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It’s possible, because :If you don’t have access to a Roth 401(k) at work, you can still take advantage of the Roth benefits by working with your investing pro to open a Roth IRA. Just keep in mind that income limits do apply when you contribute to a Roth IRA.Can I make a Roth contribution if I have a 401k?Yes, you can contribute to both a Roth IRA and an employer-sponsored retirement plan such as a 401(k), SEP or SIMPLE IRA, subject to income limits. ... Contributing to both a Roth IRA and an employer-sponsored retirement plan can make it possible to save as much in tax-advantaged retirement accounts as the law allows. Apr 3, 2019Can I contribute to a Roth IRA and a Roth 401k?If I already have a Roth 401K, can I still open up a Roth IRA? ... As long as you meet the separate eligibility criteria for both a 401(k) and a Roth IRA, you can contribute to both, assuming your modified adjusted gross income doesn't exceed certain levels. May 29, 2014INVESTING & RETIREMENT401(k) vs. Roth 401(k): Which One Is Better?[If you’ve heard of a Roth 401(k), you may be wondering how different it really is from a traditional 401(k). I get it, 401(k)s can be confusing! While these two types of 401(k) accounts have some similarities, they also have some pretty huge differences.Trust me, if you want to make the most of your retirement savings, you need to understand those differences and how they affect you. So I’m going to break it down for you, question by question. This is your future we’re talking about, so that’s why understanding the difference between a traditional 401(k) and Roth 401(k) is important.Access to a Roth 401(k) is becoming more and more common, so you’re in the majority if you have this option at work. Over half of the companies that offer some type of retirement savings plan offer a Roth 401(k). The bigger the company, the more likely it is you can contribute to a Roth 401(k).And guess what? Savers (no surprises here!) are taking advantage of this new option. Among workers who know about the Roth 401(k) and are offered it by their workplace, around six in 10 choose to contribute to it.If you can contribute to a Roth 401(k) and a traditional 401(k) at work, which one should you choose? I know which one I would pick, but let’s dig into some of the differences between these options so you can make the best decision.What is a Roth 401(k)?The Roth 401(k) is a type of retirement savings plan that allows you to make contributions after taxes have been taken out. Then, you receive tax-free withdrawals when you retire.The Roth 401(k) was introduced in 2006 and was designed to combine features from the traditional 401(k) and the Roth IRA. With a Roth 401(k) you can take advantage of the company match on your contributions, if your employer offers one, just like a traditional 401(k). And the Roth component of a Roth 401(k) gives you the benefit of tax-free withdrawals.What Are the Similarities Between a Traditional 401(k) and a Roth 401(k)?Let’s start with what a traditional 401(k) and a Roth 401(k) have in common.First, these are both workplace retirement savings options. With either type of 401(k) plan, you can enjoy the convenience of having the contribution drafted out of your paycheck.Second, both a traditional 401(k) and a Roth 401(k) have the ability to include a company match. Nearly 80% of companies who offer a 401(k) or similar product offer a match on employee contributions.If you work at a place that offers a match, take it. Your employer is giving you free money!Third, both types have the same contribution limit. In 2018, the contribution limit is $18,500 per year or $24,500 if you’re over 50. The opportunity to invest that much every year is a huge perk of traditional and Roth 401(k)s, especially when compared to the Roth IRA’s contribution limit of $5,500 per year.The Roth 401(k) includes some of the best features of a 401(k)—convenient contribution methods and the possibility of a company match if your employer offers one. But that’s where their similarities end. Let’s dig into the distinct differences between these two retirement savings options.401(k) vs. Roth 401(k): How are They Different?The biggest difference between a traditional 401(k) and a Roth 401(k) is how the money you contribute is taxed. I know taxes can be confusing (not to mention a pain to pay!), so let’s start with a simple definition and then we’ll dive into the details.A Roth 401(k) is a post-tax retirement savings account. That means your contributions have already been taxed before they enter your Roth 401(k) account.On the other hand, a traditional 401(k) is a pre-tax savings account. When you invest in a traditional 401(k), your contributions go in before they’re taxed, which makes your taxable income lower.ContributionsHow do those definitions play out when it comes to your retirement savings? Let’s start with your contributions.With a Roth 401(k), your money goes in after-tax. That means you’re paying taxes now and taking home a little less in your paycheck.When you contribute to a traditional 401(k), your contributions are pretax. They’re taken off the top of your gross earnings before your paycheck is taxed.You may be wondering why anyone would contribute to a Roth 401(k) if it means paying taxes now. If you only look at the contributions, that’s a fair question. But hang with me. The huge benefit of a Roth 401(k) is what happens when you start withdrawing money in retirement.Withdrawals in RetirementThe biggest benefit of the Roth 401(k) is this: Because you already paid taxes on your contributions, the withdrawals you make in retirement are tax-free. Any employer match in your Roth 401(k) will still be taxable in retirement, but the money you put in—and its growth!—is all yours. No taxes will be taken out when you use that money in retirement.By contrast, if you have a traditional 401(k), you’ll have to pay taxes on the amount you withdraw based on your current tax rate at retirement.Here’s what that means: Let’s say you have $1 million in your nest egg when you retire. That’s a pretty nice stash! If you’ve got it in invested in a Roth 401(k), that $1 million is yours.If $1 million is in a traditional 401(k), you’ll pay taxes on your withdrawals in retirement. If you’re in the 22% tax bracket, that would mean $220,000 of that $1 million is going to taxes. That’s a hard pill to swallow, especially after you’ve worked so hard to build your nest egg!It goes without saying that your nest egg will last longer if you’re not paying taxes on your withdrawals. That’s a great feature of the Roth 401(k)—and a Roth IRA too for that matter.AccessAnother slight difference between a Roth 401(k) and a traditional 401(k) is your access to the money. In a traditional 401(k), you can start receiving distributions at age 59 1/2. With a Roth 401(k), you can start withdrawing money without penalty at the same age, but you also must have held the account for five years.If you’re still decades away from retirement, you don’t have anything to worry about! But if you’re approaching