for your situation). I am not sure if a
person can contribute to both a Roth IRA and SEP IRA in the same year.

Rich Carreiro wrote:

- quote -


If I read IRS Pub 560 correctly, the $15K elective salary deferrals in
an individual 401k comes out of the same total limit $44K (for 2006)
that applies to SEP.

The worksheet provided in the pub, along with variants I have seen from
investment firms, makes this all clear as mud. It's my impression
(which I would like to have proven wrong) that it is very easy to
miscalculate and end up contributing and deducting more than you are
actually allowed to with an individual 401k.


-Mark Bole

"John A. Weeks III" <john[at]johnweeks.com> writes:

- quote -

Or even better, a solo 401(k), which will let him contribute
potentially $15K beyond what he can contribute to a SEP.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

OnMyOwn wrote:
- quote -

Yes here's my question;
Are you aware of the SEP IRA?

As an independent contractor I believe you are eligible for the SEP IRA.
Regular IRA limit for you is $4k, SEP IRA limit is 25% of compensation
up to $44,000 total deposit. (for you it's 20% of $78K or $15.6, the
math work out this way). If your goal is to save more than the $4k, this
is the way to go.

JOE

"OnMyOwn" <OnMyOwn.com[at]giganews.com> writes:

- quote -

Go ahead and fund the Roth. With the money in your taxable investment
account, you're paying both regular income tax on your starting
investment, and tax on dividends and capital gains every year. With a
traditional 401(k), you get a tax break now, but when you withdraw,
you have to pay the regular income tax rate on *both* the original
money and accumulated dividends and capital gains (and at your age,
the compounding effect will mean that's a lot of money by the time you
reach retirement). With a Roth, you pay regular income taxes now on
your starting investment -- and never pay taxes on dividends or
capital gains. In addition, since your contribution is in post-tax
dollars, you can effectively invest more to begin with than in a
traditional IRA.

The only possible reason I can see for funding a traditional IRA
instead is if you are planning to go back to school or otherwise stop
working for a year or more in the near future. In that case, you can
contribute to the traditional IRA now, and do a Roth conversion later,
in order to defer paying the taxes until a year when you're in a lower
tax bracket. If you do that, be sure you set aside enough other
savings so that you don't have to dip into the IRA money itself to pay
the taxes that will be due on conversion.

-Sandra

In article <Z-KdnczsuIJQ793YnZ2dnUVZ_rydnZ2d[at]comcast.com> ,
"OnMyOwn" <OnMyOwn.com[at]giganews.com> wrote:

- quote -

Neither. Talk with an accountant ASAP. You likely can do a Simple
or a SEP, and put away far more than what an IRA or Roth will let
you put away. And you get a fantastic tax break in the process.
There are other such plans out there--get professional advice on
what is best for you.

- quote -

Bad, bad, bad plan (the plan of not having any current retirement
savings). The tax break for small business people to save for
retirement is one of the single largest tax breaks available.
Missing out on that is a huge mistake. If you have missed out on
this in previous years, you need to fire your accountant. If you
are your own accountant, that goes double--fire yourself. Any kind
of accountant here will save you far more than what he or she will
cost.

-john-

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

Hello Folks,

I have a question regarding weather or not I should go with a Roth IRA or a
Traditional IRA

My Stats:
I'm 26yrs old(26 in november).
I am an independent Contractor
currently I make roughly $78,000 before taxes
$11,000 In cash savings account Amtrustdirect.com currently [at] 5.3%APY
$10,000 in a CD ladder 4, 6 month CDs
Roughly $45,000 in Taxable investment accounts (stocks and mutual funds)

I realized I have no retirement savings to speak of. I want to start saving
in an IRA but I have no idea weather to go with a Roth or Traditional. I
expect my income to increase about 5% a year for the foreseeable future. So
my thinking is a Roth would be a mistake, but I'm not sure. Please folks any
help you can offer would be truly appreciated.

If you need more info please ask!

Thanks