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What are your dreams? What is your focus? You can not travel where you can not ?see? the road.

Do you long for a beach condo? The chance to travel? A private cabin in the mountains?

Please allow yourself to keep dreaming and keep building – building your life around dreams you can see clearly and almost taste.

IRA building blocks can help fund your retirement dreams.

The Roth IRA: With this block you will pay taxes now and never pay again.

You contribute up to $5,000, or 100% of your earned income (whichever is less) annually, after taxes, and your investment earnings accumulate tax-free.*

Then you can:

One of the great mysteries of personal finance is: How are social security retirement benefits calculated? The computation itself is something of a mystery. It’s so complex that I’m not sure who could have dreamed it up. I am sure that most in Congress don’t understand it. In this article we’ll take an abbreviated look at what goes into the computation.

We will be concentrating on the method of computing retirement benefits in place since 1979. Before then a different, but equally bizarre, method was used. The changes were instituted in 1979 to help keep benefits more or less inflation-proof. The computation begins by determining a worker’s Average Indexed Monthly Earnings (AIME). The AIME is based on the worker’s social security wages or earnings from self-employment after 1950, but only up to the social security maximum for each year.

The worker’s earnings are then “indexed” by adjusting them for the average national wage increases. The purpose of the indexing is to state the wages in terms of the level of wages in the second year prior to social security eligibility. Generally you are eligible for social security at age 62, so we index to the year in which you turn 60.

Now that you have “adjusted” the earnings, you must next determine the average. Begin this process by determining the number of years after 1950 (or turning 21 if later) and before when you turn 62. Got that number? Great, now subtract five. (Why five? Beats me.) Social security calls this figure the “number of computation base years.” Now, go back to your indexed annual earnings and select the highest earning years until you have enough to equal the “number of computation base years.” For example, you began work at 22 and worked to 62. Read more…

When people plan and invest for retirement, the decision of when to begin taking Social Security benefits eventually comes up. Social Security is an important source of retirement income for many individuals and, therefore, the decision of when to take these benefits can make a big impact on retirement income.

A retired worker who is fully insured can elect to start receiving benefits at any time between age 62 and 65 (or even later). Benefits can start as early as 62, but if you so elect they are permanently reduced by 20%. Here is where the question arises. Is it better to start taking checks at a reduced amount or wait until Normal Retirement Age and receive full benefits? Before addressing the inherent problems with this empirical question, let’s look at some of the factors and considerations.

The early bird who decides to get the worm first gets three years’ worth of checks -36 payments- that the sleeping bird will never see. Thus, it will take some time for the total benefits of the person who waits until age 65 to catch up to those of the early collector. Further, for those born after 1937, Normal Retirement Age is being extended. Normal Retirement Age is currently age 65, yet due to the Social Security amendments, full benefit age will be raised gradually in two stages until eventually reaching 67 in 2027. Thus, the early bird will receive even more checks than the retiree who bides his time for full benefits.

If the early bird also did not need the benefit income and chose to invest instead of spending the checks, the investment income would partially offset the reduced yearly benefit as well as extend the catch-up period for the age 65 collector. Sounds like most people would opt to be an early bird.

There are other factors to consider (as always). Working an extra three years will probably increase the patient retiree’s benefits. This is so because more earnings will be credited toward the Social Security account. Chances are that old low-earning years will be replaced in the benefit equation with a current high credit year. These higher benefits will then shrink the catch-up period.

Delaying retirement benefits beyond 65 until age 70 will also increase the size of the benefit due to a credit provided Read more…

Extensive paperwork, high costs and complicated administration associated with certain qualified retirement plans may cause many small businesses to shy away from establishing any retirement plan at all. This may be true of your small business, even though you recognize the many tax and employee retention benefits of providing a plan. Whether you are a doctor, lawyer, free-lance writer, artist, manufacturer?s representative or another type of self-employed business owner, the Simplified Employee Pension Plan, or SEP-IRA plan, may be a good fit for your small business.

