Category Archives: retirement plans

Understanding Non-Qualified vs Qualified Retirement Plans

Posted on May 8, 2012 by admin

In the investment world there are some terms that apply to the investments themselves, and other terms that only apply to the vehicles chosen to hold those investments.  The easiest way to understand a qualified retirement plan is to think of it in terms of “qualified for tax benefits.” These rules are set by the IRS and when an account meets the specifications, it is deemed to be qualified.  Many people already have a qualified plan without even knowing it.  If you have any money in a 401(k), a traditional IRA, or a Roth IRA, you have money invested in qualified retirement plans. When money is put into most qualified plans, a person will see their taxable income reduced by the amount put into the plan (the exception of course being the Roth IRA, learn more here ).  Until the money is taken out of the qualified plan it will not be taxed.  So a person can buy and sell funds, often at substantial gains, and until they actually withdraw the money they will not be liable to pay any taxes.  The downside of these plans is the money is assessed at least a 10% penalty ( 25% in some instances ) if it is withdrawn before the age of 59.5, unless it qualifies for some of the early distribution rules .  The reason behind this rule is simply to encourage people to save for their retirement, instead of pulling the money out whenever they feel the urge. The opposite, a plan that is “non-qualified for tax benefits,” is a plan that does not meet the rules set by the IRS.  These accounts are designed for those who earn too much to put money into an individual qualified account, have maxed out their contributions, or they are accumulating money for a big purchase that will happen before they reach retirement age.  A non-qualified account can be set up as an individual account, a joint account (with a husband and wife team most often being the joint owners), or an entity account (often a trust, or an estate owning the account).  Regardless of who or why the account is set up there are some pros and cons to any non-qualified account. The biggest downfall to this type of account is that all the realized gains are taxable.  This means if a stock or fund is bought at a certain price, all the gains will be “realized” when the stock or fund is sold and those gains are locked in.  At this point they are counted as income (if it was held under one year) or long-term capital gains (if it was held over one year) and the investor will receive tax documentation to report the gains the following tax season.  All dividends and capital gains are taxed, even if they are reinvested and not taken as cash. Even though gains are added to a person’s taxes, losses are subtracted from them.  If a person has unrealized losses in their account, they can sell their holdings and get a deduction on their taxes.  More can be learned about this process here . Since these accounts are taxed as they go along, the IRS does not assess a penalty if the money is taken out before age 59 ½.  At any point a person can add to, or withdraw from the account.  There is no limit set on contributions or distributions. Finding the right investment account is important for anyone who wants to store money for the long run.  A non-qualified account might hit them with a tax burden before they want it, and a qualified account may tie up their money for too long before they need it.  However, most people who are just getting started investing can benefit from the forced discipline a qualified account will offer.  In the next article we will explore the various types of qualified retirement plans and what they can do for those planning their retirement. Continue reading →

Posted in Foreclosure, IRA, Mortgage Rates, Online Banks, Retirement, Retirement & Taxes, retirement plan, retirement planning, retirement plans, roth IRA, taxes, traditional IRA | Tagged , , , , , , , , | Leave a comment

