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Financial planning is really life planning. Choosing a home, particularly a retirement home, involves many factors. With state and local taxes on the rise, retirees should look closely at tax matters when formulating their retirement financial plan.

Retirees who plan on continuing to work in their “golden years” should know that state taxation of such income varies widely. Some states give retirees favored treatment on earned income, some treat retired seniors like everyone else, and some impose no tax at all on earned income. Taxation of investment income shows nearly as much variation between states. Retirees in a new domicile must also watch out for unexpected municipal income taxes.

Income from government, military, private pension and other retirement plans is growing increasingly important to the survival of retired individuals. Some states exempt all such pension income from taxation, while others exempt certain types or place limits on non-taxable pension income. Some states even tax former residents on retirement plan withdrawals, creating the possibility of paying income tax in two states. Some states follow federal tax formulas for taxation of Social Security benefits, others have their own formulas, and some tax benefits not at all.

Sales and property taxes must also be considered. Again, some states offer property tax advantages to retired seniors while others provide homestead exemptions. Retirees should consider sales taxes when estimating their retirement budget for such items as Read more…

If you are about to retire or change jobs, or if your employer is terminating the company retirement plan, you may be eligible to receive a “lump sum distribution” as defined in the Internal Revenue Code. Such a distribution may be substantial and may represent the cornerstone of your retirement security. So it is important to consider your options carefully before making a decision regarding distributions.

Basically, you are faced with two main options. Should you take a direct distribution and pay your taxes now? Or should you roll your distribution over into a traditional Individual Retirement Account (IRA)?

If you decide not to roll the distribution over into a traditional IRA, you must pay tax on the distribution in the year you receive it. You will, of course, be able to invest the remainder as you please. The main benefit of paying taxes on your distribution now is that you may be eligible for special tax treatment. If you were born before 1936, you may be eligible for ten-year tax-averaging on your lump sum distribution. Or, if your distribution will include shares of your employer?s stock, a portion of your distribution may be eligible for the new lower capital gains tax treatment. If either of these situations exists, you may be able to pay a lower tax rate than usual on your distribution. If not, your distribution may be taxed at your ordinary income tax rate so you may want to consider your second option.

Your second option is to roll the distribution over into a traditional IRA. This alternative assures that assets will continue to enjoy tax-deferred growth to provide for your retirement. Under current IRS regulations, you need not begin taking distributions from your traditional IRA until you reach age 70 1/2.

Here are some facts to keep in mind when faced with the distribution decision.

? Only 60 days are permitted between the receipt of your lump sum distribution and Read more…

Qualified retirement plans and individual retirement accounts (IRAs) are great vehicles to take advantage of tax-deferred growth potential and save for retirement. When an individual eventually decides to tap into his or her retirement fund, withdrawals from these plans are subject to regular income taxes. There’s one catch, however, for people who are under 59 1/2 years old. They will pay an additional 10 percent tax for premature distributions, in addition to the regular income tax, unless they can fit within one of the exceptions to this penalty tax.

Of the exceptions to the 10 percent premature distribution tax, all but two provide no real planning opportunities. Most are designed to relieve the burden imposed by a death, disability, serious illness, education costs, first-time home purchase or divorce. The two other exceptions that do allow taxpayers to access their retirement funds without the penalty tax deserve closer examination.

The first exception applies only to distributions from qualified retirement plans like profit sharing, 401(k), pension and certain other employer sponsored plans. Under this exception, a taxpayer who has “separated from service” (i.e. they have retired, quit or been laid off) after attaining age 55 may withdraw any amount from his or her employer’s plan free of the 10 percent penalty tax.

This exception to the 10 percent penalty rule allows for the greatest flexibility and is very beneficial for many early retirees. It can even be utilized if the taxpayer has left the employ of one employer and makes the withdrawal from that first employer’s plan while working as an employee of a second company. For some, it’s a good reason to leave their retirement plan balances with their former employer since withdrawals from IRAs (even if the taxpayer is over 55 and not working) will not qualify for this exception.

There are, however, disadvantages to this exception. First, former employees are at the mercy of their former employers with respect to their withdrawal rights from the plan. Employer sponsored plans can have a wide variety of withdrawal Read more…

You can pump high yielding, tax free profits secured by real estate directly into your IRA!

I don?t care what your banker or stockbroker told you, the IRS says you can.
(http://www.irs.gov/publications/p590/index.html)

You can earn up to 25% on your mortgage loan investment in a couple of months on short term deals. Long term loans can triple your investment while generating a cool, passive income stream over 15 years or more.

You are probably aware that for every $100,000, in mortgage money you borrow you are going to repay nearly $300,000 by the time its paid off in 30 years, right? Wouldn?t it be nice to receive returns like that, instead of paying them?

You can!

