So we are about halfway through 2010!  Hard to believe isn’t it?

Although some of the buzz has seemingly died down about the year of the Roth IRA Conversion, there is still some controversy regarding whether folks should convert their Traditional IRAs to a Roth.

For those of you wondering what exactly is a Roth IRA,  Well, here are the basics:

A Roth IRA is funded with after-tax contributions; the money grows tax-deferred; and withdrawals are TAX FREE!

In other words, you use money you’ve already paid taxes on to fund the Roth, and provided you meet certain qualifications you never have to pay taxes on that money again!

What is a Roth IRA Conversion?

A Roth IRA conversion then is withdrawing money from a Traditional IRA and putting it into a Roth IRA where it will grow tax free.

Sounds good right? 

Well, the problem is that whenever you do this you have to pay taxes on the amount you withdraw from your Traditional IRA. 

So, let’s say you are converting $5,000 from your Traditional IRA — you would have to tack on 5G’s to your income for the year and pay tax at whatever rate you are at.  It’s as if you earned an additional $5,000 of income for the year.

As many of you already know, one big change for 2010 is that anyone can convert to a Roth regardless of income level. Previously, if you made over $100,000 you could not convert to a Roth.

If you convert in 2010, you now have a choice to pay all of your taxes in 2010 or average the taxes owed on the conversion over two years (i.e. pay in 2011 and 2012).  Uncle Sam is giving you a choice on when you pay your taxes.

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Don’t forget though that 2010 is the last year for the current low income tax rates. The current law plans for higher tax rates in 2011 — so, if you chose to average your tax payments over the two year period in 2011 and 2012, you might get hit with higher tax rates.   That Uncle Sam – he’s always got an angle doesn’t he?

Should You Do a Roth IRA Conversion?

Back to the question at hand.  Should you perform a Roth IRA Conversion in 2010? 

Usually the answer to such questions is “it depends”.  This might be a great year to convert your money to a Roth and potentially pay lower taxes than you would normally if you are in a lower bracket due to retirement or a layoff and you’ve got some cash on hand to cover your taxes! 

This is important because if you are under 59 1/2 and use your IRA to pay the taxes on the conversion you’ll get whacked with a 10% penalty on top of the taxes!

Let’s take a look at some things to consider:

Factors to Consider for Your Roth IRA Conversion

• Do you have money to cover your tax liability?  Having cash on hand to cover your taxes will help soften the blow, and you certainly don’t want to pay taxes with the money you are converting.
• Will the money you convert push you into a higher tax bracket?  If so, you probably don’t want to do it.
• Do you have non-deductible contributions in your IRA?  No taxes are due on the non-deductible portion.  *There are some additional factors about non-deductible IRAs that I covered in a post at Bible Money Matters.
• Are you planning on applying for financial aid for yourself, your spouse or your child?  Better think twice about the conversion – conversion income counts on your application.

Ultimately, whether you convert your Traditional IRA to a Roth will not determine your retirement success, there certainly are other things to consider to help you make a great run at retirement. 

So which retirement account is right for you?  Consider the above  factors, your overall situation and the Roth IRA conversion rules to determine whether the Roth IRA conversion makes sense for you in 2010.

This was a post I originally wrote for ChristianPF.com and adapted here for my site.

“Mr. Jones, we appreciate your work for us, but unfortunately there’s just not enough room in our budget for you.

Here’s a packet of information regarding your retirement account.  Please look this over and have a decision made about your 401k plan by the 31st.”

Ever hear these words?

Maybe your company didn’t sound as nice, but the result was the same.

Or – perhaps you left on your own terms and are embarking on a retirement journey or looking for a new career path.

Any way you slice it, there is one question that remains:

“What should you do with your 401k plan?”

Let’s take a look at four options to help you make an informed decision on what you should do with your 401k plan upon retirement or separation from service whether you have a million dollars or several thousand.

Leave Your 401k Plan With the Current Company

Generally, you can leave your 401k with your current company – or should I say your previous employer.

But this isn’t always the case.  Many times, companies want you to get those funds out of there because of costs to them.

If your company does allow you to leave it – then you can just keep your 401k plan with the same custodian, use the same investments and keep things as is.

Advantage:

It’s easy, generally cost effective and doesn’t require much thinking on your part.  Just keep the status quo.

Disadvantage:

You have your money with your former employer’s custodian.  That could possibly make for some discomfort – even though your employer legally can’t do anything with your money, some folks would rather cut ties completely.

