Definition
A traditional IRA is a personal savings plan that offers tax benefits to encourage retirement savings. Contributions are either deductible or nondeductible. Regardless of whether your contributions are deductible, earnings in a traditional IRA grow tax deferred.
A Roth IRA is another type of personal retirement savings plan. All contributions to a Roth IRA are nondeductible. If certain conditions are met, withdrawals from a Roth IRA, including earnings, are tax free.
Traditional IRAs and Roth IRAs can be used to accumulate funds for college. The 10 percent penalty tax that normally applies to withdrawals from traditional and Roth IRAs before age 59½ does not apply if the money is used to pay the qualified education expenses of you, your spouse, or the children or grandchildren of you or your spouse.
Prerequisites
• You qualify to make contributions to a traditional IRA or Roth IRA
• You, your spouse, or the children or grandchildren of you or your spouse have qualified higher education expenses
Key Strengths
• Early withdrawal penalty is waived
• The federal government does not consider the value of your traditional IRA or Roth IRA in determining your child’s financial aid eligibility
Key Tradeoffs
• Your retirement nest egg is reduced
• Colleges may consider the value of your traditional IRA and Roth IRA before awarding their own financial aid
Variations from State to State
• States may vary in their tax treatment of traditional IRAs and Roth IRAs
• States vary in their protection of traditional IRAs and Roth IRAs from creditors
How Is It Implemented?
• Open a traditional IRA or Roth IRA with a bank, financial institution, mutual fund company, life insurance company, or stockbroker
• Select actual type of investment (e.g., certificate of deposit, mutual fund)
• Make contributions as desired up to the due date of your federal tax return for that year (usually April 15 of the following year) Article Written By: Forefield Inc.
Neither Forefield Inc. nor Forefield Advisor provides legal, taxation, or investment advice. All content provided by Forefield is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources.
For professional investment advice on this topic contact: Allgen Financial Services, Inc.
888.6ALLGEN (888) 625-5436
advisors@allgenfinancial.com www.allgenfinancial.com
James O. Armstrong, President of NowWhatJobs.net, Inc.,http://www.nowwhatjobs.net, also serves as the Editor of NowWhatJobs.net. NowWhatJobs.net is the resource for job and career transitions for workers 40 years old and over, Baby Boomers and Active Seniors. Read NowWhatJobs.net for skills training, relocation options, job opportunities and much more. In addition, James is the author of “Now What? Discovering Your New Life and Career After 50″ and the President of James Armstrong & Associates, Inc., a media representation firm based in Suburban Chicago.
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Companies are beginning to make adjustments for older workers. This is strictly a supply and demand issue. In the United States, for example, we have approximately 78 million baby boomers, who are now in their early 40s to 62 years old; but, there are dramatically fewer Generation Xers coming up behind us.
So, here is the issue: How do we as a society encourage older men and women to stay in the workforce longer? The way a company needs to operate is to show more flexibility.
In this way, even someone after age 65, who is beginning to receive Social Security benefits, might choose to work two or three days each week, as a supplement to his Social Security benefits and/or his pension or 401(k) income.
Shortage of workers in many categories.
There are many opportunities for my fellow baby boomers in our society. For example, the United States is looking at an 800,000 shortage of registered nurses in the coming years. Together with LPNs, this shortage will exceed a million nurses just in the United States. Of course, as baby boomers begin to retire, they will increasingly require more medical care.
There’s also a shortage of government workers. Plus, our society doesn’t have enough engineers or scientists. In addition, there’s a shortage of truck drivers, warehouse workers and certain types of manufacturing employees. Further, we don’t have enough technology workers in our society either.
Of course, many of these jobs require more education and/or training. Overall, we also need to be flexible in terms of the jobs we’re willing to consider and do. We also need to understand that a retail job pays 30% less than the national average. On the other hand, men and women need to know that manufacturing jobs and especially advanced manufacturing pays 30% more than the national average. So if you consider manufacturing dirty, for example, you need to rework your thinking because these are great jobs that pay well and provide excellent fringe benefits.
James O. Armstrong, President of NowWhatJobs.net, Inc.,http://www.nowwhatjobs.net, also serves as the Editor of NowWhatJobs.net. NowWhatJobs.net is the resource for job and career transitions for workers 40 years old and over, Baby Boomers and Active Seniors. Read NowWhatJobs.net for skills training, relocation options, job opportunities and much more. In addition, James is the author of “Now What? Discovering Your New Life and Career After 50″ and the President of James Armstrong & Associates, Inc., a media representation firm based in Suburban Chicago.
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No, it hasn’t happened yet. But, the process has begun and it will continue as more and more employers of every possible description in America come to understand about the current and coming labor shortage in the United States.
Here are the current facts. There is already a nationwide shortage of nurses, teachers, truck drivers and warehouse workers, pharmacists, certain types of manufacturing employees and others. Plus, this analysis does not include the highly skilled worker shortage right now among technology companies in the US, which each year requires our country to admit thousands of foreign workers with temporary visas to help us get this job done in the United States. And, even after we’ve taken this step, Bill Gates, who is America’s richest and perhaps the world’s richest man, testified recently before our US Congress that the number of such highly skilled worker visas continues to be grossly inadequate to meet the current demand for such men and women.
Will this situation change for our US economy in the future? Yes, it will, but not in the way you may expect, according to recent testimony from the current Vice Chairman of the Federal Reserve before the US Senate Labor Relations Committee. He, too, predicted a labor shortage will continue and become such a significant factor that our current economic growth, which has average 3% per year for the past 10 years, will actually drop by one third to 2% per year beginning in five years because of our anticipated labor shortage.
With 77 million to 78 million Baby Boomers in America, many of which will choose at least some type of retirement, the United States already knows that that there are significantly fewer Generation Xers to take their place in the workforce. In short, our nation cannot simply manufacture people.