the 59 1/2 year mark and thinking about starting a Roth 401(k), it’s important to be aware that you won’t have access to the money for five years.Why I Recommend the Roth 401(k)If you’re investing consistently every month—whether it’s in a Roth 401(k), a traditional 401(k) or even a Roth IRA—you’re already on the right track! The most important part of wealth building is consistent saving every month, no matter what the market is doing.But if I’m choosing between a traditional 401(k) and a Roth 401(k), I’d go with the Roth 401(k) every time! We’ve already talked through the differences between these two types of accounts, so you’re probably already seeing the benefits. But just to be clear, here are the biggest reasons the Roth 401(k) comes out on top.Tax BenefitIt may be tempting to delay paying taxes so you can get slightly more in your paycheck now. I get that. But think about it this way: You’re already doing the hard work of saving for retirement. If you can get that money to go even further, wouldn’t you want to take advantage of that opportunity? I don’t know about you, but I want to make that money go as far as I can.Here’s another thing to consider: No one can know how the tax brackets or tax percentages will change in the future, especially if you’re still decades away from retirement. Do you want to take that risk? I don’t.Emotional TollLike it or not, it’s hard to separate emotions from investing. Imagine getting to your retirement years and watching your $1 million-dollar nest egg reduced to less than $800,000 because of taxes! I don’t know about you, but I’d much rather pay taxes now than see all that money fly out of my hands later. I’m going to miss $100,000 a lot more than I miss a $100 on a paycheck now.I promise, if you can get into the habit of contributing 15% of every paycheck to your Roth 401(k) early on, you won’t even miss the money you’re paying in taxes. And when you get the retirement, you’ll be glad you don’t owe the government part of your hard-earned nest egg.Who Is Eligible for a Roth 401(k)?If your employer offers it, you’re eligible. Unlike a Roth IRA, a Roth 401(k) has no income limits. That’s a fantastic feature of the Roth 401(k). No matter how much money you earn, you can contribute to a Roth 401(k).If you don’t have access to a Roth 401(k) at work, you can still take advantage of the Roth benefits by working with your investing pro to open a Roth IRA. Just keep in mind that income limits do apply when you contribute to a Roth IRA.What Are Roth 401(k) Contribution Limits?For 2018, the 401(k) contribution limit is $18,500. This contribution limit applies to any 401(k) contributions, whether they are in a Roth 401(k) or a traditional 401(k). That means if you’re contributing to both, the combined total of your contributions can’t exceed $18,500.If you’re 50 or above, the contribution limit increases to $24,500.How Much Should I Invest in a Roth 401(k)?I recommend investing 15% of your income into retirement savings. If you have a Roth 401(k) at work with good mutual fund options, you can invest your entire 15% there. Let’s say you make $60,000 a year. That means you would invest $750 a month in your Roth 401(k). See? Investing in the future is easier than you thought!What Kinds of Mutual Funds Should I Choose for My Roth 401(k)?Diversifying your portfolio is key to maintaining a healthy amount of risk in your retirement savings. That’s why I recommend balancing your investment among four types of mutual funds: growth and income, growth, aggressive growth, and international funds.If one type of fund isn’t performing as well, the other ones can help your portfolio stay balanced. Not sure which funds to select based on your Roth 401(k) options? Sit down with an investing pro. They’ll be able to help you understand the different types of funds, so you can choose the right mix.Should I Roll Over My Traditional 401(k) to a Roth 401(k)?There isn’t a one size fits all answer when it comes to rolling over your retirement savings to a Roth account. If it makes sense for your situation, it’s a great way to take advantage of tax-free growth on your accounts. But keep in mind that rolling over a traditional 401(k) means paying taxes on it now. If you’re rolling over $100,000 and you’re in the 22% tax bracket, that means you have to come up with $22,000 cash to cover the taxes. I don’t want you to pull that money out of the investment itself!If you can pay cash for the taxes without taking money out of your nest egg and you’re still several years away from retirement, it may make sense to roll it over. But before you roll over accounts, make sure to sit down with an experienced investing professional. They’ll help you understand the tax impact of rolling over your 401(k) and how you can be prepared for it.]A Proven Plan for Financial Success | DaveRamsey.comINVESTING & RETIREMENTRoth IRA 101[In the world of retirement investing options, there’s one savings plan that stands out head and shoulders above the rest. It’s easy to set up, simple to maintain and comes with tax advantages that enable you to build wealth and increase your retirement savings for the long haul.That’s right—I’m talking about a Roth IRA.Maybe you’ve heard about these retirement savings accounts, but you haven’t had time to discover if they’re a good option for you. I’m going to answer the most common questions about Roth IRAs and show you how this investment account can turbocharge your wealth-building over time.1. What Is a Roth IRA?A Roth IRA (Individual Retirement Account) is a retirement savings account that allows you to pay taxes on the money you put into it upfront. The growth in your Roth IRA and any withdrawals you make after age 59 1/2 are tax-free, as long as you’ve had the account for more than five years.Because you pay taxes on the front end with a Roth IRA, you don’t owe them in retirement.If you want to contribute to a Roth IRA, you must open and maintain it outside of your employer-sponsored retirement savings plan.What Are the Benefits of a Roth IRA?The Roth IRA has some serious benefits.Let’s start with the tax impact. When you make contributions post-tax, that means you’ve already paid taxes on the money you set aside for retirement. That helps your retirement savings go a lot further! Here’s why:The money you invest in your Roth IRA grows tax-free.You won’t owe taxes when you withdraw your money in retirement.So, if your account grows by hundreds of thousands of dollars over time, you won’t owe taxes when you withdraw that money in retirement! That’s a huge perk, especially for folks who expect to be in a higher tax bracket when they retire. Talk about a win!Here are a few more benefits of a Roth IRA:You’re not required to take distributions at a certain age, unlike the traditional IRA (which requires withdrawals beginning at age 70 1/2).You can keep contributing to your Roth IRA if you choose to work past retirement age, as long as your income still falls within the income limits.You can choose beneficiaries to inherit your account, and they will be able to withdraw funds