Tag Archives | retirement

Nest Egg

See Also:
How Factoring Can Make or Save Money
How important is personal credit in negotiating a commercial loan?
Payroll Accounting
Accounting Concepts
Marginal Costs

Nest Egg Definition

A nest egg is an amount of assets or cash put away for a certain cause or purchase like retirement. The assets are usually invested very conservatively.

Nest Egg Meaning

A nest egg is a special account or investment that has been put aside to save up for a special purpose. The special purposes can range from a vacation or car to a person’s retirement. This is why the investments tend to be on the conservative side. These types of investments typically invest in value stocks or in a special retirement account.

Example

Chris is trying to save up for a new set of tires. The tires cost $800 plus the installation. Chris decides to create a nest egg account that he donates 10% of his paycheck. If Chris is making $2,000 every two weeks on his paycheck, how long will it take for him to save the money for his new tires?

Given the former information it will take Chris 8 weeks where he invest $200 every 2 weeks with his paycheck.

Nest Egg

Share this:
0

Individual Retirement Account (IRA)

See Also:
Pension Plans
401k
Keogh Plan
Payroll Accounting
Deferred Income Tax

Individual Retirement Account (IRA) Definition

An individual retirement account or IRA is a personal account that an employee of a company can set up. The contributions to the account are tax deferrable until the funds are withdrawn after age 59 1/2. There are also several contribution limits which are set at $5000 per year.

Individual Retirement Account (IRA) Explained

An IRA is a great way for employees to invest a percentage of their paychecks every year so that they will have plenty when they decide to retire. Some IRA advantages are that the contributions are tax free or tax deferred. This means that the account holder will not have to pay taxes until they withdraw the funds after 59 1/2. However, if they take it out sooner than this age then there is a penalty fee. The great advantage of tax deferred contributions is that the account can earn more on interest over time than if the funds were first reduced by taxes and then put into an account. Another disadvantage is the contribution limit. This means that the individual can only earn so much over time even if the employee did want to contribute more.

Individual Retirement Account (IRA) Example

Tim is working for Wawadoo Inc. and has decided that he would like to start an IRA account. He sets up the plan through the company and begins to contribute 10% of his paycheck to it. Tim makes $90,000 per year meaning that if allowed he would make contributions of $9,000 (90,000 * .1). However, he is only allowed to contribute $5,000 into his individual retirement account.

Individual Retirement Account

Share this:
0

Keogh Plan

See Also:
Pension Plans
Deferred Income Tax
Tax Brackets
Contribution Margins
Employee Stock Ownership Plan (ESOP)

Keogh Plan Definition

The Keogh plan was developed by a United States Representative from New York named Eugene Keogh. A Keogh plan is a tax deferred retirement plan which has some advantages to the self-employed companies that have less than 10 employees working for them.

Keogh Plan Meaning

There are two types of Keoghs. The first is a defined contribution plan in which a fixed sum or percentage of a paycheck each period is contributed to the keogh account. In total a person can generally contribute 25% of their annual earnings at a max of $49,000. The employer is also able to contribute a total of $16,500 to each employee’s account making the total contribution $65,500. This is higher than other contribution plans making it a huge benefit.

The second, which is known as a defined benefit plan works off of a complicated pension formula which requires the work of an actuary. Although both of these plans receive more in benefits and contributions than most other retirement funds, there are several disadvantages as well. There is a penalty if a person pulls money out of their account before they’re 59 1/2. Withdrawals are also taxable as they are taken out of the account. However, because you are able to contribute cash without it being taxable the account is able to grow more quickly.

Keogh Plan Example

Dexter owns a Law firm in which he has 9 employees, Dexter wants to contribute the maximum amount of 25% of his salary to his Keogh Plan. Dexter makes a salary of $300,000 at this rate Dexter would contribute $75,000 into his Keogh account. However, she is only allowed to contribute a total of $65,500 ($49,000 + $16,500) as are the limits to a Keogh retirement plan.

Keogh Plan

Share this:
0

LEARN THE ART OF THE CFO