The risks are extremely low on this type of investment. Banks will loan over 100% of the purchase price if the loan is secured by 1-4 family residential real estate. How much will they loan you on your stocks? H?mmm!

The collateral is a family?s home, the default rate is less than 1% and it is the most in-demand type of real estate there is.

If the homeowner stops paying, you take the property and sell it to recover your money.

Generally, there are two types of loans you would make, short term and long term.

Short term loans carry a higher risk as they are usually made to real estate investors, who buy, fix up and resell houses. They borrow the money to buy a property all cash to get the best possible price.

They would then either fix it up and sell it or just sell it if it were in good enough shape.

These loans are generally for a year or less and pay interest rates as high as 12% or more!

Your loan amount on this type of deal would usually be from $25,000-$250,000.

The long term, purchase money mortgages made to homeowners, would have smaller returns, just below the rates the banks are charging, because of the relative safety of the loan. Read more…

A SEP is a special type of IRA. Under a SEP plan the employer creates an IRA account for each eligible employee, hence the name SEP-IRA. A SEP is funded solely with employer contributions. Employees do not make contributions to their SEP-IRA retirement account. Any money that goes into a SEP automatically belongs to the employee. Thus, the employee has the right to take his SEP IRA account money with him whenever he stops working for the company.

Any size business can establish a SEP, but the SEP retirement plan is utilized mostly by the self-employed and the small business with few employees. The SEP IRA rules dictate that if the business contributes for one employee, (i.e., the owner), then the business must contribute proportionately for all of the employees. With few exceptions, anyone who works for the business must be included in the SEP. However, you can exclude from participating in the SEP plan anyone who:

? Has not worked for the company during three out of the last five years.

? Has not reached age 21 during the year for which contributions are made.

? Received less than $450 in compensation (subject to cost-of-living adjustments) during the year.

SEP IRA contributions to each employee for 2004 cannot exceed the lesser of $41,000 or 25% of pay for W2 recipients (20% of income for sole proprietors). The SEP IRA contribution limit goes up to $42,000 for 2005, and is subject to cost-of-living adjustments for later years. SEP-IRA rules do not provide for additional catch-up contributions for those 50 years old or over.

A growing number of self-employed individuals with no employees Read more…

Taxpayers may request an automatic extension of time to file their individual income tax returns (Form 1040) on Form 4868. The form is available on the IRS Web site. In previous years, the automatic extension was good for four months. Taxpayers could request an additional extension of two months by filing Form 2688 and stating a good reason why they needed the additional two months. This year the IRS decided to eliminate the time and cost necessary to process these second extension requests by allowing an automatic six-month extension to taxpayers who request it on Form 4868.

Taxpayers who would like an extension must file Form 4868 by the regular due date of their individual income tax returns. This year the regular due date for 2005 individual income tax returns is April 17 because April 15 is on a Friday. In a few states, taxpayers have until April 18 to file their tax returns or application for automatic extension because of Patriot Day. Special rules apply to taxpayers who are out of the country on the due date. The instructions that come with Form 4868 have the details.

Taxpayers may e-file their extension request using tax preparation software or a service provided by a tax preparer. Taxpayers may also mail Form 4868, but a taxpayer should not e-file Form 4868 and also mail it. The address where a taxpayer should mail Form 4868 is on the instructions to Form 4868.

If a taxpayer mails the extension request, using certified mail, return receipt requested is always a good idea. The taxpayer should staple the green and white certified mail receipt from United States Postal Service on the copy of Form 4868. When the green return receipt card arrives from the IRS in the mail, the taxpayer should also staple it to the copy of Form 4868 and file carefully so that the taxpayer could prove to the IRS that the extension request was filed timely in case they challenge it.

The taxpayer does not have to sign Form 4868 or send any payment with it. However, a taxpayer must make a bona fide estimate of the taxpayer’s tax liability for 2005 and show any payments already made such as through withholding and estimated payments. If a taxpayer does not make a bona fide estimate of the tax liability, the IRS may disallow or revoke the extension.

A taxpayer may send a payment with the extension request. If the taxpayer e-files the request, the taxpayer may send a payment by electronic funds transfer or credit card. If a taxpayer mails the extension request, the taxpayer may include a check or money order. Checks should be made payable to “United States Treasury.” The taxpayer should write “2005 Form 4868″ on the check or money order. The check or money order should not be stapled or attached to Form 4868.

Taxpayers should not attach a copy of Form 4868 to their returns. Taxpayers who obtain an extension should file their returns by the extended due date of October 15. Taxpayers who fail to do so are subject to the penalty for failure to file a timely return unless they have reasonable cause.

The penalty for failure to file a timely return is five percent per month or part of a month on the net tax due for each month the taxpayer files the return late. The maximum penalty for failure to file a timely return is 25 percent. If the taxpayer with an extension does not file the return by the October Read more…