Your money is invested with whatever custodian your company chooses – and they can change whenever they want, to whomever they want.  That means your funds could change simply because your former company wants to change.

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Take a Distribution From Your 401k Plan

You could take money out of your plan, have a check cut and sent directly to you.  Perhaps you need the cash and are more worried about making ends meet with the loss of your job than you are about preserving your retirement future.

Advantage

Access to cash if you need it within a relatively short period of time.

Disadvantage

If you are under age 55 when you retire or separate from service there is a 10% penalty for early distribution.  

If you are over 55 that is waived.  Yes, you read that right – age 55. This is called the age 55 Exception where the IRS allows you to take a distribution from a 401k provided that you are age 55 at the time of your separation from service and that you leave your 401k at your company – in other words you cannot roll it to an IRA first and then take distributions and expect to avoid the penalty.

There is also a mandatory 20% tax withholding from your custodian, which they will send to the IRS for you.

Take Your 401k Plan With You to Your Next Employer

One option you may have is to take your 401k plan with you to your next job.  You’ll have to check with your new employer to find out if this is allowable, but generally speaking many plans will let you transfer that old 401k into the new plan.

Advantage

Easy.  Combining your funds helps with compounding interest earned on that 401k balance.  There are no tax consequences.

Disadvantage

The new company may not have the greatest 401k plan available.  There may not be a good variety of funds.  Again, the custodian can be changed at the employer’s discretion, which means you still don’t have much control over your funds.

Roll Your 401k Plan Over to an IRA

You can do a direct rollover to an Individual Retirement Arrangement or IRA.

Advantage

You are in the driver’s seat.  The money is in your own account which you have discretion.  You can make changes, you can make the investment choices, you can pick the custodian or brokerage company that you feel most comfortable.

You don’t have the company limiting your investment options.  You can invest into pretty much anything you want.

You can even open a Roth IRA and do a Roth IRA Conversion on the money if you wanted to – you are making decisions, not your employer any more.

There are no tax consequences to performing a direct rollover.

Disadvantage

This requires a bit more work on your part.  For example, you’ll need to research a custodian, research investments – whether it is stocks, mutual funds or ETF’s.   You’ll need to essentially manage your own account unless you hire a professional to help you, which of course you’ll have to pay fees to do so.

The 401k generally allows for creditor protection in a bankruptcy or by plaintiffs in a civil lawsuit. IRA funds, however, are limited in their protection and the rules differ from state to state.

What Are Your Thoughts?

As you can see, there are some decisions to make once you leave your job. Some of these are more advantageous than others, so be sure you do your homework and figure out what’s best for you for your retirement.

Readers, what would you do – or what have you done in this situation?

This was a post I originally did on ChristianPF.com. I’ve adapted it some for my site, but you can check out the original here.

It seems there are more and more people becoming self employed these days - or at the very least, many folks are starting a side business, turning a hobby into some extra income or doing some type of independent contractor work.

In my day job, I am actually an independent contractor so I know quite well there are some things to remember if you’re self employed.

Whether you’ve decided to turn your blog into a business, sell a multi-level marketing product or rent a storefront to start selling your homemade jewelry there are some mistakes you will definitely want to avoid.

Not Having Your Small Business Set Aside Money for Taxes

This seems simple enough, but is probably one of the biggest tax mistakes people make .  The number of people I talk to that haven’t set aside money for taxes is pretty high. 

If you are a 1099 contractor, the company you are contracted with does not pull out small business taxes for you. 

At first, this feels great because your paycheck is higher – then reality sets in when it’s time to file your taxes.

Uncle Sam requires you to make quarterly estimated tax payments.  If you don’t have enough paid in for your estimated taxes you could face some penalties. 

I recently talked to someone who didn’t think they really needed to set money aside for his independent contractor work and figured he could just use his savings to pay the taxes.

He ended up making a little more than he thought by the end of the year and couldn’t pay all the tax liability.  He got whacked with some stiff penalties and is now making recurring payments to the IRS until his debt is wiped out.

Another thing people fail to realize is the self-employment tax that’s due.  This was a kick in the gut to me after my first year of self-employment.

Uncle Sam charges 15.3% tax for small business in addition to your regular income tax!  This is equivalent to the FICA tax on a regular paycheck.  The good news is that you can deduct half of your self-employment tax, but you still have to pay this small business tax! 

