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Archives For March 2010

401(k) Plan Contribution Limits

Corey —  March 31, 2010

Contribution Limits

       The maximum amount you can contribute to a 401(k) plan depends on your age. These are the correct 401(k) plan contribution limits for 2009 and 2010. This limit can be split between multiple qualified retirement plans (401(k), 403(b), SIMPLE, or SEP), but the combined total of your contributions cannot exceed this limit. You cannot contribute more than 100% of your compensation.

  • Under age 49 at the end of the year: $16,500

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  • Age 50 or older by the end of the year: $22,000 (only if your plan permits catch-up contributions)

Deadline for Contributions

       Elective contributions are generally made from your paycheck, so you need to have your contributions set up within the year. You can choose to contribute everything at the beginning of the year if your plan allows it, or you can just contribute a certain amount or percentage from each paycheck.

Tax Deduction for Contributions

       Your contributions to a 401(k) plan reduce your taxable income, so you do not need to claim a tax deduction on your return. However, you may be eligible for the Retirement Savings Contribution Credit.

In Investing, Retirement, Taxes
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What Records Do I Need to Keep for My IRA Contributions?

Corey —  March 31, 2010

       If you’ve made any IRA contributions, you’ll want to keep a record of those in case you ever need to prove it to the IRS. The best record you can have for an IRA contribution is a Form 5498. The custodian of your IRA is required to file this form with the IRS and send you a copy as well. Form 5498 will show any contributions or conversions you’ve made as well as the required minimum distribution (RMD) if applicable. You should receive this form in May or June.

       By keeping a copy of your Forms 5498, you’ll have a record of your IRA contributions. This is especially handy if you ever take an early distribution from a Roth IRA, convert a traditional IRA to a Roth IRA, or make any nondeductible contributions. If the IRS ever questions the information you file when you do one of those actions, you’ll be able to back up your data with those Forms 5498.

       If you lose a Form 5498 or never receive it, simply contact the custodian of your IRA. They should be able to send you a copy for any year they maintained your IRA. While it’s nice to know that, don’t count on your custodian to always have the information you need. You’re best off keeping the records yourself (in an organized manner…) than relying on your custodian to have them for you.

       So that’s what you need to keep if you make any IRA contributions. It may sound trivial, but it can save you from future headaches. If you have any questions, let me know in the comments!

In Investing, Retirement, Taxes
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Roth IRA Contribution Limits

Corey —  March 30, 2010

Contribution Limits

       The maximum amount you can contribute to a Roth IRA depends on your age and income. These are the correct Roth IRA contribution limits for 2009 and 2010. This limit can be split between a Traditional IRA or Roth IRA, but the combined total of your contributions to your Traditional and Roth IRAs cannot exceed this limit.

  • Under age 49 at the end of the year: $5,000

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  • Age 50 or older by the end of the year: $6,000

Income Limits

       You are only eligible to contribute to a Roth IRA if your adjusted gross income (AGI) falls under certain limits. These limits depend on your tax filing status.

  • Married Filing Jointly or Qualifying Widow(er): You can make a full contribution if your AGI is less than $166,000 (or $167,000 in 2010). If your AGI is more than $176,000 (or $177,000 in 2010), you cannot make a contribution to a Roth IRA. If your AGI is between $166,000 and $176,000 (or between $167,000 and $177,000 in 2010), then the amount you can contribute is reduced proportionately.

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  • Married Filing Separately but you lived with your spouse at any time during the year: If your AGI is more than $10,000 (same in 2010), you cannot make a contribution to a Roth IRA. If your AGI is between $0 and $10,000 (same in 2010), then the amount you can contribute is reduced proportionately.

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  • Single, Head of Household, or Married Filing Separately and you did not live with your spouse at any time during the year: You can make a full contribution if your AGI is less than $105,000 (same in 2010). If your AGI is more than $120,000 (same in 2010), you cannot make a contribution to a Roth IRA. If your AGI is between $105,000 and $120,000 (same in 2010), then the amount you can contribute is reduced proportionately.