Saving for Retirement – 10 Years to Go

Posted on April 28, 2012 by admin

If you’re only ten years from retirement, then it’s high time for you to figure out how much you will need to be saving for retirement and focus on accumulating that amount if you haven’t already done so. Time is running out on your opportunity to get any matching contributions that your employer offers for your retirement plan deferrals and to reap long-term growth in your portfolio. But there are several other issues to consider at this point as well, such as debt and college expenses for children. Fuel Your Contributions If you’ve been slacking off on your retirement contributions because of other expenses, then you should start taking advantage of the extra contributions that are allowed for those over age 50 . You can contribute an extra thousand dollars per year to a traditional or Roth IRA and also an extra $5,500 into your employer-sponsored qualified plan (in 2012). Use these concessions to beef up your retirement portfolio while you can. Evaluate Your Portfolio If you haven’t checked the performance of your retirement portfolio in a while, this is the time to take a careful look at how your money is growing. If your assets are on track to do what you want them to, then you may be wise to leave things as they are. But for many people, it is probably time to start shifting their assets out of equities and into more conservative holdings such as bonds, mortgage-backed securities and cash. Of course, you will not want to eliminate stocks from your savings completely, because you still need to have a hedge against inflation in your portfolio for some time to come. But at least half of your assets should probably be in something other than equities by the time you stop working unless you are an experienced investor who is comfortable taking more risk. Managing Debt If you still have decades to go on your mortgage, it may be wise for you to refinance to a shorter term loan if you plan on remaining in your current residence after you retire. Interest rates are at historic lows, so changing to a 15-year note may be a good idea right now , because the lower rate may offset the shorter time frame. And if you have any high-interest debt, such as credit cards or car loans that are outstanding, you should also concentrate on eliminating those before you stop working. It is much easier-and simpler-to retire when you have no debt; if you have to keep making payments on your debt after you stop working, you may be forced to live low for a long time to come. For more information on saving for retirement, visit the following links or consult your financial advisor. Continue reading →

Posted in college expenses, credit card, Credit Cards, Credit Report, interest rates, IRA, Mortgage, Mortgage Rates, Prime Rate, Retirement, Retirement & Taxes, retirement plan, retirement planning, retirement plans, roth IRA, saving for retirement, savings | Tagged , , , , , , , , , | Leave a comment

Creating a Retirement Budget

Posted on April 18, 2012 by admin

For those who are still in the thick of their working years, creating a post-retirement budget can seem like peering into a fuzzy crystal ball that contains too much uncertainty to even worry about at this point. But your budget during retirement may not be as complicated as you think it will be, and as long as you apply common sense and make some reasonable assumptions, you can probably come up with at least a viable initial estimate of your income and expenses after you stop working. Use these simple steps to make your first estimate of your future cash flow: Income Obviously, the earnings from your current job will cease after you retire, to be replaced by (hopefully) several different sources of retirement income. These can include Social Security or a railroad or military pension; income from IRAs and/or employer-sponsored retirement plans such as 401(k) or 403(b) plans, income from taxable investments such as interest and dividends or the sale of stock or other securities, annuity income and earnings from a job that you work after you retire from your primary career. If you have no idea what your income from these sources will be, then it’s time to make some reasonable estimates about how much your retirement plans will grow before and during your retirement and also get an estimate of your Social Security benefits from the Social Security Administration . See if your HR department can give you an estimate of your retirement benefits as well if necessary. When you have added up all of your future estimated sources of income, then your projected budget is half finished. Expenses Your expenses will likely change at least as much as your income when you retire. Instead of saving for retirement and your kids’ college educations, you may be facing long-term care insurance premiums, increased health care expenses and a higher cost of living. But other expenses may decrease or disappear. Your car insurance premiums may drop and you will be eligible for senior citizen discounts, and the day may finally come when you make the last mortgage payment to your lender. But many financial experts warn that your living expenses during retirement may be just as much as they are now, so you may want to project your expenses out the number of years until your retirement and factor in a realistic rate of inflation, so that you have a sensible projection of your future living expenses. And, of course, don’t forget to include the cost of all those fun things that you want to do after you stop working, such as traveling, hobbies and other activities. Other factors such as taxes and longevity can also play substantial roles in determining the quality of your retirement.   Consumer Reports suggests a simple way to create a retirement budget .  And there are many more.  Try one out to see what works for you and your style of money management. Of course, this is just a brief summary of the issues that must be considered when budgeting for retirement. For more information on retirement budgets, visit the links above or consult your financial advisor. Continue reading →

Posted in budget, budgeting, Insurance, IRA, Loans and lending, Mortgage, Mortgage Rates, Online Banks, Retirement, Retirement & Taxes, retirement budget, retirement planning, retirement plans, saving for retirement, social security, taxes | Tagged , , , , , , , , , , , | Leave a comment

Saving For Retirement: What Are Nonqualified Plans?