Although a SEP IRA account is technically an Individual Retirement Arrangement (IRA), the SEP plan functions more like a cross between an IRA and a profit sharing plan. As with a profit sharing plan, your small business may make a tax deductible contribution to each employee?s SEP IRA account up to the lesser of 25 percent of compensation or $44,000 (2006). The business owner has the flexibility to choose any level of contribution (within the above limits). The business owner has the discretion to set the contribution amount as low as zero. This can come in handy in years when business cash flow is a little less than desirable. But, it is the difference from, not the similarity to, a profit sharing plan that really makes the SEP too good to overlook: the SEP is simple.

The simplicity of the SEP significantly distinguishes it from the traditional profit sharing plan. A SEP is easy to establish and maintain, which makes it less expensive than a profit sharing plan. The SEP may be established by any corporation (?S? or ?C?), partnership, non-profit organization or sole proprietor. There is no complicated adoption agreement to purchase, complete or file with the Internal Revenue Service (?IRS?). A simple one page form is all that is required to establish a basic SEP and this form may be obtained at no cost.

Other aspects of the SEP illustrate its simplicity as well, including vesting and the allocation of contributions. SEP contributions are always 100% vested in the employees so there is no vesting schedule to keep track of. Additionally, each employee generally receives the same percentage Read more…

If you son or daughter had a summer or after-school job this year you should seriously consider opening up a ROTH IRA account.

To be eligible for an IRA your child must have “earned income”, such as wages that are reported on a W-2 or “net earnings from self-employment”. Money you give your child for doing chores around the house won’t count as earned income, but earnings from babysitting or mowing lawns may qualify.

You can contribute 100% of your child’s earnings to the account, up to a maximum of $4,000.00 for 2005. If your son earned $2,400.00 for the year you can contribute $2,400.00 to a ROTH for him. If he earns $4,500.00 you can contribute $4,000.00. You have until April 17, 2006 to open the account and make your contribution for 2005.

If you are self employed you can hire your child to work in your business and pay him, or her, a salary. A sole-proprietor who pays a salary to his or her child who is under age 18 does not have to pay the federal, and probably state, government any payroll tax on the wages. Of course the child must be paid a reasonable salary for doing actual work. You can put the wages, up to the $4,000.00 maximum, into a ROTH IRA.

Your child will not get a current tax deduction for contributions to a ROTH IRA, but then most teen-agers don’t need the deduction. A dependent child can earn $5,000.00, including up to $250.00 in interest, dividends and capital gains, before having to pay any federal income tax.

Distributions from a ROTH, after age 59 1/2, will be exempt from federal and state income tax, assuming, of course, Congress does not change the rules in the future. Even if Congress was to revise the ROTH rules down the road it is very unlikely that any changes would be retroactive, so earnings on a ROTH up to the point of change should remain tax-free.

You can use a ROTH IRA as an incentive to encourage your children to work or to save. If your son earns $4,000.00 in a part-time job put $4,000.00 into a ROTH IRA for him. Or, if your daughter agrees to put $1,000.00 of her salary in a ROTH give her a 3-for-1 match and put in another $3,000.00.

There is nothing in the tax code that says that the money deposited in an IRA for your son or daughter has to come from the child’s funds.

The $4,000.00 maximum applies for tax Read more…

You may recall that following the 9/11 attacks, the stock market closed for several days. It re-opened on 9/17 with the Dow down 7%.

That was it for one couple I know, Mary and Frank. The attack on the country, coupled with the attack on their personal finances, was too much. They were worried terrorism would sink our economy and stock market like the Titanic, so they sold all their market investments.

Was it the right move?

Nope. In less than two months, the situation changed drastically: Within 53 days, the market recovered all it had lost. And by the end of the year, the market was 12% higher than it had been when Mary and Frank had bailed out. Now their greatest problem was not having a strategy to get back in. In their uncertainty and confusion, they became paralyzed by fear of making the wrong move again.

You?re well aware that September 2001 was not the first time the U.S. weathered catastrophe that directly impacted investors. Among other events, we?ve been through a depression, World War II, the Cuban missile crisis and an assassinated president.

Yet the stock market has continued to thrive.

Despite market resilience, a lot of people lost a lot of money. It might be tempting to think that if investors had been more informed about what was happening geopolitically, they could have headed off personal financial devastation. But that?s a sucker punch. Now that we can be acutely aware of every twist and turn in the world, does it make sense to invest based on international political and military posturing? Not if you want to make money.