At the same time, Americans are living longer than ever before, thanks largely to the wonderful medical breakthroughs of recent years. In fact, one of four Americans can now expect to live until age 97 on an average. For its part, Social Security is already set to raise its previous retirement age for full benefits from age 65 until a graduated age 67, depending on someone’s date of birth. Further, not all of our Baby Boomers or Active Seniors want to stop working entirely for a variety of different reasons, which range from needing the money to simply enjoying the work.
Further, how often do we as individuals visit an Urgent Care facility near our homes on the weekend and wind up seeing a 72 year old semi-retired doctor (who used to be a surgeon in the area), who still likes to work with patients at least occasionally. We are also not surprised to see such men and women in a dentist’s office, CPA firm, engineering company, financial planning office, stock brokerage or public relations firm either. In short, professionals are allowed to continue on the job on either a full-time or part-time basis in our society essentially as long as they desire to work and on schedules of their choosing. In addition, these older professionals are already helping now to bridge the labor shortage gap in their areas of expertise.
So, what about the rest of us? Wouldn’t it be a desirable outcome to have everyone else treated in the same way as these valuable professionals are now treated in our society? Of course, the answer to that question is an unqualified “Yes.”
What is one of the greatest fears for someone, who is a Baby Boomer or Active Senior today? When someone is not yet ready to stop working completely, it is that “no one will want to hire me because I am too old.” I believe that this type of individual thinking will change in our society primarily due to economic necessity, as more and more companies affirm their commitment to add men and women over age 40 to their staff, on a full-time or part-time basis or as independent contractors.
As Baby Boomers and Active Seniors, our generation also needs to check out the government, on every level from the federal to the state to the local and to the counties all across America. These important jobs will also see a massive turnover in the coming years, as a surge in retirements take place in the area of essential government services. An acquaintance of mine with an excellent education and a high IQ recently discovered a senior IT position in my home county of McHenry County, Illinois, which followed a 14 month, previously unsuccessful job search.
Our country is right now in the beginning stages of responding to growing market pressures for available men and women to join their companies and other organizations. A noteworthy example of providing fringe benefits for part-time employment today emerges from Starbucks, which has received recognition for its forward thinking in this area. In addition, AARP several years ago established its annual awards program, which recognized top employers for its 50+ year old members. Prominent on this list are a whole group of outstanding hospitals in the US, two of which have a significant presence near my home in Northwest Illinois. Schneider National, North America’s largest truckload carrier which is based in Green Bay, Wisconsin, has also discovered the value of older husband-wife teams adding supplemental drivers to their fleet.
Will other companies and organizations make the same discoveries in the future. Simple supply and demand factors for available workers and managers will dictate the individual and collective answers to this question. Our federal and state governments may also step into this equation, perhaps even with tax incentives to companies to hire men and women above a certain age. Already, a growing number of states in the US have also passed exclusions on state income taxes for retired military staffers in a bid to capture this talented group of workers in their 40s and early 50s, who have been trained in a variety of ways at US taxpayer expense. Obviously, our retiring military men and women will need to know which states want them the most in the future, as they factor this additional input into the equation when they leave active military service.
In conclusion, while it hard to say when this shift will happen, we do know that it will gradually take place as more and more companies and other organizations realize the full dimension of our coming labor shortage and exactly how it will affect them. This shift will also be a positive one for Baby Boomers and Active Seniors alike since it will create a greater demand for them and for the continued use of their skills.
It’s August 2007 and Congress is not in session, but once they return, they have some very interesting legislation to [re]consider (the bill was originally introduced in the fall of 2006).
According to analyses by Towers Perrin and the American Benefits Council, this bill dubbed the “Women’s Retirement Security Act of 2007″ would, among other things:
(i) require employers to allow part-time employees that meet age and service requirements over three consecutive 12-month periods to make elective deferrals to their 401(k) plans (this change benefits those whose family responsibilities take them out of the fulltime workforce for long periods of time - and all part-time workers would benefit as well);
(ii) require employers (other than certain very small employers) that currently do not sponsor a retirement plan to allow employees to contribute a portion of their pay to an IRA;
(iii) permit the transfer of up to $500 of unused benefits under flexible spending arrangements (FSAs) to certain retirement plans (like a 457 retirement plan or an IRA);
(iv) provide favorable tax treatment for a portion of the annuity payments made from certain tax-qualified retirement plans and nonqualified annuities; and
(v) exclude from taxation certain retirement planning services (would allow employees to exclude from income up to $1,000 for qualified retirement planning services in situations where the employee has a choice between cash or the services);
(vi) expand the Saver’s Credit (a tax credit for certain low and moderate-income individuals who contribute to workplace retirement plans and IRAs. Many lower income taxpayers are ineligible for the credit because they don’t have any tax liability. The bill would make the credit refundable and require the refund to be deposited into a qualified account, like an IRA);
(vii) expand access to IRAs for people on disability and those who have taken a short time off from the workforce, and revise IRA rules to count disability income, unemployment compensation and other “wage replacement” income in determining allowable contributions;
(viii) provide incentives for lifetime payments allowing individuals to exclude from taxation a portion of payments from qualified (retirement plan or IRA) or nonqualified (after-tax) annuities that last a lifetime;
(ix) equalize tax treatment of retirement plan contributions of the self-employed(employer contributions to a qualified retirement plan on behalf of an employee are generally excluded from both income and employment taxes while contributions to a qualified plan by self-employed generally are not excluded from employment taxes).
For professional investment advice on this topic contact: Allgen Financial Services, Inc.
888.6ALLGEN (888) 625-5436
advisors@allgenfinancial.com www.allgenfinancial.com
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