What I do to help me throughout the year is any time I get paid, I set aside a certain percentage of my money right away into a separate bank account, which is labeled Uncle Sam’s.  Then each quarter I take that money and make a quarterly estimated tax payment.

In the fourth quarter I do a quick assessment of where I am in terms of income and tax payments and adjust accordingly.  This has worked well for me the last few years.

Small business taxes are an annoying part of being self employed, but it’s a must.

Not Considering Incorporating a Business

Many self-employed folks start out as a sole proprietor.  They themselves are the business and everything (income, expenses and liabilities) gets funneled through their own personal account.

To set the record straight, not everyone should incorporate a business. 

If you’re not planning on going “big time” with your small business or you’ve decided you just want your hobby to make enough to cover expenses, it probably doesn’t make sense to pay the fees associated with incorporation.

It does make sense, however, to at least consider whether incorporating a business is right for you.  One benefit of incorporating is that you can get around the self-employment tax.

The biggest benefit however is limited liability.  This means that the business - not the owner - is personally responsible for its obligations. 

In other words, if the business gets sued, only the business assets are at risk, not all of your own personal assets like in a sole proprietorship.

So incorporating a business can be a pretty big advantage – definitely one worth considering.

Not Keeping Track of Income and Expenses

This is one of those mundane tasks that most owners hate, but every business must do in order to maximize deductions as well as protect themselves from an IRS audit.

A business owner should really be organized when it comes to keeping track of income and expenses.  Don’t write down your mileage on a napkin each time you travel.  

Your bookkeeper will thank you for that.  Or, if you are acting as bookkeeper you’ll appreciate your organization as your business grows.

Get a notebook, use a spreadsheet or some budgeting or personal finance software to track the amount of your expenses, the category (i.e. office supplies) and a brief explanation of what you purchased etc.

Don’t rely on your memory to come through for you when you need to report an expense.  Keep your receipts, develop a system and keep up to date.

I typically store all my receipts in one place for the week and then each Friday I pay bills, track my expenses in a spreadsheet, review my income and take a look at profit and loss statements. 

This may be a bit much depending on what type of business you are in, so just be sure you come up with a system that works for you.

Avoiding these mistakes as a self-employed person will help free up time, save you money and protect your business so you can maintain a long and profitable career.

What are some other mistakes you would avoid?

Retirement is a fascinating topic don’t you think? 

Millions of people long for it, plan for it and obsess over it.

On a daily basis, people ask themselves questions like these:  when can I retire?; how much money do I need to retire?; and which retirement account should I be saving into as I get ready for that big day?.

The last question is what we want to tackle today – which retirement account is right for you?

We certainly won’t cover every single type of retirement account out there today, but I do want to tackle the big four – 401ks, Traditional IRAs, Non-Deductible IRAs & Roth IRAs to see which one(s) make sense for you.

Let’s take a look:

401k Retirement Account

401k legislation was written in 1978 and finally passed in 1980.  401k’s allow employees to choose to receive deferred compensation rather than direct compensation.  That compensation gets put into a 401k account that is invested.

401ks are tax-deferred retirement savings accounts.  Basically they allow you to reduce your taxable income, which gives you a tax-break now.

They also grow tax-deferred – meaning you are not taxed on the growth of the investments each year.

When you pull the money out in retirement, however, you must pay the Piper!  Uncle Sam will ask for all that deferral to be taxed.

Every dollar you pull out will be included in your taxable income for the year – it’s as if you earned that money. 

401ks – The Right Retirement Account for You?

401k retirement accounts are right for folks who like having an easy way to save for retirement (deductions are taken from your payroll), who want to reduce their taxes now and who are getting an employer match on their 401k contributions.

Traditional Individual Retirement Account (IRA)

A Traditional IRA works much the same way as a 401k except for the payroll deduction.  The limits are much lower in terms of what you can contribute as well.

If you are covered by a retirement plan at work and making between $56,000 and $66,000 for singles and $89,000 and $109,000 for joint-filers then the deductibility of your contributions are phased out.

That means you cannot deduct the entire amount of your contributions from your income. 

If you are making under that amount or you are not covered by an employer retirement plan at all, then you are able to fully deduct your IRA contributions.

Traditional IRAs – The Right Retirement Account for You?

A Traditional IRA is a great retirement account for those who may not have a 401k or other employer plan, or who perhaps do have one, but are making less than the phase-out limits and want to get tax advantages now.

