Will You Pay Tax on Your Retirement Accounts ?

There are several retirement accounts with tax implications. 401K accounts, Keogh accounts, Roth IRAs and standard IRAs are some of the most important and widely know retirement accounts.

What is an Individual Retirement Account (IRA)?

An Individual Retirement Account (IRA) is a retirement investment into which you put contributions on which you do not pay taxes until you withdraw the money from the account after you retire. Usually, your tax bracket will be lower after retirement and so you won't have to pay as high a percentage of the money in taxes as you would have if the money had been taxed at the time it was originally earned. When you put money into an IRA, you get a tax deduction. When you take a "distribution" from that IRA later, it counts as taxable income. There are penalties for early withdrawal up to age 59 1/2.

You are required to start taking money out of your IRA no later than at age 70 1/2.

You should check with your accountant or the IRS to see how much you can contribute in the current tax year. How much of this money is tax deductible depends on your Adjusted Gross Income (AGI) and whether you are covered under an employer retirement plan.

There are other variations of the standard IRA, such as the "Simple IRA," a relatively new but popular employer based plan allowing employer contributions and a higher contribution by the taxpayer.

What is a 401K Retirement Account?

A 401K plan is named after a section of the 1978 U.S. Tax code. It is a plan offered by employers which allows you to automatically save a portion of your income for retirement without paying taxes now on the money you are saving. As with the IRA, the idea behind it is you'll be in a lower tax bracket after retirement and therefore will have less tax to pay on the saved money than you would pay now at your higher salaried income rate. You only pay taxes on the money when you withdraw it from the 401K account after retirement.

Usually, the 401K money is automatically deducted from your paycheck by the company's payroll system in much the same way your taxes are withheld.

In its basic configuration, a 401K account is similar to a standard IRA, but in many employers' plans, there is a matching contribution from the employer which provides the real power to the plan. Beware. Many companies invest the 401K plan money heavily in their own company stock. If the company has an unusually bad financial problem, you might find this money in jeopardy as well as your job. The best 401K plans allow you to control the investment vehicles for your money.

Typically, at the time of retirement, a 401K plan is "rolled over" into a standard IRA, from which the retiree then makes withdrawals over time to provide retirement income.

What is a Keogh Retirement Account?

A Keogh retirement account is a tax deferred retirement plan for self employed people. If you are self employed, with a sole proprietorship or a partnership, then this is the plan you may want to consider setting up. Any type of qualified retirement account can be set up to cover self employed individuals. You should also look into 401K plans, and standard and Roth IRAs.

There are advantages and disadvantages to each. One advantage to the Keogh plan is that contributions are deducted from the gross income. Contribution limits are more liberal than those allowed with some other retirement accounts. As with other retirement accounts, tax is deferred until money is withdrawn, usually after retirement. In some cases, lump sum withdrawals may be eligible for 10 year averaging which can provide a tax benefit.

Another IRA type used for self employed sole proprietors is a SEP IRA which has less complex filing administrative paperwork and allows higher contributions.

What is a Roth IRA?

The Roth IRA came into existence in 1998 and is named after the late Senator William V. Roth, Jr. The chief advantage of a Roth IRA is obvious. Although there is no deferral of taxes on the money originally invested in a Roth IRA, as in other IRAs, all income earned by the investments in a Roth account is tax free when it is withdrawn. Another benefit is that you are not required to take distributions beginning at age 70 1/2 as with other accounts, so if you don't need the money to live on, it can continue growing and earning for you tax free. Also, a Roth IRA makes it easier in some cases to take early withdrawals without penalties compared to other retirement accounts.

For many people, the Roth IRA is a wonderful retirement investment account. Some employers offer Roth 401K plans.

There are, however, limitations on who may contribute and under what conditions. Individuals with higher incomes may not be able to use a Roth IRA. Check with your accountant or the IRS for current rules.

You need to plan early and do your homework thoroughly. Review your choices regularly since rules and types of accounts change over time. Don't wait until you are 60 to start planning for your retirement or you'll be sorry.



By : Ian Williamson
For more tax Marketing Articles by Ian Williamson please visit http://www.real-articles.com/Category/Tax/123

Sign Up For A Mobile Home Tax Deduction

Some of us are a bit unfortunate that we may be living in mobile homes. Nothing wrong with that. In fact the government recognizes their needs and gives them some relief too.

People who pay taxes to the local government for having parked their homes in that state also come under the purview. Thanks to IRS rules which define a home as a house, co-op, condominium, mobile home, trailer, or even a houseboat. The basic condition for any property to qualify as a home is that it should have sleeping, cooking, and toilet facilities. Since mobile homes meet all these conditions they can avail the tax deductions notified by the federal government.

Mortgage interest is the biggest tax deduction available to these guys. Joint tax holders, in fact, can deduct the entire interest amount up to a maximum of $1 million in mortgage liability paid on a first and possibly second house.

You don't have to calculate how much amount you deduct. All that you need to do is to wait for the lender to send Form 1098 at the end of the year. This form will tell you how much interest you have paid on the loan, and the points that are due to you. This becomes your deductible interest. It is much simpler than you think.

Home acquisition debt is where your second advantage lies. This debt is equal to the first or second mortgage used to buy, build, or improve your home.

The third is Home equity debt .Basically, this is any loan amount in excess of what was spent to purchase, build, or improve your home. Points paid during refinancing are also tax deductible.

Fourthly, you can deduct any property tax that you paid to a local or state government where you parked your mobile home. These are great tax benefits and every mobile home owner must avail them. What's the point in paying the local taxes and not making the best use of our elected bodies? They are our source of inspiration in saving some money. Aren't they?



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