tax-free as well.. Roth IRA vs. Traditional IRA: How Do They Compare?That’s a great question. The main difference between a Roth IRA and a traditional IRA is how they are taxed. Take a look at a side-by-side comparison:Traditional IRARoth IRAIn most cases, contributions are tax-deductible.Contributions are not tax-deductible.There are no annual income limits on contributions.In 2019, you can contribute up to the limit if your gross income is less than $122,000 for single filers and $193,000 for married couples filing jointly.You must make annual withdrawals from your IRA after you turn 70 1/2.No withdrawals are required if you are the original owner.You must pay taxes on withdrawals in retirement.You are not taxed on withdrawals in retirement.Am I Eligible for a Roth IRA?Do you earn income? Then, yes. You’re eligible. However, you can’t contribute more than you make. So, if your 19-year-old son or daughter earned an income of $3,000 waiting tables over the summer, they can only contribute up to $3,000 to a Roth IRA. It’s also okay for you to contribute the $3,000 on their behalf.1Another perk: There are no age restrictions with Roth IRAs. As long as you’re earning income, you can contribute—even after age 70 1/2, unlike a traditional IRA.5. What are the 2019 Contribution Limits?For 2019, the total amount you can contribute to either a Roth IRA or a traditional IRA is $6,000—or $7,000 if you’re age 50 or older.26. Are there Income Restrictions?You knew there had to be a catch! A Roth IRA offers some great tax benefits, but it’s not available for people with high incomes.Income Restrictions If SingleAccording to the Internal Revenue Service, single tax filers must have a modified adjusted gross income (AGI) of less than $122,000 to contribute the maximum amount of $6,000 ($7,000 if age 50 or older) to a Roth IRA.3What if you make more than $122,000? If your AGI is between $122,000 and $137,000, you can still contribute, but it must be a reduced amount. Once you’re making more than $137,000 as a single filer, you aren’t eligible to contribute to a Roth IRA.4Income Restrictions If Married Filing JointlyMarried couples filing jointly must have a modified AGI of less than $193,000 to be able to contribute up to the limit for a Roth IRA. After that, you may qualify to make reduced contributions if your AGI is between $193,000 and $203,000.If you have an AGI of $203,000 or higher, you’re not eligible to make Roth IRA contributions.If your filing status is...And your modified AGI is...Then you can contribute...Married filing jointly or qualifying widow(er)Less than $193,000Up to the limitBetween $193,000 and $203,000A reduced amountGreater than $203,000ZeroMarried filing separately and you lived with your spouse at any time during the yearLess than $10,000A reduced amountGreater than $10,000ZeroSingle, head of household, or married filing separately and you did not live with your spouse at any time during the yearLess than $122,000Up to the limitBetween $122,000 and $137,000A reduced amountGreater than $137,000ZeroIf your income exceeds the eligibility limits, good for you—but bad for your ability to open a Roth IRA. You won’t be able to stash your cash in a Roth IRA, but a traditional IRA might be an option. Tax benefits for traditional IRAs have different eligibility requirements, so check with your investing pro to see if it’s a good choice for you.If you’re self-employed, here’s another option: Establish a Simplified Employee Pension (SEP) plan. Or, if you run a small company, consider a simple IRA that will allow you and your employees to save for retirement.Can I Set Up a Roth IRA for My Spouse Who Doesn’t Work?Yes. If you file a joint income tax return and have a taxable income, you can both contribute to your own separate Roth IRAs. But the IRS income-eligibility limits still apply.Let’s say 40-year-old John makes $150,000 and his wife, Kate, stays home with their kids. John and Kate can each contribute the maximum amount of $6,000 for a total of two accounts. However, if John makes $8,000 a year and contributes the max amount of $6,000 to his IRA, his nonworking spouse can only contribute $2,000 because they can’t contribute more than their earned income amount.8. Is a Roth IRA the Same Thing as a Roth 401(k)?No. But both accounts are taxed the same way. Adding the word Roth to the name of either savings plan means the money you contribute will be taxed upfront, will grow tax-free and can be withdrawn tax-free after age 59 1/2.Roth 401(k) plans are sponsored by employers. If you receive an employer match on your Roth 401(k), the match is not tax-favored. That means the growth from your employer’s match will be taxed when you withdraw your funds in retirement.You can contribute to both a Roth IRA and a Roth 401(k) at the same time. Remember, contribution limits will still apply to the Roth IRA.How Do I Set Up a Roth IRA?The best way to open a Roth IRA is with the help of an investing professional who will meet with you face-to-face. Before you meet with your investing pro, you’ll need to gather some information and fill out the application. Here’s what you should have on hand in order to open your account:Your driver’s license or other forms of photo identificationYour Social Security numberYour bank’s routing number and your checking or savings account numberYour employer’s name and addressAs part of the process of opening a Roth IRA, you’ll also choose a beneficiary (or beneficiaries) who could inherit your account. You’ll need their name, Social Security number, and date of birth.Next, you can make your initial deposit and/or set up automatic contributions. You’ll be able to open your Roth IRA with a lump sum up to the annual limit. Or you may choose to deduct a specific amount from your bank account each month. You can actually do both as long as you don’t exceed the contribution limit for that year.10. What Should My Roth IRA Be Invested In?You can invest in almost anything through your Roth IRA, but we recommend mutual funds because they have the potential to help you build wealth over time—especially with a Roth IRA’s tax benefits.Many mutual fund companies will allow you to start a Roth IRA with as little as $50, so there’s no need to put off opening your account until you have enough money to start investing.11. How Do I Maintain My Roth IRA?Once you choose the mutual funds for your Roth IRA, it’s important to stick with them for the long haul. Don’t get spooked when the market ebbs and flows. The value of your Roth IRA will rise and fall with the stock market, but over its lifetime, you should see a steady growth trend. Just continue making regular contributions and stick with it despite possible market changes.Over 30 years, if you invest the annual max of $6,000 into a Roth IRA, it could grow to $1.3 million. The best part is, your contributions would only total $180,000, and the rest—$1.1 million—would be growth.Those numbers can change depending on how much you invest, how long you have until retirement, and what you expect your annual return to be. You can use our investing calculator to customize those details for your own financial situation.I’m Ready to Start! Now what?Opening a Roth IRA is as easy as opening a checking account. The best way to get started is to contact an investing professional who can guide you through the set-up process.If you don’t have a financial professional, reach out to a SmartVestor Pro in your area who is committed to educating and empowering you to make the best decisions possible for your retirement future.]