Roth Individual Retirement Account (IRA)

Roth IRAs are Individual Retirement Accounts that do not give you a tax break up front.  Rather, they allow you to put in after-tax money, which then grows tax-deferred.

When you reach 59 1/2, you can take out your contributions and your earnings completely tax-free!

Like the Traditional IRA, the IRS has phase out rules for Roth IRAs.  For single filers, your Roth IRA contributions are phased out when your Modified Adjusted Gross Income (MAGI) is between $105,000 and $120,000.  Above $120,000 you are ineligible for a Roth IRA contribution.

For married filers, the phase-out limits are between $167,000 and $176,000 and above that you are ineligible for contributions.

Roth IRAs – The Right Retirement Account for You?

Who should open a Roth IRA?  Basically anyone who falls under the phase-out limits, wants to diversify themselves from a tax-standpoint and has ran the numbers and feels that income or tax rates will be higher in the future and their potential for tax savings is greater down the road than it is now.

Non-Deductible Individual Retirement Account (IRA)

A Non-Deductible IRA is simply an IRA that you contribute to when you are phased out of your deductiblility.  Remember how we said that if you are covered by an employer plan and make too much money you can’t deduct your contributions? 

A Non-Deductible IRA is the result.

Last year I would never have given the non-deductible IRA a second thought.  It made very little sense to contribute to them. 

This year, however, it may make a lot of sense for folks.  Here’s why:

The income limits for Roth IRA conversions have been lifted, meaning anyone can convert money to a Roth IRA!

I won’t get into the details of this strategy here, since I talked about covnerting non-deductible IRA contributions at length in this post - but quickly, here is the strategy:

Make Non-Deductible IRA contributions (no tax write off); convert those contributions to a Roth IRA (no taxes owed); let your money grow tax-free in the Roth IRA (no taxes owed) and then pull out the money in retirement (no taxes due!)

Non-Deductible IRAs – The Right Retirement Account for You?

This strategy is right for those who make too much money to simply contribute to Roth IRAs, but still want to take advantage of tax diversification by getting money into a Roth.

Which Retirement Account is Right For You?

Readers, let’s hear from you – which is your favorite retirement account and why?

If you missed the tax deadline and have tax returns that have not been filed, it is imperative you address the situation immediately to avoid continued problems with the Internal Revenue Service.

While the reasons for not filing taxes are certainly important, at this stage of the game your focus should be on how you can resolve this situation, not make key tax mistakes, move forward and get back tax help.

In many cases people convince themselves that if they have not yet heard anything regarding IRS back taxes, they have somehow caught a free pass.

It is dangerous to convince yourself of this as one day they will surely contact you regarding what you owe the IRS and tax returns that have not been filed.

To avoid the additional stress and worry of when that day will occur, take the necessary steps now to get back taxes help and get your IRS back taxes in order.

Here we look at how you can get the process started and why it is important to get back taxes help and file IRS back taxes.

The Process of Filing IRS Back Taxes

Gather Documentation

If organization is not one of your key strengths, you may encounter difficulty when gathering the necessary documents to file back taxes.

Depending on how much time has passed since you last filed your tax return, the information may be have been misplaced or absent all together.

If this is the case, you can request the necessary documents from your employer or from the IRS directly.

Specifically you will be looking for your last filed tax return as well as W-2′s or 1099s from the year(s) in question.

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Preparing the Return

Once you have all the documentation needed to file the return, you must decide whether you want to hire a tax professional or attempt to prepare the return on your own.

While there are many software products available to assist in do-it-yourself tax preparation, this might be one case where you are better served by enlisting the help of a professional trained in tax preparation and IRS back taxes.

Tax laws are continually changing and it is important to be up-to-date on these laws to ensure your taxes are filed correctly and with the most eligible deductions and credits applied.

This will have a significant impact on whether or not you receive a refund or owe IRS back taxes.

File the Return

Whether you end up owing IRS back taxes or anticipating a refund, the next step is filing the tax return.

You can submit your tax return to the normal address provided by the IRS for filing tax returns.

If you have been contacted by the IRS regarding back taxes, they may have provided an alternative address to submit back tax returns.

As always, make sure you have a copy of the full return as well as any supporting documentation to keep for your records.

Why it is Important to File IRS Back Taxes

By taking the steps necessary to file IRS back taxes you can eliminate the stress and worry of waiting for the IRS to contact you regarding back taxes.

If you think that won’t happen, think again because despite the slow moving IRS system, they will in fact catch up with you at some point in time.

