401(k) rollovers – make sure you know all the rules before you start

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Here’s why:

A 56 year old attorney left his job.  Soon thereafter, he did a 401(k) rollover into a SEP IRA.  The next year (age 57), he took $240,000 out of the SEP IRA account.  Because he took the money out of a SEP IRA before age 59 ½, he had to pay the 10% early withdrawal penalty, or $24,000 in taxes.  The fact that the money started in a 401(k) account, is irrelevant (Kim, 7th Cir).

Unknown to the attorney (and ...

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Roth versus Traditional IRA – the hidden assumption

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It’s almost tax day, and as usual we are seeing a lot of articles about whether people should use a Traditional IRA or a Roth IRA.  The difference between the two options is when you pay taxes.  When you use a traditional IRA, you get a tax deduction today and all the earnings in the account grow tax free until you take the money out.  When you withdraw the money, it is taxed as ordinary income.  With a Roth IRA, ...

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Reducing the impact of Illinois’ tax increase

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This week, Illinois increased the state income tax rate from 3% to 5%.  The items below are my top 5 ways you can minimize the impact of the tax increase to you and your family:

1.      Increase contributions to your retirement plan.  Increasing the contribution to your retirement account will reduce your taxable income, lowering your tax bill for both state and federal taxes.

2.      Increase the funding to your Health Savings Account.  Contributions to Health Savings Accounts are considered “Adjustments to ...

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