Posted on April 10, 2012 by admin

In 1974, Congress recognized the need for Americans to save for their retirements by passing the Employee Retirement Income Security Act, which gave birth to employer-sponsored retirement savings plans that allow workers to defer a portion of their earnings into tax-deferred accounts. All retirement plans that fall under ERISA guidelines are referred to as “qualified” plans, and each type of plan must meet certain criteria pertaining to who is able to participate in these plans, how much they can contribute and the taxation of the monies that is placed inside them. But qualified plans cannot always meet the needs of every type of employee. Nature and Purpose of Nonqualified Plans Corporate executives and small business owners often want to defer amounts of money in excess of what they can contribute to qualified plans, and business owners also at times need to be able to reward key employees financially without surrendering control of their companies. Because they are not restricted by the regulations that govern qualified plans, they can be used to accomplish specialized objectives, such as substantial additional compensation that is not taxed until retirement or creating a financial incentive for an executive or employee to stay with a company for at least a certain period of time. Nonqualified plans are usually funded with cash value life insurance policies or annuity contracts. In most cases, the money that is contributed to these plans must be subject to a substantial risk of forfeiture by the employee, meaning that the funds could be attached by creditors in the event of lawsuit or insolvency. Types of Nonqualified Plans There are four main types of nonqualified plans: Deferred Compensation Plans – These plans allow corporate executives to defer large amounts of additional compensation that they are paid after they retire. The executive isn’t taxed on the income until it is actually paid. Split Dollar Life Insurance Policies – Under this arrangement, the employer and employee split both the cost and benefits of a cash value life insurance policy. The employer pays for a certain amount of the policy and then lets the employee pay the remainder. The employer then recoups its costs by taking a portion of the death benefit when it is paid out. Executive Bonus Plans – This type of plan allows employers to purchase cash value policies on employees that they can take with them after they leave the company. These policies often contain riders for critical illness, disability and long-term care, thus providing a package of benefits to the employee as well as retirement income from the cash value in the policy. Group Carve-Out Plans – These plans are layered on top of the $50,000 of term life insurance that companies can purchase for employees without the premiums being counted as taxable compensation to them. The company will then purchase additional cash value policies on a select group of employees (such as executives) that are counted as additional compensation to them. Nonqualified plans can be structured in many different ways and funded at different levels. Participants do not necessarily have to wait until age 59 ½ to begin taking distributions from them, and several different variables can govern how they are taxed. For more information on nonqualified plans, visit the IRS website at www.irs.gov or consult your financial adviser. Continue reading →

Posted in Credit Report, deferred compensation, Insurance, life insurance, Mortgage Rates, nonqualified plans, Online Banks, Prime Rate, Retirement, retirement options, retirement plans, retirement savings, savings, savings plans, term life insurance | Tagged , , , , , , , , , , | Leave a comment

How Much Will I Need to Retire?