During that time, penalties and interest on any taxes owed will continue to accrue, resulting in an even larger tax liability for which you will be responsible.

Unpaid tax bills can result in a tax lien or levy on wages and other assets, therefore it is imperative you cut this problem off at the pass to protect your home and property in the future.

This has been a guest post by  Backtaxeshelp.com, a site designed to help you pay back taxes. Owing back taxes to the IRS is stressful, and negligence will only worsen the situation. Learn how to get back tax relief.

With the IRS tax deadline of April 15th on the horizon, procrastination may actually turn out to be a good thing for some taxpayers who have not filed yet.

You may want to file for a tax extension if you are trying to claim a home-buyer tax credit this year, you want to reverse a Traditional IRA to Roth IRA conversion, you have not received certain tax documents, or something major has come up in your personal life.

Fortunately, the IRS provides automatic six-month extensions from the IRS tax deadline, which gives taxpayers until October 15th to file.

It is important to understand that this is not an extension to pay, as the IRS usually needs 90% of your actual taxes owed by the tax filing deadline of April 15th.

If you do not request an extension of the IRS tax deadline and you file late, you will be hit with a Failure to File Penalty of 5% per month (up to 25%) on any unpaid taxes.

When Is It Warranted to File a Tax Extension

Claiming A Home Buyer Tax Credit

We all know about the home-buyer tax credit that Congress extended with the ARRA or the American Recovery and Reinvestment Act of 2009.

This act allows a taxpayer to purchase a home and receive a tax credit up to $8,000 dollars ($4,000 if married and filing separately).  

However, you need to purchase by April 30th, 2010 (or have a signed contract by then with a closing before July 1st) and this credit starts to phase out once you hit a certain income level.

Therefore, if you will have a signed contract by April 30th or you plan on completing the purchase of a home on or before April 30th, requesting an extension from the tax filing deadline is warranted in order to claim this tax credit on your 2009 tax return.

If you have filed already, you can amend your tax return if you really need the credit in 2009, otherwise, you can just claim it on your 2010 tax return.

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Reversing A Traditional IRA to Roth Conversion

If you converted a Traditional IRA to a Roth IRA in 2009, you will owe taxes this year on the conversion since the Traditional IRA was funded with pre-tax dollars.

However, if your IRA significantly lost value (which happened to many in 2009) since the conversion, you would be paying taxes on money that is not there anymore.

Therefore, you may way to “recharacterize” or reverse this conversion and you have until October 15th, 2010 if you converted your Traditional IRA in 2009.

If you have already filed your tax return, and you want to recharacterize your IRA conversion, you will have to amend your tax return. 

However, if you have not filed yet, you can file for a tax extension from the tax filing deadline, which will give you plenty of time to recharacterize and file.

You Have Not Received Necessary Tax Documentation

W-2s, 1099s, and other documents are often misplaced, lost, or never received. If you have not called your employer for your missing W-2, or your financial institution for your missing 1099(s), then you need to do that.

You could file for a tax extension, if you believe you will have these tax documents by October 15th, 2010. On the other hand, you could file by April 15th by using Form 4852, “Substitute for Form W-2,” to help estimate your earnings and withholdings using pay stubs and other information.

If the numbers you estimated were off, you will need to amend your tax return using Form 1040x. This can be a hassle, where it might have been just easier to just file for a tax extension in the first place.

Personal Events

If you’re up against the tax filing deadline because of personal issues, you may also want to file for a tax extension.  Maybe you are suffering from a sickness, a loss in the family, a natural disaster and so forth.

The IRS does not care why you need a tax extension. Tax extensions are automatic.

How To File for a Tax Extension

Basically, there are three easy ways you can request a tax extension. You need to request this extension by April 15, 2010.

• Read, print, and fill out Form 4868, and send it to the correct IRS address for your state (on page 4 of form)
• eFile Form 4868 using IRS e-File or use a software program like TurboTax or Tax Cut
• Pay all or some of your estimated taxes due with a credit card or debit card (not recommended just to request an extension)

When filing for your tax extension, it is a good idea to send the IRS at least 90% of what you actually owe.

Form 4868 has a nice worksheet you can use to estimate taxes owed. Remember, even though you may have an extension to file, this is not an extension to pay.

This has been a guest post by Matt Robinson.  Matt is tax accountant who specializes in tax debt settlement and other tax debt solutions.

