The discussion of implementing proactive environmental consciousness starts with our youth, who have the most influence on the trajectory of our eco-infrastructure.
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from NutritionFacts.org http://www.youtube.com/watch?v=qYQ7JZxHmo8
According to a new study completed at Duke University in Durham, North Carolina, brisk walking could be even more effective than jogging when it comes to controlling the blood sugar levels of people with prediabetes. Prediabetes involves blood sugar levels …
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An index of small business employment growth inched up as Main Street America added jobs at a steady pace this month.
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It is likely that million Americans have an addiction to sugar. I once read somewhere that breaking a sugar addiction can be just as difficult as breaking a heroin addiction, and I believe it. Guzzling down a piece of candy, …
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Drenching our furniture in chemicals to make it safer probably wasn’t the best idea.
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Majority of Americans between 18-24 now choosing liquid soap because they think bar soap is covered in germs. Many others just find it inconvenient.
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Welcome to another Ask GFC! If you have a question that you want answered you can ask it here.
If your questions get featured on GFC TV or the GFC Podcast, you are the lucky recipient of a copy of my best selling book, Soldier of Finance, and a $50 Amazon gift card.
So what are you waiting for? Ask your question now!
The 401(k) plan is one of the greatest innovations ever developed for working Americans to save and invest money for retirement. But 401(k) plans are primarily for salaried employees – where does that leave self-employed?
This is another great topic inspired by a question from a GFC TV viewer named Shane:
I’m self employed so I don’t have they luxury of having a 401k. I do have a Roth that I contribute the maximum amount to each year, but my question is are there other ways that I can put money away for the future that will give me a decent return?
Shane G.
There’s no need to beat around the bush on this topic. Yes, Shane, there are 401(k) equivalents for the self-employed. There are of course traditional and Roth IRA plans that you can participate in, but there are other retirement plans available to the self-employed that look a lot more like a 401(k) plan.
There are three that are worthy of a deep discussion.
In order to qualify to make a contribution, you must earn a minimum of $5,000 in either of the past two years.
For 2016, the maximum contribution is $12,500, or $15,500 if you are 50 or older. You can contribute 100% of your earnings up to those limits. So if you earn $12,500, you can contribute $12,500.
As an employer, you’ll have to make either a 3% matching contribution, or a 2% nonelective contribution. In either case, the employer contribution percentage must be based on the employee’s compensation, which is your compensation if you’re self-employed.
As an example, if your self-employment income is $100,000, you can contribute $12,500 as an employee, but then provide yourself with an employer match of $3,000. That will be a total of $15,500. It’s not as generous as an employer sponsored 401(k) plan, but it’s a lot better than what you can do with an IRA.
One of the biggest advantages of the SIMPLE IRA is that you do not have to file a plan specific tax return with the IRS. That makes management of the plan much easier. You can also maintain the plan through a brokerage of your choice. It can be a self-directed account, enabling you to maintain the maximum number of investment options.
The long version of this plan is Simplified Employee Pension Plan, and like a SIMPLE plan, it is a type of IRA. It is designed as a retirement plan for self-employed individuals and for small business owners and their employees.
As is the case with an IRA, your contributions are tax-deductible, and your investment earnings accumulate on a tax-deferred basis. You can begin taking distributions from a plan after age 59 1/2, at which time the withdrawals will be subject to regular income tax. If you take distributions before this age, you’ll have to pay regular income tax, plus a 10% early withdrawal penalty.
The maximum that you can contribute to a SEP IRA for 2016 is 25% of compensation, to a maximum of $53,000, or $59,000 if you’re age 50 or older. If you have employees, then each employee must open an individual SEP IRA account.
The plan is easy to setup, and easy to administer and maintain. You can set it up through popular investment brokerage accounts, as a self-directed plan. As the employer, you will be required to complete IRS Form 5305 SEP. However, the form must be maintained for your records, but you are not required to make an annual tax filing with the IRS.
This is probably the best retirement plan option for the self-employed, largely because it virtually is a 401(k) plan. It’s just a 401(k) plan for a single individual, as the name implies. However, a sole proprietor can actually hire his or her spouse, and still be eligible for the plan.
With a solo 401(k) plan, you act as both employer and employee in the arrangement. That also gives you an opportunity to make two distinct contributions to the plan.
As an employee, you can contribute up to $18,000 per year, or $24,000 if you’re age 50 or older. These are the same contribution limits that apply to employees under a traditional 401(k) plan. One of the really nice benefits to a solo 401(k) is that you can literally contribute up to 100% of your income in order to reach those limits. (You can actually do this under employer sponsored 401(k) plans, but most employers put a percentage limit on your contributions.)