Once you have great employees on board, how do you keep them from jumping ship? One way is by offering a good benefits package.Many small-business owners mistakenly believe they cannot afford to offer benefits. But while going without benefits may boost your bottom line in the short run, than penny-wise philosophy could strangle your business's chances for long-term prosperity. "There are certain benefits good employees feel they must have," says Ray Silverstein, founder of PRO, President's Resource Organization, a small-business advisory network.Heading the list of must-have benefits is medical insurance, but many job applicants also demand a retirement plan, disability insurance and more. Tell these applicants no benefits are offered, and often top-flight candidates will head for the door.The positive side to this coin: Offer the right benefit, and your business may just jump-start its growth. "Give employees the benefits they value, and they'll be more satisfied, miss fewer workdays, be less likely to quit, and have higher commitment to meeting the company's goals," says Joe Lineberry, a senior vice president at Aon Consulting, a human resources consulting firm. "The research shows that when employees feel their benefits needs are satisfied, they're more productive."Benefit BasicsThe law requires employers to provide employees with certain benefits. You must:Give employees time off to vote, serve on a jury and perform military service.Comply with all workers' compensation requirements.Withhold FICA taxes from employees' paychecks and pay your own portion of FICA taxes, providing employees with retirement and disability benefits.Pay state and federal unemployment taxes, thus providing benefits for unemployed workers.Contribute to state short-term disability programs in states where such programs exist.Comply with the Federal Family and Medical Leave (FMLA).You are not required to provide:Retirement plansHealth plans (except in Hawaii)Dental or vision plansLife insurance plansPaid vacations, holidays or sick leaveIn reality, however, most companies offer some or all of these benefits to stay competitive.Most employers provide paid holidays for New Year's, Memorial Day, Independence Day, Labor Day and Thanksgiving day and Christmas day. Many employers also either allow their employees to take time off without pay or let them use vacation days for religious holidays. (See more on time off in "The Low-Cost Benefits of Offering Time Off").Most full-time employees will expect one to two weeks paid vacation time per year. In explaining your vacation policy to employees, specify how far in advance requests for vacation time should be made, and whether in writing or verbally. There are no laws that require employers to provide funeral leave, but most do allow two to four days' leave for deaths of close family members.The federal Family and Medical Leave Act (FMLA) requires employers to give workers up to 12 weeks off to attend to the birth or adoption of a baby, or the serious health condition of the employee or an immediate family member. After 12 weeks of unpaid leave, you must reinstate the employee in the same job or an equivalent one. The 12 weeks of leave does not have to be taken all at once; in some cases, employees can take it a day at a time.In most states, only employers with 50 or more employees are subject to the Family and Medical Leave Act. However, some states have family leave laws that place family leave requirements on businesses with as few as five employees. To find out your state's requirements, contact you state labor department.Legal MattersComplications quickly arise as soon as business begins offering benefits, however. That's because key benefits such as Health Insurance and retirement plans fall under government scrutiny, and "it is very easy to make mistakes in setting up a benefits plan," says Kathleen Meagher, an attorney specializing in benefits at Kirkpatrick Lockhart LLP.And don't think nobody will notice. The IRS can discover in an audit what you are doing doesn't comply with regulations. So can the U.S. Department of Labor, which has been beefing up its audit activities of late. Either way, a goof can be very expensive. "You can lose any tax benefits you have enjoyed, retroactively, and penalties can also be imposed," Meagher says.The biggest mistake? Leaving employees out of the plan. Examples range from exclusions of part-timers to failing to extend benefits to clerical and custodial staff. A rule of thumb is that if one employee gets a tax-advantaged benefit--meaning one paid for with pretax dollars--the same benefit must be extended to everyone. There are loopholes that may allow you to exclude some workers, but don't even think about trying this without expert advice.Such complexities mean its good advice never to go this route alone. You can cut costs by doing preliminary research yourself, but before setting up any benefits plan, consult a lawyer or a benefits consultant. An upfront investment of perhaps $1,000 could save you far more money down the road by helping you sidestep expensive potholes.Expensive ErrorsProviding benefits that meet employee needs and mesh with all the laws isn't cheap--benefits probably add 30 to 40 percent to base pay for most employees--and that makes it crucial to get the most from these dollars. But this is exactly where many small businesses fall short because often their approach to benefits is riddled with costly errors that can get them in financial trouble with their insurers or even with their own employees. The most common mistakes:Absorbing the entire cost of employee benefits. Fewer companies are footing the whole benefits bill these days. According to a survey of California companies by human resources management consulting firm William M. Mercer, 91 percent of employers require employee contributions toward health insurance, while 92 percent require employees to contribute toward the cost of insuring dependants. The size of employee contributions varies from a few dollars per pay period to several hundred dollars monthly, but one plus of any co-payment plan is it eliminates employees who don't need coverage. Many employees are covered under other policies--a parent's or spouses, for instance--and if you offer insurance for free, they'll take it. But even small co-pay requirements will persuade many to skip it, saving you money.Covering nonemployers. Who would do this? Lots of business owners want to buy group-rate coverage for their relatives or friends. The trouble: If there is a large claim, the insurer may want to investigate. And that investigation