By now you’ve all heard of the opportunity for Roth IRA conversions right?

Ok, but maybe you are unsure what a Roth IRA conversion is all about.

Let’s dispel any myths about this and take a look at exactly what’s going on for this year for Roth IRA conversions.

This post will be more of a lesson in what’s happening than a post to convince you one way or the other to do it.

So let’s jump in!

What is a Roth IRA

First, let’s start with the basics.  I run into quite a few people who are unaware of what a Roth IRA even is.  Most everyone has heard of it, but are simply unsure how it works.

So,  What is a Roth IRA ?  Here’s the basics:

A Roth IRA is an Individual Retirement Arrangement that is funded with after-tax contributions; the money grows tax-deferred; and withdrawals are TAX FREE!

Think of it this way – already taxed money goes in – and comes out completely tax free.

It’s a pretty sweet deal if you qualify, meet specifications and figure that your tax rate will be be higher in retirement than it is right now!

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What is a Roth IRA Conversion

What if there was a way to take money from a fully-taxable account and put it into a tax-free account for life!?

That’s exactly what a Roth conversion is. 

You are taking money from a Traditional IRA and transferring it, or converting it to a Roth IRA. 

So what happens is you get money out of a position that will be taxable to you in the future and get it into an account that will never be taxed again!

Sounds like a pretty sweet deal right? 

Uncle Sam Will Love You and Your Roth Conversion

The problem is that whenever you do this you have to pay taxes on the amount you withdraw from your Traditional IRA for the Roth conversion.

*Uncle Sam pumps his fists!

So let’s say you want to convert $10,000 from your Traditional IRA – you would have to tack that on to your income for the year and pay tax at whatever rate you are at. 

It’s as if you earned an additional 10 large for that year!

What Changed in 2010 Regarding Roth IRA Conversions

One big change for 2010 and beyond is that anyone can convert to a Roth regardless of income level. 

Previously, if you made over $100,000 you could not convert to a Roth. 

Uncle Sam wants tax revenue!  So I’m surprised it’s taken this long to change that rule, but this is the first year.

The other big change for 2010 is that you have a choice to pay all of your taxes in 2010 or average the taxes owed on the Roth IRA conversion over two years ( i.e. pay in 2011 and 2012). 

Uncle Sam gives you a choice on when you pay your taxes.

But don’t get fooled, the current tax law plans for higher rates in 2011 - so you’ll possibly be paying for your Roth IRA conversion at higher tax rates!

*Uncle Sam rubs his hands together with a grin!

Things to Consider for a Roth IRA Conversion

 How you will pay the taxes – you don’t want to pay out of your IRA money, so be sure you’ve got some extra cash on the side to pay for it.

Are you over age 70 1/2 – if so, there’s this not-so-little rule about Required Minimum Distributions (RMDs) that must be satisfied first!

What tax bracket are you in? – Will the money you convert push you into a higher tax bracket?  Yikes – better think twice!!

Are you trying to get financial aid? – Whether it’s for you or for your kids, the Roth IRA conversion will count as income on the application!

More Insights into Roth IRA Conversions

For some good insights and varying opinions check out these articles from some fellow bloggers:

• Roth IRA Conversion: Good Idea? – From Consumerism Commentary
• Be a Sloth and Don’t Roth – From Financial Samurai
• Unforseen Consequences of the Roth IRA Conversion – Good Financial Cents
• Should You Convert to a Roth IRA in 2010? – Christian PF

Roth IRAs can be great tools to use for retirement – but, be sure to review the rules and regulations to determine whether you should open a Roth IRA and to see if a Roth IRA conversion is right for you.

According to Wikipedia, Baby Boomers are those who are born between 1946-1964 – meaning they range in age from 46-64 years of age.

Retirement is certainly on their minds and they are concerned about how much they need for retirement savings.

As baby boomers approach the magical age, there are some pretty important things to keep in mind about saving for retirement.

Let’s take a look at five things to keep in mind about retirement savings:

Retirement Savings Is Up to You!

Ok, so this is no breakthrough – I’m not pretending to discover a cure for cancer by any means, but this point needs to be stressed over and over again.

Years ago, you could work for an employer for 30 or 40 years, retire with a nice pension provided by the company and collect your social security and be pretty comfortable in retirement.

Not anymore!  Companies are dumping their pensions left and right, Social Security will need a massive overhaul to avoid going defunct – so what does that mean for you?

You are on your own for retirement savings – and that’s OK.