But then you can also make a contribution as the employer. This is referred to as an employer nonelective contribution. It’s so named because it is based on a percentage of your net business income, and not a flat dollar amount. You can contribute up to 25% of total net business income to the plan, as the employer.
(In regard to business income, the IRS has a complicated worksheet to make this determination in Chapter 5 of IRS Publication 560, so if you have a solo 401(k) I’d strongly recommend a paid tax preparer, preferably a CPA.)
This is a bit complicated, I know! So let’s walk through an example so that you can see how it works.
You have total net business income of $100,000. As employee, you make your $18,000 contribution to your solo 401(k). As owner, you can make an employer nonelective contribution of $25,000 – that’s $100,000 times 25%. Total contribution to the plan will be $43,000 for the year.
Now we’re getting to the point where you can see the solo 401(k) is a much more generous plan than the employer sponsored variety.
There is an absolute limit on how much you can contribute to a solo 401(k) plan. For 2016, it’s $53,000, or $59,000 if you’re age 50 or older. And since those limits are also the maximum that you can contribute to all retirement plans of any type, it will have to be reduced by any amounts contributed to other retirement plans that you have, whether those contributions have been made by you personally or by an employer.
Any of the three plans will enable you to put away a lot more money for retirement than you could with just an IRA account. The easiest plan to administer will be the SIMPLE IRA. But if you are looking for maximum contributions, both the SEP IRA and the Solo 401(k) provide greater amounts, consistent with – or exceeding – what an employee could contribute to an employer sponsored 401(k) plan.
My vote goes to the Solo 401(k). I say that because it offers the ability to achieve the greatest contribution amount for the lowest income. I gave the example of being able to make a $43,000 contribution on a $100,000 income with a Solo 401(k). On the same income, you would be limited to 25%, or $25,000 with a SEP IRA. This clearly favors the Solo 401(k).
Whichever one you choose, you will still come a lot closer to an employer sponsored 401(k), and do a lot better than you would with a regular IRA.
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Dear Nadia,
I have had Type 2 diabetes for five years. My doctor says if I lose 10 kilos in weight, diabetes may disappear. What do you think?
Roland
Dear Roland,
Once you are diagnosed with type 2 diabetes, it …
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This crossword puzzle was inspired by this week’s news and podcast reports. Play along with us to test your knowledge and comprehension on topics we post Monday-Friday.
Please click the link below to download this week’s Diabetes Health Crossword Puzzle …
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There certainly is no secret how strongly I feel about the missed diagnosis of type 1 diabetes (T1D). I spend many long hours after work and at lunchtime spreading the word so we can stop the seriousness of kids seeing …
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This crossword puzzle was inspired by this week’s news and podcast reports. Play along with us to test your knowledge and comprehension on topics we post Monday-Friday.
Please click the link below to download this week’s Diabetes Health Crossword Puzzle:…
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Animals painted with fantastical realism undergo an extraordinary transformation in these large-scale artworks.
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Welcome to another Ask GFC! If you have a question that you want answered you can ask it here.
If your questions get featured on GFC TV or the GFC Podcast, you are the lucky recipient of a copy of my best selling book, Soldier of Finance, and a $50 Amazon gift card.
So what are you waiting for? Ask your question now!
Not many people even admit to being in this situation, at least not publicly. But GFC TV viewer Taylor H. has come clean, which means that she’s putting herself in a position to do something positive about it.
Here is her question:
Jeff,
What do you advise as the quickest, and most efficient way to pay off credit card debt? My husband and I bought a house almost two years ago. After being anti-credit card for four years, our mortgage lender recommended we each open one to boost your credit score and in turn lower our interest rate. Unfortunately, we followed her advice, and now we each have maxed out cards (totaling roughly $7000)! It’s causing huge financial strain on our marriage to pay more than the minimum each month.Thanks,
Taylor H.
Don’t kick yourself for being in this position Taylor. A lot of people get into this bind, and it often happens after buying a house. That’s at least in part because there are almost always more expenses associated with owning a home than with renting. In your case, you may have gotten some bad advice along the way, but we’re going to talk about that.
Let’s see what we can do to straighten all of this out.
The first thing in any crisis is to stop the bleeding! Since the credit cards are the source (but not the cause) of the bleeding in this case, you need to put them away. That means putting them somewhere out of sight, where you won’t be tempted to use them.
Along the same line, immediately dispose of any emails or regular mail showing up offering you a new credit card. This is a good time to let you know that credit card spending can easily become an addiction. The last thing you want to do is open up new credit lines.
Now I’m telling you to put the credit cards away, but I’m specifically not telling you to close the lines out. The mortgage person you spoke to was actually on the right path, if she was recommending taking out a couple of credit cards as a way of boosting your credit score. The higher credit score that will result, will enable you to get a better rate on the refinancing of your mortgage. The credit cards will actually accomplish that goal when you pay them off.