could result in disallowance of the claims, even cancellation of the whole policy. Whenever you want to cover somebody who might not qualify for the plan, tell the insurer or your benefits consultant the truth.Sloppy paperwork. In small businesses, administering benefits is often assigned to an employee who wears 12 other hats. This employee really isn't familiar with the technicalities and misses a lot of important details. A common goof: Not enrolling new employees in plans during the open enrollment period. Most plans provide a fixed time period for open enrollment. Bringing an employee in later requires proof of insurability. Expensive litigation is sometimes the result. Make sure the employees overseeing this task stays current with the paperwork and knows that doing so is a top priority.Not telling employees what their benefits cost. "Most employees don't appreciate their benefits, but that's because nobody ever tells them what the costs are," says PRO's Silverstein. Many experts suggest you annually provide employees with a benefits statement that spells out what they're getting and at what cost. A simple rundown of the employee's individual benefits and what they cost the business is very powerful.Giving unwanted benefits. A workforce composed largely of young, single people doesn't need life insurance. How to know what benefits employee's value? You can survey employees and have them rank benefits in terms of desirability. Typically, medical and financial benefits, such as retirement plans, appeal to the broadest cross-section of workers.If workers needs vary widely, consider the increasingly popular " cafeteria plans ," which give workers lengthy lists of possible benefits plus a fixed amount to spend.Health InsuranceHealth insurance is one of the most desirable benefits you can offer employees. There are several basic options for setting up a plan:A traditional indemnity plan, or fee for service. Employees choose their medical care provider; the insurance company either pays the provider directly or reimburses employees for covered amounts.Managed care. The two most common forms of managed care are the Health Maintenance Organization (HMO) and the Preferred Provider Organization (PPO). An HMO is essentially a prepaid health-care arrangement, where employees must use doctors employed by or under contract to the HMO and hospitals approved by the HMO. Under a PPO, the insurance company negotiates discounts with the physicians and the hospitals. Employees choose doctors from an approved list, then usually pay a set amount per office visit (typically $10 to $25); the insurance company pays the rest.Self insurance. When you absorb all or a significant portion of a risk, you are essentially self-insuring. An outside company usually handles the paperwork, you pay the claims and sometimes employees help pay premiums. The benefits include greater control of the plan design, customized reporting procedures and cash-flow advantages. The drawback is that you are liable for claims, but you can limit liability with "stop loss" insurance--if a claim exceeds a certain dollar amount, the insurance company pays it.Archer Medical Savings Account. : Under this program, an employee of a small employer (50 or fewer employees) or a self-employed person can set up an Archer MSA to help pay health-care expenses. The accounts are set up with a U.S. financial institution and allow you to save money exclusively for medical expenses. When used in conjunction with a high-deductible insurance policy, accounts are funded with employee's pretax dollars. Under the Archer MSA program, disbursements are tax-free if used for approved medical expenses. Unused funds in the account can accumulate indefinitely and earn tax-free interest. Health-savings accounts (HSAs), available as of January 2004, are similar to MSAs but are not restricted to small employers.Cost ContainmentThe rising costs of health insurance have forced some small businesses to cut back on the benefits they offer. Carriers that write policies for small businesses tend to charge very high premiums. Often, they demand extensive medical information about each employee. If anyone in the group has a pre-existing condition, the carrier may refuse to write a policy. Or, if someone in the company becomes seriously ill, the carrier may cancel the policy the next time it comes up for renewal.Further complicating manners, some states are mandating certain health-care benefits so that if an employer offers a plan at all, it has to include certain types of coverage. Employers who can't afford to comply often have to cut out insurance altogether. The good news: Many states are tying to ease the burden by passing laws that make it easier for small businesses to get health insurance and that prohibit insurance carriers from discriminating against small firms. (MSAs, described above, are in part a response to the problems small businesses face.) The following states make some special provision concerning small employers and health insurance: California, Connecticut, Illinois, Iowa, Kansas, Maine, Massachusetts, New Jersey, North Carolina, Oregon, South Carolina, Tennessee, Wisconsin and Wyoming.Until more laws are passed, what can a small business do? There are ways to cut costs without cutting into your employees' insurance plan. A growing number of small businesses band together with other entrepreneurs to enjoy economies of scale and gain more clout with insurance carriers.Many trade associations offer health insurance plans for small-business owners and their employees at lower rates. Your business may have only five employees, but united with the other, say, 9,000 association members and their 65,000 employees, you have substantial clout. The carrier issues a policy to the whole association; your business's coverage cannot be terminated unless the carrier cancels the entire association.Associations are able to negotiate lower rates and improved coverage because the carrier doesn't want to lose such a big chunk of business. This way, even the smallest one-person company can choose from the same menu of health-care options that big companies enjoy.Associations aren't the only route to take. In some states, business owners or groups have set up health-insurance networks among businesses that have nothing in common but their size and their location. Check with your local chamber of commerce to find out about such programs in your area.Some people have been ripped off by unscrupulous organizations supposedly peddling "group" insurance plans at prices 20 to 40 percent below the going rate. The problem: These plans don't pay all policyholders' claims because they're not backed by sufficient cash reserves. Such plans often have lofty-sounding names that suggest a larger association of smaller employees.How to protect yourself from a scam? Here are some tips:Compare prices. If it sounds too good to be true, it probably is. Ask for references from other companies that have bought from the plan. How quick was the insurer in paying claims? How long has the reference dealt with