The Bogleheads' Guide to Retirement Planning by Taylor Larimore, Richard A. Ferri, Mel Lindauer, Laura F. Dogu, John C. Bogle Page A
Tags: nonfiction, Non-Fiction, Business & Economics, Business, Business & Money, Investing, Personal Finance, Financial, Retirement, Retirement Planning
Ads: Link
Match Plan for Employees. It was designed as a less-expensive, less-hassle alternative to a typical 401(k) for a small business (less than 100 employees). However, a solo 401(k) is so easy to use that there is little reason to use a SIMPLE IRA if you have no employees (or just a spouse as an employee). Compared with a solo 401(k), a SIMPLE IRA has a lower contribution limit ($11,500 in 2009), a lower catch-up contribution limit ($2,500 in 2009), higher fees, more paperwork, no Roth option, no loan option, and no ability to roll over a traditional or SEP-IRA into it. Like a 401(k), a SEP-IRA, or a solo 401(k), you can eventually roll over the money into a traditional IRA. Although a case can still be made for a small business to use a SIMPLE IRA, there is no reason for a sole proprietor to do so.
More IRAs
There are a few additional types of IRAs that are really just variations of the types already discussed. You are likely to encounter one or more of these along the path to retirement bliss. You should also know how to change your IRA from one custodian to another and understand the contribution limits of each type of IRA.
Spousal IRAs
Being a stay-at-home spouse does not preclude you from having an IRA. Spousal traditional or Roth IRAs require only a marriage certificate and sufficient income to make both contributions. If you are over age 50, you get the catch-up contribution, too!
Rollover IRAs
Many investors have IRAs even though they have never actually made an IRA contribution or inherited an IRA. Whenever you leave a job, you will usually want to roll over your 401(k), 403(b), 457, or other employer-based defined contribution retirement plan to an IRA. Although you lose the ability to take a loan from the savings (which a wise investor doesn’t do anyway), you’ll enjoy more freedom to choose investments and, almost always, significantly lower investing costs, while preserving the tax benefits. In fact, you should usually contribute even to a poorly designed 401(k) so that it can eventually be rolled over into your IRA. SIMPLE IRAs, SEP-IRAs, and solo 401(k)s can also be rolled over into an IRA, if you so desire. Although the benefits aren’t necessarily as large, you can often save a few fees and simplify your finances by doing so.
To initiate an IRA rollover, you just need to contact the custodian (such as Vanguard or Fidelity) where you want to hold the IRA (or where you already hold your IRA) and fill out a couple of pages of paperwork. They’ll do the rest.
Stretch (and Other Inherited) IRAs
If I told you there were a way to make your heir a millionaire for only $2,000 today, would you be interested? What if I told you I could also arrange for your descendants to be billionaires in just a few generations at the same time? It involves a completely legal inherited Roth IRA tax scheme called a stretch Roth IRA. Imagine an 18-year-old man who starts a Roth IRA with $2,000 today. He gets married at age 53 to someone 20 years his junior. He dies at 73 and leaves her his Roth IRA, which she lumps into her own. She dies 40 years later at age 93, and leaves the Roth IRA to her great-grandchild, who is 2 years old at the time of her death. The child begins taking the required minimum distributions, which at that age is just over 1 percent of the balance, much less than the amount the Roth IRA is likely to be growing each year, even after inflation. Assuming the child lives a long, healthy life (let’s say age 95) and never withdraws more than the RMD, this IRA will have provided tax-free growth for 188 years, and he will still leave tax-free money for heirs. Assuming a 9 percent return, the original $2,000 would be worth $229,000 at the time of the man’s death. When his wife dies, 40 years later, it would be worth $7.2 million. And 93 years later, this same IRA would have provided millions of dollars in distributions to the great-grandchild, who can leave further millions to his heirs. If he is able to invest the
More IRAs
There are a few additional types of IRAs that are really just variations of the types already discussed. You are likely to encounter one or more of these along the path to retirement bliss. You should also know how to change your IRA from one custodian to another and understand the contribution limits of each type of IRA.
Spousal IRAs
Being a stay-at-home spouse does not preclude you from having an IRA. Spousal traditional or Roth IRAs require only a marriage certificate and sufficient income to make both contributions. If you are over age 50, you get the catch-up contribution, too!
Rollover IRAs
Many investors have IRAs even though they have never actually made an IRA contribution or inherited an IRA. Whenever you leave a job, you will usually want to roll over your 401(k), 403(b), 457, or other employer-based defined contribution retirement plan to an IRA. Although you lose the ability to take a loan from the savings (which a wise investor doesn’t do anyway), you’ll enjoy more freedom to choose investments and, almost always, significantly lower investing costs, while preserving the tax benefits. In fact, you should usually contribute even to a poorly designed 401(k) so that it can eventually be rolled over into your IRA. SIMPLE IRAs, SEP-IRAs, and solo 401(k)s can also be rolled over into an IRA, if you so desire. Although the benefits aren’t necessarily as large, you can often save a few fees and simplify your finances by doing so.
To initiate an IRA rollover, you just need to contact the custodian (such as Vanguard or Fidelity) where you want to hold the IRA (or where you already hold your IRA) and fill out a couple of pages of paperwork. They’ll do the rest.
Stretch (and Other Inherited) IRAs
If I told you there were a way to make your heir a millionaire for only $2,000 today, would you be interested? What if I told you I could also arrange for your descendants to be billionaires in just a few generations at the same time? It involves a completely legal inherited Roth IRA tax scheme called a stretch Roth IRA. Imagine an 18-year-old man who starts a Roth IRA with $2,000 today. He gets married at age 53 to someone 20 years his junior. He dies at 73 and leaves her his Roth IRA, which she lumps into her own. She dies 40 years later at age 93, and leaves the Roth IRA to her great-grandchild, who is 2 years old at the time of her death. The child begins taking the required minimum distributions, which at that age is just over 1 percent of the balance, much less than the amount the Roth IRA is likely to be growing each year, even after inflation. Assuming the child lives a long, healthy life (let’s say age 95) and never withdraws more than the RMD, this IRA will have provided tax-free growth for 188 years, and he will still leave tax-free money for heirs. Assuming a 9 percent return, the original $2,000 would be worth $229,000 at the time of the man’s death. When his wife dies, 40 years later, it would be worth $7.2 million. And 93 years later, this same IRA would have provided millions of dollars in distributions to the great-grandchild, who can leave further millions to his heirs. If he is able to invest the
Similar Books