Posted on April 7, 2012 by admin

Knowing how much money you will need to have after you stop working, either coming in as a stream of income or from your retirement savings is one of the most important financial questions of your life. Of course, estimating the amount of cash that you will realistically require in order to successfully navigate the final phase of your life can seem like a daunting and complex issue requiring hours of complex calculations and a great deal of research. But breaking down this equation is not quite as difficult as you may think; you just need to learn how to start translating dreams and ideas into dollars using some basic time-value-of-money calculations. What would it Cost to Retire Today? The first step in answering the question, “how much will I need to retire” is to find out what it would cost to live that dream today. If you’d like to travel the world when you retire, take an afternoon and do some research to find out what you would pay to do that now. Be sure to include the current cost of all other normal living expenses, such as the price of healthcare and insurance for a retiree with your level of health and rent or a mortgage payment for the kind of residence that you would like to live in when you retire (unless, of course, you intend to continue living in your current residence at that time.) Also remember to factor in retirement of debts, such as your current mortgage or car payment if they will expire during your retirement. Be as detailed as possible so that you can create a realistic hypothetical cash flow statement that represents the current expenses that you would pay if you were retired today. What will it Cost to Retire Tomorrow? Once you have some actual numbers to work with, it’s time to factor inflation into the equation. If you are going to retire in 15 years, then take the annual expenses that you computed in step 1 and multiply them by an annual rate of inflation, which has historically grown at about 3 percent per year. Therefore, if you will need $50,000 per year to live the lifestyle you want in retirement, then multiply that amount by 1.03 15 times (or use a financial calculator if possible) to find out the future cost of your lifestyle. In this example, the cost in 15 years would equal to about $77,900. Then get an estimate of your Social Security benefits and also any future guaranteed private pension benefits and then subtract them from your projected budget. Finally, multiply this number by the number of years that you estimate that you will live during retirement and this should give you a rough estimate of how much you will spend after you stop working. For example, if you will get $35,000 per year in Social Security income and another $10,000 per year from a defined benefit plan, then your unfunded expenses would come to $32,900 per year. Therefore, if you think that you will live for another 25 years after you retire, then you would spend a total of $822,500 that won’t be covered by your future guaranteed income during your nonworking years. So How Do I Pay for This? The final step in estimating how much you will need to retire is to determine the amount of money that you must have saved in order to cover the balance of your expenses during retirement. This amount will depend upon several factors, such as the rate of return that you earn on your nest egg both before and during retirement. If you have $500,000 saved when you retire, then in the example above, you would need to earn about 6.5% per year on your money in order to draw the additional $32,900 you will need annually to live out your retirement dream. If you wanted to fund your retirement in this manner, then you would obviously have to have a half million dollars saved by the time you stop working in 15 years. Computing the amount that you will have to accumulate each year until then would involve several variables, such as the amount that you have saved already plus the rate of growth of your portfolio. The Bottom Line The hypothetical cash flows used in this article are merely intended to show the general process for translating the cost of a future lifestyle into today’s dollars. There are obviously many factors that must be taken into account in these equations that were not covered here, such as income taxes and the possible need for long-term care. In most cases, it would be wise to seek professional assistance with making these computations from someone with a sophisticated retirement planning program that can account for all possible variables. For more information on retirement planning, consult your HR representative or financial advisor. Check out CNN’s simple retirement calculator or a more sophisticated calculator offered by the Index Funds Advisors . Continue reading →

Posted in budget, Credit Report, Insurance, Mortgage, Mortgage Rates, Retirement, retirement planning, retirement plans, retirement savings, savings, social security, taxes | Tagged , , , , , , , , | Leave a comment

Doing Your Taxes – Have You Found Your Above-the-Line Deductions?