the insurer? If it's less than a few months, that's not a good sign.Check the plan's underwriter. The underwriter is the actual insurer. Many scam plans claim to be administrators for underwriters that really have nothing to do with them. Call the underwriter's headquarters and the insurance department of the state in which it's registered to see if it' really affiliated with the plan. To check the underwriter's integrity, ask you state's department for its "A.M. Best" rating, which grades companies according to their ability to pay claims. Also ask for its "claim-paying ability rating", which is monitored by services like Standard and Poor's. If the company is too new to be rated, be wary.Make sure the company follows state regulations. Does the company claim it's exempt? Check with your state's insurance department .Ask the agent or administrator to show you what his or her commission, advance or administrative cost structure is. Overly generous commissions can be a tip-off; some scam operations pay agents up to 500 percent commission.Get help. Ask other business owners if they've dealt with the company. Contact the Better Business Bureau to see if there are any outstanding complaints. If you think you're dealing with a questionable company, contact your state insurance department or your nearest Labor Department Office of Investigations.Above and BeyondWhat does COBRA mean to you? No, it's not a poisonous snake coming back to bite you in the butt. The Consolidated Omnibus Reconciliation Act (COBRA) extends health-insurance coverage to employees and dependents beyond the point at which such coverage traditionally ceases.COBRA allows a former employee after he or she has quit or been terminated (except for gross misconduct) the right to continued coverage under you group health for up to 18 months. Employee's spouses can obtain COBRA coverage for up to 36 months after divorce or death of the employee, and children can receive up to 36 months of coverage when they reach the age at which they are no longer classified as dependents under the group health plan.The good news: Giving COBRA benefits shouldn't cost you company a penny. Employers are permitted by law to charge recipients 102 percent of the cost of extending the benefits (the extra two percent covers administrative costs).The federal COBRA plan applies to all companies with more than 20 employees. However, many states have similar laws that pertain to much smaller companies, so even if your company is exempt for federal insurance laws, you may still have to extend benefits under certain circumstances. Contact the U.S. Department of Labor to determine whether your company must offer COBRA or similar benefits, and the rules for doing so.Retirement PlansA big mistake some business owners make is thinking they can't afford to fund a retirement plan in lieu of putting profits back into the business. But less than half of the employees at small companies participate in retirement plans. And companies that do offer this benefit report increased employee retention and happier, more efficient workers. Also, don't forget about yourself: Many business owners are at risk of having insufficient funds saved for retirement.To encourage more businesses to launch retirement plans, the Economic Growth and Tax Relief Reconciliation Act of 2001 provides a tax credit for costs associated with starting a retirement plan, including a 401(k) plan, SIMPLE plan or Simplified Employee Pension (SEP). The credit equals 50 percent of the first $1,000 of qualified startup costs, including expenses to set up and administer the plan and educate employees about it. For more information, see IRS Form 8881, Credit for Small Employers Pension Plan Start-up Costs(PDF).Don't ignore the value of investing early. If, starting at age 35, you invested $3,000 each year with a 14-percent annual return; you would have an annual retirement income of nearly $60,000 at age 65. But $5,000 invested at the same rate of return beginning at age 45 only results in $30,700 in annual retirement income. The benefit of retirement plans is that savings from tax-free until you withdraw the funds--typically age 59. If you withdraw funds before that age, the withdrawn amount is fully taxable and also subject to a 10-percent penalty. The value of tax-free investing over time means it's best to start right away, even if you start with small increments.Besides the long-term benefit of providing for your future, setting up a retirement plan also has the immediate gratification of cutting taxesHere is a closer look at a range of retirement plans for yourself and your employees.Individual Retirement Account (IRA)An IRA is a tax-qualified retirement savings plan available to anyone who works and/or their spouse, whether the individual is an employee or a self-employed person. One of the biggest advantages of these plans is that the earnings on your IRA grow on a tax-deferred basis until you start withdrawing the funds. Whether your contribution to an IRA is deductible will depend on your income level and whether you're covered by another retirement plan at work.You also may want to consider a Roth IRA. While contributions are not tax deductible, withdrawals you make at retirement will not be taxed. The maximum annual contribution individuals can put in either a Roth or a traditional IRA is $3,000 for 2004, assuming they meet the eligibility requirements.To qualify for Roth IRA contributions, a single person's adjusted gross income (AGI) must be less than $95,000, with benefits phasing out completely at $110,000. For married couples filing jointly, the AGI must be less than $150,000. The contribution amount is decreased by 30 percent (35 percent if 50 or older) until it is eliminated completely at $160,000 for joint filers. For 2005 to 2007, the contribution limit for both single and joint filers climbs to $4,000 per person and to $5,000 per person in 2008. After that, contributions and indexed to inflation.Regardless of income level, you can qualify for a deductible IRA as long as you do not participate in an employer-sponsored retirement plan, such as a 401 (k). If you are in an employer plan, you can qualify for a deductible IRA if you meet the income requirements. Keep in mind that it's possible to set up or make annual contributions to an IRA any time you want up to the date your federal income tax return is due for that year, not including extensions. The contribution amounts for deductible IRA's are the same as for Roth IRA's.For joint filers, even if one spouse is covered by a retirement plan, the spouse who is not covered by a plan may make a deductible IRA contribution if the couple's adjusted gross income is $150,000 or less. Like the Roth IRA, the amount you can deduct is decreased in stages above that income level and is eliminated entirely for couples with incomes over 160,000. Nonworking spouses and their working partners can contribute up to $6,000 to IRAs ($3,000 each), provided the working spouse earns at least $6,000. It's possible to contribute an additional $500 for each spouse who