The real problem wasn’t the credit cards, but what you and your husband did once you got them. That’s what we’re going to talk about next.
Credit cards don’t cause people to go into debt – they just make it easier to get there. I’m sure that when your mortgage consultant recommended that you get some credit cards, she wasn’t thinking that you would max them out. The reasons why you did are something you and your husband really need to think about.
Since it’s only been about two years since you opened up the credit card accounts, get out the statements and review exactly what it was that you spent the money on.
This will indicate at least two possibilities, and which actually drove you to go into debt will help you to determine how to get out of it:
If it’s #1, you will need to get control of your spending impulses. Credit cards give you the ability to buy what you cannot afford right now. If paying them off is an issue, you’ll probably be better off without credit cards entirely.
But if it is #2, your situation may be more complicated. It could be an indication that you have insufficient income to support your lifestyle. For example, if you have been using the credit cards to pay for groceries and utilities, because your income is covering the house payment and other necessary expenses, your basic cost of living may be too high.
Carefully evaluate which situation it is. If it’s #1, you have to control your spending habits. But if it’s #2, you may have to take a serious look at either reducing your basic cost of living, or increasing your income, so that you can achieve balance in your financial situation. Excess credit card usage can indicate that balance is missing.
Now let’s get to the mechanics of getting out of debt. In order to do that, you’ll need to create extra room in your budget to pay down your debts. You’ve indicated that the debts are causing financial strain, which tells me that your budget is stretched pretty tightly.
You and your husband need to sit down and do a deep analysis of what makes up your monthly budget. That includes income and expenses, big and small. You need to know exactly what you have coming in, and exactly what’s going out. That will tell you how much you have to work with. If you don’t know where to start there are many budgeting tools that can help.
Most likely, you will need to cut some expenses. Carefully review each line in your budget, to determine that the expense is either completely unnecessary, or that it can be reduced. If it isn’t necessary, terminate the source of the expense. If it can be cut, do it, and do it quickly.
With your finances being as tight as they are, cutting your budget probably won’t produce the kind of extra money that you need. One of you or both of you may need to consider finding ways to increase your income.
There are a lot of possibilities here. One of you may be able to find a better paying job. Or perhaps you can participate in a bonus or referral program at work. Failing that, you may need to consider getting a part-time job. No, it won’t be easy, but it may be a necessary step until your credit cards are paid.
You should also consider if you have any personal possessions that you can sell for some quick cash. Start by looking at anything you may have purchased with your credit cards. If you don’t need it, try selling it. You can probably find several hundred dollars worth of items to sell in your home, and that can jump start paying off the cards.
Most debt payoff strategies ignore this step. But since your financial situation is tight, it’s an extra step that you may have to take.
If in analyzing the cause behind your debt you determine that you may be living beyond your means, you may need to create a cash cushion before paying off the credit cards. This will give you the opportunity to rely on savings – rather than credit cards – when you have a sudden financial need. Make sure you put this cash in a separate savings account where you do not see it in your regular checking.
If you can get off the dependency that you may have built up with your credit cards, that will get you halfway through the process.
As to actually paying off your credit cards, I like the debt snowball method. The idea was originated by Dave Ramsey, and is referred to as a “snowball” because it starts small, but grows larger as it rolls forward.
In regard to credit cards, this means paying off your smallest credit card balance first. This is recommended because paying off the smallest credit line will be the most doable. But once that credit line has been eliminated – along with its attached monthly payment – you will have even more room in your budget to pay off the next largest debt.
You keep doing that until all of your credit cards are paid. Each pay off helps to empower you to take out the next credit card.
I hope this helps your situation Taylor, as well as anyone else who might be struggling with the same problem. All you need is plan, and you can make it happen.
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New study says simple adjustments to a car’s ventilation system during traffic jams can reduce exposure to pollutants by up to 76 percent.
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On National Dog Day, a look at the question of doggie density
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Recent findings from a British study have provided an explanation for why poor children are more likely to be overweight or obese than other kids – mothers who were overweight during pregnancy and mothers who smoked throughout their pregnancy. …
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This food label platform takes complex food data and turns it into easy-to-understand and actionable information that fits our own health goals.
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Watch Yoko and Setsuko descend into the dark watery caves to catch super venomous snakes with their bare hands.
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Grown-ups frolicking in an abandoned Italian resort reminds us that playing isn’t just for kids.
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A look at some of the great photographs
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A look at some of the great photographs
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I am excited to have this opportunity to write a diabetes-focused blog for Diabetes Health about living and thriving with type 1 diabetes. First of all, I am extremely passionate about racing road and mountain bicycles, running 5K runs and …
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