Here?s another example. Shell-shocked, Janice met with her financial advisor in March of 2003. She?d seen the market tank through the horrific bear market from 2000 through 2002. She?d read sordid tales of corporate theft that cost investors billions and, in many cases, their retirement. She was worried by accounting scandals. And, of course, there was this problem in Iraq.

Janice was convinced that any one of these events could mean disaster for her investments. In her mind, all of these things happening at the same time meant certain financial catastrophe. Demoralized, Janice sold all her holdings. And from an emotional standpoint, you couldn?t blame her.

But from March of 2003 through the end of 2003 the Dow rose 32%. Janice missed out completely.

Our market has survived everything thrown at it. Unfortunately, we?ll most likely always have a crisis to overcome. The current terrorist problem could be with us for many years, and that?s certainly a human tragedy. However, no one can revoke the business cycle. There will always be companies that make great products and high profits. Those companies will expand, and the value of Read more…

Maggie and Sam called my office last week, and I could hear the desperation in their voices. They?ve lost more than $1 million in the stock market since 2000 by ?investing conservatively.? Their broker assures them that buying high-quality mutual funds and holding onto them through rough markets will grow their money safely. Yet they can plainly see it isn?t working. In fact, they?ve watched a serious decline for a while now, and they?re starting to panic.

Their problem is not earning money to fund their retirement dreams. Both Maggie and Sam are smart and successful: She is a heart surgeon and he is a well-heeled attorney. Yet they?ve lost a fortune, and they can see that no matter how much they earn, it can?t possibly offset the damage done by listening to the advice of their broker, so they?ve turned to me to stop the bleeding.

These two aren?t the only intelligent, affluent investors I?ve met who are frustrated and frightened by their investment results, and 2000 wasn?t the only bear market investors had to face. Based on 60 years of evidence, a bear market ravages investors every 3.3 years, and the average loss is 27%. That?s enough to scare anyone. According to AARP, 35% of all retirees go back to work after they retire. Could it be because the market cracks and scrambles their nest eggs?

I?m reminded of my Uncle Jim, who wouldn?t listen to me and retired in 1999 with $700,000. His plan was to create income from his retirement package and to live happily ever after. Interest rates were too low for Jim, so he decided to invest in growth mutual funds to create the income he wanted. By the end of 2002, his $700,000 had dropped to less than $400,000 thanks to an inhospitable market. His savings had lost 43% of its value. Then, instead of $700,000 working for him, he had $400,000 working for him. That meant less income–a lot less income. Faced with this disturbing reality, Jim sold his beautiful home to buy a small condo and had to go back to work. Jim didn?t have 70 years to ?think long-term? as his broker and other financial ?experts? suggested he should. Jim needed that income today.

What can Jim, Sam, Maggie and everyone else do to protect themselves from catastrophic loss in the future? Since we know that a crash comes every 3.3 years on average and the typical loss is over 27%, it is critical for investors to invest only when the risks of doing so are relatively low.

Of course whenever you invest in the stock market you take on risk. However, we know that certain times are riskier than others. Just as you check the weather forecast before you embark Read more…

An Ira is one of the greatest ways to save on taxes currently and accumulate money for the future.

For individuals three types of IRA’s will normally come under consideration.

The Traditional or Regular IRA
The Education IRA
The Roth IRA

Education IRA is now called the Coverdell Education Savings Account (ESA).

Education IRAs allow you to save for qualified higher educational expenses for a beneficiary. Parents and guardians are allowed to make nondeductible contributions to an education IRA for a child under the age of 18.

Contributions are allowed prior to the beneficiary turning 18, and contributions may not exceed $2,000 per beneficiary per year.

Contributions are made with after-tax dollars. There is NO deduction for the contribution. Withdrawals, however, are tax- and penalty-free when adhering to certain rules.

The traditional IRA allows you to contribute an amount and take a current deduction for the contribution. Withdrawal minimums must begin at a certain age and all withdrawals are taxable at the rate applicable when withdrawals are made. The main benefit is that any growth or gains remain free from taxation up to the point of withdrawal. Thus you would be getting tax-free accumulation.