is at least 50 years old at the end of the year, as long as there is the necessary earned income. For example, two spouses over 50 could contribute a total of $7,000 if there is at least $7,000 of earned income.Saving Incentive Match Plan For Employees (SIMPLE)SIMPLE plans are one of the most attractive options available for small-business owners. With these plans, you can choose to use a 401(k) or an IRA as your retirement plan.A SIMPLE plan is just that--simple to administer. This type of retirement plan doesn't come with a lot of paperwork and reporting requirements.You can set up a SIMPLE IRA only if you have 100 or fewer employees who have received $5,000 or more in compensation from you in the preceding year. The employer must make contributions the plan by either matching each participating employee's contribution, dollar for dollar, up to 3 percent of each employee's pay, or by making an across-the-board 2-percent contribution for all employees, even if they don't participate in the plan, which can be expensive.The maximum amount each employee can contribute to the plan can't be more than $9,000 for 2004; the amount increases to $10,000 in 2005. After that, the amount will be indexed for inflation. Participants in a SIMPLE IRA who are age 50 or over at the end of the calendar year can also make a catch-up contribution of an additional $1,500 in 2004, $2,000 in 2005 and $2,500 in 2006.Simplified Employee Pension (SEP) PlanAs its name implies, this is the simplest type of retirement plan available. Essentially, a SEP is a glorified IRA that allows you to contribute a set percentage up to a maximum amount each year. Paperwork is minimal, and you don't have to contribute every year. And regardless of the name, you don't need employees to set one up.If you do have employees(well, that's the catch. Employees do not make any contributions to SEPS. Employers must pay the full cost of the plan, and whatever percentage you contribute for yourself must be applied to al eligible employees. The maximum contribution is 25 percent of an employee's compensation (up to a maximum of $200,000) or $40,000, whichever is less.KOEGH PlanA KEOGH retirement plan can be set up by self-employed individuals and doesn't require advanced IRS approval. There are two types of KEOGH plans available. One is defined-benefit, which allows participants to contribute a maximum of the lesser of either 100 percent of their average compensation for the three consecutive years of highest compensation as an active participant, or $170,000. Then there's defined contribution, which allows for contributions of up to $42,000 for either a profit-sharing defined contribution plan or a money-purchase plan. The deadline for setting up a KEOGH plan is the end of the tax year (December 31), and the deadline for making contributions to the KEOGH plan is the same as the SEP--the due date for your Form 1040 individual tax return (including extensions). 401(k) Plans401(k) plans take their name from the section of the federal tax code that provides for them. These plans let you and your employees set aside a percentage of salary tax-free every year. As a kicker, the funds grow tax-free until they're withdrawn. 401(k) plans are very popular benefits with employees because they allow you--the employer--to essentially pay workers more without that income being taxed. Compared to SEPs, 401(k) plans are more popular with employers because most of the contribution comes from the employees.The Employee Retirement Income Security Act of 1974 (ERISA) governs the way 401(k) plans are set up and managed. There are many responsibilities that go with setting up a 401(k) program. For instance, you or someone you select has to determine the investment options employees will get to choose from. You have to monitor the investment's performance as well as the service provided by whomever is administering your plan. ERISA exists to make sure any fees that are charged are "reasonable." Setting up a 401(k) is a complicated procedure governed by many arcane rules. You should never do it without consulting with a qualified tax advisor.Where to GoWith so many choices available, it's good idea to talk to your accountant about which type of plan is best for you. Once you know what you want, where do you go to set up a retirement plan?Savings certificates (often at higher yields than at banks or savings and loans)Personal and auto loansLines of creditChecking accountsChristmas club accountsOnly state-chartered credit unions are allowed to add new companies to their membership rosters. To find a credit union that will accept your company, call your state's league of credit unions .When comparing credit unions, get references and check them. Find out how communicative and flexible the credit union is. Examine the accessibility. Are there ATMs? Is there a location near your business? Consider the end users--your employees.Once your company is approved, designate one person to be the primary liaison with the credit union. That person will maintain information about memberships as well as enrollment forms and loan applications. Kick things off by asking accredit union representative to conduct on-site enrollment and perhaps return periodically for follow-up or new sign-ups.This how-to was excerpted from Start Your Own Business, Grow Your Business and "Selecting the Right Retirement Plan" by David Meier.

Here are some common tax deductions many middle class tax payers do not take advantage of.Hopefully, one or more apply to you.There are many tax breaks for middle class families, but often one or more of these tax breaks is commonly missed.Taking advantage of tax breaks aimed at working families can significantly decrease your tax burden. Lowering your adjusted gross income (AGI) through eligible deductions is especially important when filing jointly if both spouses work and earn an income.Check out these 12 tax breaks for middle class families.1. Traditional IRA deduction, 401(k) or SEP contribution deductionIf you contributed money to a retirement account last year, you can deduct some of the money from your taxes when you file this year.401(k)If you contributed money to a 401(k) in 2016, those contributions are not included in your taxable income — so you don’t take a deduction when you file your return. For 2016, you could contribute $18,000 or $24,000 if you’re 50 or older by the end of the year.Traditional IRAThough you can’t get a tax deduction for a Roth IRA, you can for a traditional IRA. And the good news is, you have until the tax deadline of April 18, 2017, to contribute! Deduct all of your contributions up to the maximum $5,500 if you’re under 50, or $6,500 if you’re 50 or older.Read more: Little-known tip that can reduce your tax bill by over $1,000SEPIf you’re self-employed or earn income from a side job, you could contribute up to 25% of your net income to a Simplified Employee Pension, or up to $53,000 for 2016. In addition, you can make 2016 contributions to a SEP anytime before April 18, 2017.Read more: Many entrepreneurs not saving anything for