Thursday, December 27, 2007

taxable vs. tax advantaged accounts

I've been always thinking which one should one choose if they have money after tax with them.
Should one invest in Mutual Funds/stocks in IRA (Traditional for this calculation) or in a taxed account?

Assumptions to max some sense:

Traditional IRA contributions are after tax money contributions
Principal : $4000
Gain per year : 10%
No further investments
Tax bracket : 25%

Age: Atleast 20 years away from retirement

With a 25% tax bracket and no annual increase in contributions this value will grow to $8244 in a taxable account or $10375 in an IRA account. If one withdraws from an IRA prematurely with a 10% penalty the value of the IRA will be lesser than the taxable account at this stage.Assuming a linear increase in the yearly rate of return the average is $671.5 /year = $6715 for 10 years.

10% penalty on $6715 = $671.5

10 year analysis
Total value of IRA on early withdrawal
10375 minus 671.5 minus 1678.5 = $ 8025
Total value of the taxable account = $8244

An analysis after 20 years reveals that the taxable account is still better if one wants to withdraw money. Will you need the money until retirement is the question ?
If not then traditional IRA is certainly a good investment.

One can use the tax calculator here


Friday, December 21, 2007

Social security tax limit has this information about social security tax limits.
The limits for social security go up every year. For employeed individuals it is 6.2% on earnings up to $97,500 for 2007 and will go up to 6.2% on earnings up to $102,000.

According to the Wiki in the US "Once that amount is earned for a given year, neither the employee nor the employer owe any additional social security tax for that year."

Please refer to IRS publication 15 for details.

More searches on this yielded the fact that individuals might see " Social security limit reached" in their paycheck.

Thursday, December 20, 2007

Sharebuilder from IngDirect

Share builder from ING direct is the new thing. This promises $4 for stocks with automatic investment plan !
Comes in three flavours: Basic , Standard and Advantage.
I will look into this more and come back with details !

I found that someone has already done an analysis. You can find it here:

Check scan at Bank Of America ATM

As I pulled into the Bank Of America ATM this evening I was amazed at their new ATM technology. I did not have to put my check in an envelope. Thats actually a double bonus for me as most of the time I forget my pen somewhere and gives me a sense of frustration. The nice thing about the check scan is it shows you the check scanned and amazingly the check value gets put in automatically in the value amount. This might have been out for a while but not at my other bank - Wachovia. Others out there - therez definitely a lot of innovation still yet to come ! As always keep thinking and be inquisitive.

Bank Of America Risk Free CDs and free trades

Recently (its been a few months) Bank Of America has announced risk free CDs. These CDs give a new dimension to investing CDs. Here are the highlights - Withdrawal is free after 6 business days of opening the CD. - Minimum balance required is $5000. - Non US citizens cannot get the online 0.1% APY additional rate and must go to the bank in person. If you are lucky you might get one done on the phone - Withdrawal can be done at anytime but must be made in person. - Time limit is 9 months. With $25000 across all acounts, BOA lets you open a trading account with $0 per trade for the first 30 trades a month. I've heard that the trading account doesnt give one all the fancy tools to analyze stocks.. More to be found