Posted on April 4, 2012 by admin

Above-the-line tax deductions can make a big difference in reducing your tax bill.  Make sure you go through your tax returns carefully to see if you are eligible for any of them.  The Internal Revenue Code allows for “above-the-line” deductions that can be found on the bottom half of the first page of the 1040. There are 13 separate above-the-line deductions that can be reported on Part II of the 1040 for 2011, listed as follows: Line 23, Unreimbursed Educator Expenses – All teachers and education professionals are allowed to deduct $250 worth of unreimbursed qualified education-related expenses paid out of pocket. Married couples filing jointly can deduct twice this amount. Line 24, Certain Business Expenses of Reservists, Performing Artists and Fee-Basis Government Officials – A series of miscellaneous expenses that taxpayers in these three categories may claim. Form 2106 is required to compute these deductions. Line 25, Health Savings Account Deduction – Taxpayers who have no access to group health coverage of any kind can open this type of account in conjunction with a high-deductible health insurance plan and deduct the amount they contribute to the account here. Form 8889 must be completed for this. Line 26, Moving Expenses – As long as your new workplace is at least 50 miles further away from your old home as your previous location of employment, then you can deduct certain relocation expenses. These are computed on Form 3903. Line 27, Deductible Part of Self-Employment Tax – Self-employed taxpayers can deduct half of their self-employment tax as reported on Schedule SE. Line 28, Self-Employed SEP, SIMPLE and Qualified Plans – All contributions to these retirement plans are deducted here. The rules for these are outlined in Pubs. 560 and 517. Line 29, Self-Employed Health Insurance Deduction – Self-employed taxpayers can deduct the cost of all premiums paid for health insurance. There is a worksheet on page 29 of the instructions for the 1040 and the rules are provided in Pub. 535. Line 30, Penalty on Early Withdrawal of Savings – Any penalty such as for early withdrawal from a CD or other fixed income security that is listed on forms 1099-INT or 1099-OID can be deducted here. Line 31, Alimony Paid – All alimony that is paid under a divorce decree is listed here. Rules for this deduction are in Pub. 504. Line 32, IRA Deduction – All contributions to a traditional IRA are deducted here. The restrictions for this deduction are computed in the worksheet on pages 30 and 31 of the 1040 instructions. More information can be found in Pub. 590. Line 33, Student Loan Interest Deduction – Use the worksheet on page 32 of the 1040 instructions to compute this amount or consult Pub. 970. This is one of the most common above-the-line deductions taken. Line 34, Tuition and Fees – The amount that may be deducted for qualified educational expenses is computed on Form 8917. Line 35, Domestic Production Activities Deduction – Qualified taxpayers can deduct up to 9% of their qualified expenses related to property construction, filmmaking or energy production. Instructions and details are found in Form 8903. After these expenses have been deducted, the resulting figure is known as the taxpayer’s Adjusted Gross Income. For more information on above-the-line deductions, download the instructions for the 1040 form at www.irs.gov or consult your tax or financial advisor. Continue reading →

Posted in Foreclosure, Insurance, IRA, Mortgage Rates, Retirement, retirement plans, savings, student loan, tax deductions, tax returns, traditional IRA | Tagged , , , , , , , , | Leave a comment

Catching Up on Saving for Retirement After Age 50

Posted on March 26, 2012 by admin

Most American workers view age 50 as the beginning of the final phase of their lives before retirement. Many workers’ careers-and living expenses-have peaked by that point and their children are either in college or about to enter, which can pose a major dilemma concerning where their savings dollars get spent. Then there are those who have yet to begin saving at this age, and there are a large number of people in this category. But all is not lost for them; they must simply take a somewhat different (and most likely more austere) path into their nonworking years. And even those with substantial retirement assets have some issues to consider at this point in their lives. If You’re Behind Those who have saved little or nothing for their retirements by age 50 will need to make some major changes in their budgets and lifestyles if they want to retire earlier than age 70. Although Social Security will likely still be there for them, they may not be able to live the kind of lives that they want in retirement if they don’t immediately begin an aggressive savings program. Those without any type of retirement savings should start by maxing out their employer-sponsored retirement plan contributions and probably also make the maximum possible contribution to a traditional or Roth IRA. They should also make the additional $1,000 catch-up contribution if at all possible. A 50 year old earning $60,000 a year who does both these things could accumulate a whopping $225,000 by age 65, plus any growth on the contributions. Lower and middle-class workers who haven’t started to save by age 50 can realistically expect to work at least another fifteen years, unless they earn a phenomenal rate of return on their retirement savings. College Funding vs. Retirement Parents of kids who are at or near college age must inevitably grapple with the dilemma of either funding their own retirement plans or paying for their kids’ college educations. Most financial experts will counsel parents not to forfeit their retirement savings to pay education expenses, because their kids will have the chance to pay off their own expenses themselves eventually. But the use of annuities and cash value life insurance can reduce the amount of assets that must be reported on the financial aid forms, which can increase the amount of financial aid available to pay for tuition and other expenses. For the Savers Those who have been saving diligently since they were young can pat themselves on the back for starting when they should, but it may be time to start adjusting the mix of assets in their retirement portfolios. Workers who are invested entirely in stocks may want to start thinking about reallocating at least some of their savings into more conservative asset classes such as bonds. Those who are invested in target-date funds will have this done automatically, but those who have constructed their own portfolios should make the preservation of their savings a growing factor in their investment decisions. Of course they should still preserve a growth element in their portfolios, but once they get within ten years of retirement they should probably start moving most of their savings from equities to fixed-income securities in an appropriate systematic fashion. For more information on saving for retirement after age 50, consult either IRS publication 590 for IRAs or your financial or retirement adviser. Continue reading →