When Can You Access Your Retirement Savings?

This is something that all baby boomers should get really familiar with.  Accessing your retirement savings is generally what’s going to provide you an income in retirement, unless you have other business income etc.

Most people recognize 59 1/2 as the magical age to access your retirement savings, but get familiar with the rules surrounding your withdrawals.  Here’s a couple of them to remember:

• You can access your IRA at any time, but be aware of the penalties.
• You can withdraw from your 401k savings prior to 59 1/2 without penalty if you are at least age 55 when you retire.
• You can take out Roth IRA contributions at any point in time, but the earnings must left alone until age 59 1/2.

What is Your Retirement Savings Number?

A few years back, Lee Eisenberg wrote a book called The Number, where he talks about what you’ll need for the rest of your life and what it will cost.  It’s an entertaining and informative look at what the rest of your life will look like.

You should be asking questions like, “Is a million dollars the magical number?”  Many people think they need much, much more than that, but is that right?

In light of this, you’ll need a good retirement calculator and you’ll want to sit down with your loved one and figure out your income versus expenses and determine how much retirement savings you need?

How Will You Diversify Your Retirement Income?

This is one that boomers probably have in the back of their minds, but some careful consideration should be done.

Will you have a pension, social security, 401k savings, IRA money, or annuities to help supplement your retirement income?

What about starting a business or turning a hobby into an opportunity to make some side money?  Have you considered other ways to make money and diversify your income in retirement?  You probably should.

Once again, retirement savings is up to you, therefore you need to be prepared and should have multiple lines in the water so that you’re not relying on the fish always biting from one particular source.

How Will You Diversify Your Retirement Savings From a Tax Standpoint?

Tax diversification is extremely important and is something that everyone should get familiar with and take a look at for their own situation.

In essence, tax diversification takes a look at the tax status of investing into three different vehicles.  You have tax-deferred, taxed-as-you-go (or non-qualified) and tax-free.

No one investment vehicle is right in every circumstance, but I think it’s very important to spread savings out among these three types of accounts because the greater the flexibility you have for accessing retirement savings, the greater the options you have for lowering your tax burden in retirement.  Plus, after reading why tax-deferral may not be all that it’s cracked up to be you might agree with me.

If taxes are high in some years, you have other money to withdraw from besides your 401k.  If tax rates are low, then why not pull money out of your IRA and consider a Roth conversion etc.

How About You?

Readers, what are some other things to consider for retirement?

Ahh, tax time!  The time in America where everyone gets a little edgy, a little nervous and a little anxious as we patiently await our peril (owing more to Uncle Sam) or our “profit” (a big refund).

Accountants are settled in to their cubby holes, people are scrambling to gather all their documents and Uncle Sam waits with a grin.  Tax time is great isn’t it!?

Every year, there are millions of people who make some big mistakes when filing their taxes and it just shouldn’t be.  These are easy ones to avoid when filing your 1040!

Let’s take a look at a few of them:

Missing the April 15 Dealine

For all you procrastinators out there, this one’s for you.  Of course no one likes to pay or file for that matter, but the longer you wait, the more anxiety builds up and the more likely that you’ll not have all you need in terms of documents, which means you’ll need to file an extension.

Get an early start, gather everything and double check your documents – then file as soon as you can so you don’t flirt with that deadline.

For those of you who say, “I’d rather not file because I know I’ll owe money” – that is just plain silly.  The IRS will tack on some monster penalties for what you owe them.  They are not an entity you want to mess around with.

Not Reporting All Income

This sounds easy enough – if you have a W2, you put that number down.  But, many people forget to include things like interest and dividends from savings, CDs or other investments.

What about income from a side hustle, hobby or that multi-level marketing business you joined last year?

Servers, don’t forget to include your tips – parents, do you need to include your teenager’s income?  You don’t want to get a note in a few months from Uncle that says you owe more money – take care of it now.

Missed Deductions or Not Itemizing Deductions

This one is so easy, yet can be a big mistake – and a costly one at that.

Take a look at this list from the IRS, review the rules and see if you can deduct any of these on your 1040:

Wrong, Duplicate or Missing Social Security Numbers

Seriously?  This one sounds simple enough, yet millions every year either put down the wrong numbers, duplicate their social number for their spouses or just completely forget to put down their social security number when filing their taxes.

The easiest way to correct this is just to double and triple check – make sure you have everything filled out properly.