retirement2. Saver’s tax creditEven if you have a Roth IRA or are already saving in an employee-sponsored retirement plan, there is another tax credit you can receive called the Retirement Savings Contributions Credit.This tax credit is available to people who are age 18 or older, not a full-time student and not claimed as a dependent on another person’s return. According to the IRS, ‘The amount of the credit is 50%, 20% or 10% of your retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly), depending on your adjusted gross income,’ and it can be used for your contributions to any of these retirement plans: Traditional or Roth IRA; your 401(k), SIMPLE IRA, SARSEP, 403(b), 501(c)(18) or governmental 457(b) plan; and your voluntary after-tax employee contributions to your qualified retirement and 403(b) plans.3. Earned Income Tax CreditThe Earned Income Tax Credit is a benefit for working people with low to moderate income.According to the IRS, the following types of people qualify: If your Adjusted Gross Income (AGI) is less than $14,820 and you’re single, if you’re married filing jointly and your AGI is less than $20,330, or you have three or more kids, are married, and your AGI is no more than $53,267, you can qualify for this tax credit — which can be as much as $6,242!If you want to know if you qualify, use this tool from the IRS to find out.4. $1,000 child tax creditThis tax credit can reduce your tax bill by as much as $1,000 per child, but you have to meet 7 different requirements.And just what are those requirements?The child must be under age 17 at the end of the tax year for which you’re filing.The child must be your own child or an adopted child, a stepchild, or a foster child placed with you by a court or authorized agency.The child cannot have provided half of his or her own financial support in the tax year.You must have claimed the child as a dependent.The child must be a U.S. citizen.The child must have lived with you for at least half the year for which you’re filing.Your modified adjusted gross income is above certain amounts: $55,000 for married couples filing separately; $75,000 for single, head of household, and qualifying widow or widower filers; and $110,000 for married couples filing jointly. The available child tax credit is reduced by $50 for each $1,000 of income above the limit.5. Dependent care tax creditIf you are paying for child care expenses while you’re working, you could be in luck when it comes to taxes! Plus, you can claim this tax credit regardless of income.With this credit, you can claim a child age 12 and under for the year the taxes will be filed, your spouse, if they are unable to care for themselves and lived with you at least half of the year, or another person who is claimed as a dependent by you and lived with you for at least half of the year.The maximum amount of allowable care expenses is $3,000 for one child, or $6,000 for one or more children or people.There are other requirements for this tax credit though, so be sure to consult the IRS’ websitefor all the details.6. Mortgage interest deductionIf you own a home, interest paid on a mortgage is tax deductible if you itemize your deductions on your tax return.According to the IRS, in most cases, you can deduct all of your home mortgage interest. This can include interest on a mortgage to buy your home, a second mortgage, or a line of credit to secure your home or home equity loan.Bear in mind, mortgage interest is only deductible for a first or second home, not a third or fourth home. You can deduct mortgage interest up to $100,000, or $50,000 if you’re married and file separately.Read more: 7 tax credits every homeowner should be aware of7. American Opportunity CreditPreviously called the Hope scholarship credit, the American opportunity credit has been expanded and can be claimed through 2017.For this tax credit, $2,500 of the cost of tuition, fees and course materials paid to a qualifying college or university during the taxable year can be can be credited. In addition, this credit can be claimed for expenses for the first four years of post-secondary education, amounting to a credit of $10,000!According to the IRS, taxpayers will receive a tax credit based on 100% of the first $2,000, plus 25% of the next $2,000, paid during the taxable year for tuition, fees and course materials. But, you must have a modified adjusted gross income of $80,000 or less ($160,000 or less for joint filers) to claim this credit for an eligible student.For more on this, visit the IRS’ website.Read more: Parents paying college tuition may now be eligible for $10,000 tax credit8. Lifetime Learning tax creditThe lifetime learning credit is an education credit of up to $2,000 for qualified education expenses paid for eligible students.The great news is, there is no limit on the number of years this credit can be claimed. Since it is a credit, it reduces the tax you have to pay, versus a deduction, which reduces the amount of income subject to tax. But, if your credit is more than your tax, unfortunately the difference can’t be refunded.Bear in mind that you cannot claim the American opportunity credit and the lifetime learning credit. You’d have to choose between one or the other.9. Student loan interest tax creditIf your modified adjusted gross income (MAGI) is less than $80,000 ($160,000 if filing a joint return), you can deduct up to $2,500 in student loan interest. Plus, you can claim this deduction even if you don’t itemize deductionsRead more: These programs can help erase your student loan debt10. Sales tax or state income tax deductionFrom 2005 through 2014, the IRS has permited writing off state and local income tax or sales taxes when itemizing your deductions on your federal tax return. People who live in a state that does not require income taxes can benefit most from this deduction, but not always. If you made large purchases during the year, you might benefit from deducting sales tax on your tax return. But, keep in mind, you can’t deduct both.11. Charitable contributionsIf you want to give to charity, the IRS wants to encourage you to do so by reducing your taxable income if you give to a qualifying 501(c3) nonprofit organization.As a general rule, you can deduct up to 50% of your adjusted gross income, thereby reducing your overall taxable income, but 20% and 30% limitations may apply in some cases. Donations made by December 31, of any calendar year are tax-deductible. See the section on charitable contributions on the IRS’ website for more information.Read more: Charity Donation Guide: Make sure you know where your money is going12. Loss on capital gainsAccording to the IRS, almost everything you own and use for personal or investment purposes is a capital asset, such as a home, household furnishings or stocks or bonds. If you sold any stock at a loss, you can deduct up to $3,000 against other income, and carry forward the excess to future years. But, there are several rules for understanding how to do this. Consult the IRS for more on capital gains.Read more: How your tax rates change in retirement