FAQ's
What is an Individual K account and Roth Individual K?
An Individual K, also called a Solo 401(k), is a 401(k)-plan designed for a business owner with no full-time employees other than a spouse. A Roth Individual K (Roth Solo 401(k)) is the same type of plan, except some or all contributions are made on an after-tax basis, allowing for tax-free withdrawals later if IRS requirements are met.
What is Roth IRA?
A Roth IRA is an individual retirement arrangement that allows you to make after-tax (nondeductible) contributions with the potential to take completely tax-free distributions.
When can I withdraw money from my Roth IRA?
Depending on when you take the money out and what type of Roth IRA assets (contributions, conversion or rollover amounts, or earnings) are included in the distribution, you may be subject to income tax and an IRS penalty tax. But if you have a “qualified distribution” all assets are tax and penalty free.
What are the main differences between a Trust and a Will?
A Will must be probated, and a Trust does not require probating. Another difference is that a Trust works while you're alive and after death, whereas a Will only takes effect after death.
What is a 72(t)?
A 72(t) distribution is an IRS rule that allows you to withdraw money from a Traditional IRA (or certain qualified retirement plans) before age 59½ without paying the 10% early withdrawal penalty. The rule is named after Internal Revenue Code Section 72(t) and requires you to take a series of Substantially Equal Periodic Payments (SEPPs).
Key Rules
· No 10% Penalty
· Must continue the payments for 5 years or until age 59 ½, whichever is
longer
· Cannot change the schedule
What is the Rule of 72?
A quick way to estimate how long money takes to double. 72 ÷ Rate of Return = Years to Double
Example: 6% Rate of Return will allow the investment amount to double in 12 years
What is a fixed index annuity?
A fixed index annuity is a contract between you and an insurance company. You provide the insurance company with a purchase payment (or series of purchase payments), and in return you receive a tax deferral on post-tax assets, safety of principal, growth potential without being invested in the market, access to your money and beneficiary protection.
What are the four most popular ways to save for educational goals?
1. U.S. Series EE Savings Bonds
- government-issued savings bonds that earn interest over time and are backed by the full faith and credit of the U.S. government.
2. UTMA/UGMA Accounts
- custodial investment account established by an adult for the benefit of a minor child.
3. Coverdell Education Savings (ESA) Account
- a tax-advantaged account designed to help families save for qualified education expenses.
4. 529 Savings Plan
- a state-sponsored education savings program that allows investments to grow tax-free for qualified education expenses.
What is diversification?
Diversification means spreading your money across different types of investments so you’re not relying on any one investment to succeed. The goal is to reduce risk because when some investments perform poorly, others may perform better and help balance your portfolio.
What is the difference between qualified funds and non-qualified funds?
In the financial services industry, qualified funds and non-qualified funds refer to the tax status of the account holding the money, not the investments themselves. Qualified funds are held in a tax-advantaged retirement account, and contributions may be tax-deductible or pre-tax. Non-Qualified funds are held in a regular taxable account and contributions made with after-tax dollars.
This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.
Fixed and Variable annuities are suitable for long-term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value.
Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.