Not E-Filing

Even if you use an accountant or a tax-prep service you should probably e-file.  It’s simple, it’s easy and it speeds up the refund.  You can get your refund direct deposited into your bank and not have to worry about lost or stolen checks!

If you’re doing your taxes yourself and using software like H&R Block’s At Home Online FREE Edition, then e-filing is even easier.  Take advantage of technology!

If you’re looking for other tax software, check out Amazon’s deals.

 Other Deductions?

What else would you add to the list of biggest tax-filing mistakes?

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Disclosure: I may receive compensation for any order placed with Amazon or H&R Block through this website.

There’s no question that 401k’s have become the norm for retirement savings.  More and more companies are putting the responsibility of saving for retirement on the employee and have gotten rid of traditional pension plans.

401k Popularity

According to a 2007 Hewitt & Associates survey, 64 percent of plan sponsors said they use a 401k for their organization’s primary retirement-savings program. That’s up from about 35 percent just 10 years ago.

Not only do employers like the 401k, but many employees love them as well.

Why people love their 401ks

Ease of Use

Most 401k plans are pretty easy to sign up for and begin saving into.  A couple forms, a couple signatures and you’re on your way to putting a percentage of your income away for retirement!

Bigger contribution limits

Unlike Traditional or Roth IRAs, which cap your contributions at $5,000 (with a $1,000 catch-up contribution if over age 50) the 401k allows up to $16,500 with a $5,500 catch-up contribution over 50!

If you’re making a good income, this is a great way to get additional money saved up for retirement.

Tax treatment

Contributions are tax-deferred, which means you don’t have to pay taxes on gains each year.  They are deferred until you withdraw your money in retirement.

Not only can you defer your taxes, you can also take a deduction on your contributions.  In other words, you get to deduct (or subtract) the amount of your contributions against your ordinary income.

That’s a pretty sweet deal.  Say you make $80,000 and put away $16,000 – your ordinary income is reported to be $64,000!

Why you shouldn’t love your 401k!

Limited Control

Here’s what I mean:

1. The employer chooses which company you will use (i.e. Fidelity, Vanguard etc)
2. In general, the employer chooses which funds you can pick from (you may only have 15-20 options)
3. You only have 11 years to control your withdrawals (59 1/2 – 70 1/2 – there are penalties for withdrawing before that and penalties if you don’t withdraw after that).

Government Forced Withdrawals

Many people don’t realize this – but at age 70 1/2 the government forces you to take money out of your 401k (unless you’re still working).

How can the IRS force you to take money out?  By whacking you over the head with a 50 percent penalty for not taking the withdrawal!  50 percent!!

So all that money you’ve managed to save up for retirement – and perhaps you don’t need – you MUST withdraw.  Why would the government do this?  To get tax revenue silly!

401ks are Tax Infested

This is the biggest reason not to fall in love with your 401k.  All those taxes you deferred for all those years have to be paid some time.

People often assume their income will be lower in retirement and therefore their tax bracket will be lower – which means that they’ll pay less taxes.

That’s not necessarily true.

You’ll probably want to maintain your standard of living, which means you’ll need the same amount of income.  Factor in inflation and depending where tax rates are - you could actually be paying more in taxes than you ever imagined!

That pretty balance you had on your 401k statement isn’t really yours.  You may be giving 25 percent or more back to good ol’ Uncle Sam.

These things are loaded with taxes.

If you pass away, your beneficiaries are forced to take money out (again think penalties here) and will have to pay ordinary income tax on every single dollar that’s pulled out at whatever tax rates apply to them!

What should you do?

Use it wisely

The last thing you want to do is throw the baby out with the bathwater as the ol’ saying goes.  The bottom line is you need to use the 401k wisely.  If your employer is matching contributions – you want to definitely take advantage of that!

Make informed decisions.

Take a look at your situation to determine if you’re creating a tax-infested monster.  Crunch some numbers to determine if using a Roth IRA or Roth 401k is better for you.  There’s some handy calculators out there that will help you figure this out.

Diversify

Diversify yourself from a tax perspective.  In other words, make 401ks and IRAs, taxable accounts, municipal bonds and Roth 401ks and IRAs a part of your overall tax strategy.

Bottom Line

Don’t get caught up in the hype of 401ks.  That doesn’t mean you don’t use them, but just don’t fall in love with them!  Make informed decisions and understand what you’re saving into.

What about you?  Are you in love with your 401k?  What have you done to diversify yourself?