The Roth IRA is perhaps the simplest – and potentially the most effective – sheltered account available.

Roth IRA has a tax structure different from any other IRA: contributions are after-tax (no deduction is available) but growth is tax-free; AND once you put your money in you NEVER pay taxes again.

Additionally, unlike a regular IRA, a Roth IRA does not require that you
start withdrawing funds at age 70? or any other time.

It’s more flexible?

Since you have already paid taxes up front, there are no minimum distribution requirements and since withdrawals are not reportable income, they won’t affect your adjusted gross income during retirement.

There are special techniques and Read more…

The American Jobs Creation Act of 2004 imposed strict new rules on non-qualified deferred compensation plans. Beginning in 2005, deferred compensation programs that are not in compliance with the new rules may be taxed as wages, slapped with a 20% excise tax, plus charged an interest penalty.

Given the potentially huge tax consequences for non-compliance with the rules, you should consult with your organization?s benefit specialist and your tax professionals to figure how your compensation might be affected by these new rules.

Deferred compensation plans are often used to provide for the deferral of salary, incentive compensation (i.e., commissions or bonuses), or supplemental compensation for top executives, independent corporate directors, and individual board members. The new rules apply to nonqualified deferred compensation plans at taxable and tax-exempt organizations.

An option for independent corporate directors and individual board members who receive 1099 income for their services may consider is to freeze their nonqualified plan and adopt a qualified plan such as the ?one person defined benefit plan?, called the Solo-DB Plan. Qualified retirement plans are exempt from the requirements of the American Jobs Creation Act.

The Solo-DB plan allows the highest deductible contributions possible in a qualified retirement plan. For example in 2005 one can contribute up to $170,000 of compensation into a tax-deferred Solo-DB plan.

Defined benefits plans have been around for Read more…

If you are in the home buying or selling market, it?s important to understand the difference between tax assessment and appraisal value. Concentrate on the appraisal value because this determines your asking price.

Understanding Tax Assessment

The tax assessment is a tool local governments use to exact a property tax rate on residents. The local government determines your home?s worth by reassessing the homes in the area you live in periodically. Some areas reassess every 2-3 years. But with today?s booming real estate market, the National Association of Realtors estimates 60-70% of U.S. tax assessments do not reflect the escalating market value on home sales. This is why the tax assessment is not always an accurate gauge of true home worth.

Tax assessment offers a general idea of home value. If you are curious about whether your tax assessment office is keeping up with the local market, telephone your local real estate board and local tax assessment office. Ask them about the local appreciation value on homes to determine if they are up-to-date.

Focus on the Appraisal Value

Home sellers should concentrate on the appraisal value, because a mortgage lender will write a loan on the home for this amount. Location is the prime factor in appraising a property. An appraiser will look at three homes that sold during the previous three-month period to determine what similar properties have sold for in the same neighborhood. If your home is in a rural area, or if the sales in your area have been sluggish, the appraiser can go within a five mile radius to locate similar homes for comparison. If there is home value inflation in the area, the appraiser will factor this in. A good appraiser will contact the realtor who sold the homes he or she is using as a comparison.

What Do Appraisers Look For?

An important rule of thumb of real estate is: location, location, location. Appraisers are mainly focused on the following to determine home worth:

square footage

condition and age of the home

location

lot size

number of bedrooms

number of bathrooms

total number of rooms

garage(s)

decks

screened porches

fireplaces

Secondary Enhancements Help a Home Sell

There are other bells and whistles the appraisers may factor in, but their impact on home value is marginal. Although these improvements do help the home sell, they do not impact the appraisal significantly.

Here are some examples:

ceramic tile

hardwood floors

crown molding

chair railing

specialty counter tops, cabinetry

sprinkler system

wainscoting

upgrades in light fixtures

upgrades in faucets, sinks, tubs and showers

swimming pool

Sell Your Home Quickly

Do not be mistaken — upgrades are worthwhile because they will help sell your home quickly. For example, eye-catching landscaping will lure people in to look at the home, because 80% of homebuyers decide if they like a house when they first drive up to the property.

When do I Need an Appraisal?

Home sellers may want Read more…