Posted in budget, college fund, Foreclosure, Insurance, IRA, life insurance, Loans and lending, Online Banks, Prime Rate, Retirement, retirement planning, retirement plans, retirement savings, roth IRA, saving for retirement, savings, social security | Tagged , , , , , , , | Leave a comment

Deferred Compensation Accounts: The Basics

Posted on March 24, 2012 by admin

Deferred compensation (DC) accounts have recently made the news as companies attempt to minimize debt. The payout of DC accounts to creditors can preserve a company’s reputation, but at a high cost to employees.  A DC account is a type of savings or investment account. Pensions, retirement plans, and stock options are a few varieties of DC accounts. A DC account is set up by a contract between an employer and employee. The account grows when the employer takes out a certain amount of an employee’s income after the employee’s paycheck has been issued. The employee benefits from this arrangement because their income is taxed when they withdraw it from the account. They can also invest the deferred amount with a fund manager contracted by the employer. In addition, the employee may be able to take out loans from their account. The employer benefits because it can use the available funds for investment immediately. It also does not have to secure the funds it promised to an employee. The unsecured nature of a DC account makes it a dangerous risk for an employee. If an employer files for bankruptcy, the employer’s creditors can file suit to claim the funds in a DC account ahead of an employee. If an employee quits so they can reach the funds in their DC account, a creditor may be able to pursue the funds if it can prove the employee knew the employer was headed for bankruptcy. Non-profit organizations, including churches and hospitals, state and local governments, and private employers are allowed to set up DC plans. The DC plans of non-profits and state and local governments follow different rules than those of private employers. Such DC plans are divided into two groups. The first is 457 (b) “eligible” plans, in which funds may not be taxed by the federal government before they are withdrawn. The funds are secured up to a set limit by the National Credit Union Administration (NCUA), and the purpose of the funds is to build retirement accounts. The second is 457 (f) “ineligible” plans, in which funds may be taxed before the federal government before they are withdrawn. The funds are not secured by the NCUA and the purpose of the funds is similar to that of bonuses awarded in private companies. One example of funds allocated to a 457 (f) plan would be severance pay granted to a coach or president of a state university. The rules for both types of 457 plans are set by the Internal Revenue Service (IRS). Private employers typically set their own rules for DC plans. It is common for private employers to allow only their top 5 or 10 percent earners to open DC accounts. Private employers often use DC accounts to retain cash for investment and attract lateral hires. As more companies file for bankruptcy, employees may begin to think twice about offers that involve deferring their salary, even if an employer offers a high interest rate on a DC account. © March 17, 2012 // Copyright all material 3/17/2012 by Jessica Zimmer Continue reading →

Posted in Credit Report, deferred compensation, employee benefits, Foreclosure, Mortgage Rates, Online Banks, Prime Rate, Retirement, retirement plans, savings, Savings & Investment, savings and investment | Tagged , , , , , , | Leave a comment

Will I Pay Taxes During Retirement?

Posted on March 19, 2012 by admin

Paying taxes during retirement, on your earnings and other sources of income, can drastically reduce your nest egg if you aren’t careful.  But those who plan wisely can often pay little to no income tax during retirement, depending upon their circumstances and living expenses. Even those whose income levels will not drop substantially in retirement will receive some tax breaks that can allow their dollars to go further. Much of this issue depends upon the type of income that you draw in retirement and how it is received. Taxation of Retirement Income Knowing how all of your retirement income is taxed can save you a bundle in some situations. But distributions from any type of Roth IRA or retirement plan are always tax-free as long as you are at least age 59 ½ and have had some sort of Roth plan or account open for at least 5 years. Having access to Roth assets can drastically lower the amount of tax that you pay in some instances, such as when you have to take a large lump-sum distribution. For this reason, it may be wise to draw a regular, lower stream of income from your taxable retirement accounts and let your Roth assets grow. Then, when you need to take out a large distribution, you can take it from the Roth account without substantially disrupting the rest of your finances. And taxpayers who live on modest means may owe little to nothing after their deductions and credits have been subtracted from their gross incomes, especially if their incomes are low enough that their Social Security is not taxable. For example, a married couple that receives $30,000 of Social Security income and $20,000 of taxable retirement plan distributions may have a tax bill of zero, especially if they itemize deductions. (Of course, there are many factors that will ultimately determine the amount of tax that they will pay.) Timing is Everything If you have substantial assets that you need to liquidate during retirement, such as stock that you have held for years outside of your retirement funds, then you should check with your income tax advisor to see if you might pay less tax by waiting until next year to do so. Of course, you may not always be able to wait that long, but there can be times when you could end up paying unnecessary taxes on your gains or retirement plan distributions because you realized substantial income in a single year. Caution should therefore also be used when converting traditional IRAs and retirement plans to Roth IRAs, because the taxable income generated from this transaction can also inadvertently land you in a higher tax bracket. For more information on retirement plan income, visit the IRS website at www.irs.gov or consult your financial adviser. Continue reading →

Posted in Credit Report, IRA, Mortgage Rates, Prime Rate, Retirement, retirement plans, retirement security, roth IRA, taxes during retirement, traditional IRA | Tagged , , , , , , | Leave a comment

February Checklist for your 2011 Taxes

Posted on February 4, 2012 by admin

Many taxpayers dread each year because they are never sure of what they will need in order to complete their returns.  While the exact forms that are needed will of course vary from one filer to another, there are several forms that the vast majority of filers will need to complete their returns.  Use this checklist to make sure that you have the necessary forms before sitting down to do your 2011 taxes. W-2 forms – this basic form is sent by all employers to their employees each year. This form breaks down the amount of compensation paid in cash to employees as well as retirement plan contributions and some types of benefits. Charitable giving statements – those who make qualified charitable gifts may get an itemized list of their deductible gifts from some or all of the charities to which they made contributions during the year. Charities that don’t send this type of statement will typically furnish a receipt for each donation at the time it is made. 1099 forms – this form is sent to independent contractors and shows the types and amounts of self-employment income that are paid, such as royalty income. Investment statements – Investment companies such as banks, brokerage firms, investment advisers and trust companies as well as issuers of individual securities such as corporations, municipalities and the U.S. government will send investors forms that detail the amount of investment income that they earned during the year. Form 1099-INT breaks down the amount of taxable and tax-free interest that was paid. Form 1099-DIV outlines dividend income and shows which dividends may be eligible for capital gains treatment. Form 1099-B lists all aggregate capital gains and losses that taxpayers must declare on their tax returns. Retirement plan statements – IRA and retirement plan custodians as well as annuity carriers must send all of their account and contract holders a Form 1099-R each year that breaks down the amount of taxable and nontaxable distributions that are taken from qualified and nonqualified retirement plans and annuity contracts. Form 1098 – This form breaks down the amount of interest that was paid on a mortgage and often shows the amount of real estate tax that was paid as well. Form 1098-E – Shows the amount of student loan interest that was paid. Most tax forms that report any form of income to the taxpayer (such as W-2s and 1099 forms) will also show any amount of federal, state and local income tax that has been withheld for the year.  For more information on which tax forms you may need to file your taxes this year, consult your tax or financial advisor. Continue reading →

Posted in 2011 taxes, Foreclosure, Mortgage, Prime Rate, real estate, Retirement, retirement plans, Smart Spending, student loan, tax planning, tax preparation | Tagged , , , , , , , , | Leave a comment