Deadline for Contributions

       Contributions for a year can be made any time that year or until the due date of your tax return for that year. Contributions for 2009 must be made between January 1, 2009 and April 15, 2010. Contributions for 2010 must be made between January 1, 2010 and April 15, 2011. You can designate for which year (current or previous) you are making contributions if you contribute between January 1 and April 15.

Tax Deduction for Contributions

       There is no tax deduction for Roth IRA contributions. However, you may be eligible for the Retirement Savings Contribution Credit.

In Investing, Retirement, Taxes
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Tithing Is So Old Testament

Corey —  March 30, 2010

       If you’ve read my articles on tithing, you might begin to think that I hate tithing. (In fact, I almost titled this article “I Don’t Hate Tithing”.) Or maybe you think I’m just stingy. Although that conclusion would be difficult to reach after reading my thoughts about New Covenant giving. But the truth is there’s a deeper reason behind why I teach against tithing as a giving standard for Christians.

       Tithing is the Old Testament example and standard for giving. It was part of the Law of Moses given specifically to the Israelites through the Old Covenant. But Christians today are no longer under that covenant. We’re under the New Covenant. And you see an interesting trend when you look at what the early Christians were taught about giving.

       Keeping in mind that the New Covenant began after Jesus’ death on the cross, consider the teaching you find in the New Testament about giving. Can you find any passages where tithing is used as the example that Christians should follow for giving? I’ll wait while you look.

       I can already tell you that you won’t find any. I know because I’ve looked. I’ve searched long and hard to find all the verses in the Bible that talk about personal finance. And you know what I’ve found in the New Testament about giving? The only example ever used to explain how much Christians should give is Jesus. Not tithing, not the Old Testament offerings – only the life and sacrifice of Jesus Christ.

       That’s a significant statement. We’re supposed to give like Jesus did?! That sounds so difficult. How can I ever be that generous? How do I even calculate that for my budget??? But He is our example for giving as Christians who want to honor God. No, it’s not as easy to figure out as 10% of your income, but there are some general giving guidelines we can glean from the New Testament. New Covenant giving requires a deep, intimate relationship with God and demands that you spend time in His Word and in prayer seeking His will.

       Recently, I did a personal finance Bible study at my church for our winter Sunday school elective. When we started talking about tithing and giving, one person brought up the statistic that Christians only give about 2-3% on average. I also brought up the fact that only about 6% of Christians tithe to their churches (though about 27% of evangelical Christians give at least 10% of their income to charities). With statistics like that, why would I even try to teach something beyond giving 10%? We can’t even get to a tithing standard. How can I expect Christians to give generously and sacrificially???

       But I think that’s our first mistake. We think that by teaching tithing we’re giving Christians a simple, straightforward guideline that they can follow for their giving. It’s clearly taught in the Old Testament and even comes with curses and blessings. Surely that will motivate people to give generously. And that’s the problem.

       The reason I teach so strongly against tithing is because we have a much greater example and motivation for giving. Tithing never suffered for us. Tithing did not die for our sins. Tithing will not grant us eternal life. Tithing does not love us.

       But Jesus did suffer and die for our sins. Jesus will give us eternal life with God in Heaven. Jesus does love us – extravagantly, generously, sacrificially – even to the point of death!

       Brothers and sisters, why would we choose to continue using a lesser, weaker example for giving? We wonder why no one is motivated to tithe. Why don’t we teach giving based on Jesus’ life and sacrifice? How can our response to His gift be anything other than love, which will then produce generous, sacrificial giving in us? We can dismiss tithing and come up with excuses why we can’t afford it right now. But we cannot dismiss the gift of Jesus – the gift of His death for our sins so that we can have eternal life. The Holy Spirit will compel us to give if He is our focus.

       So if you wonder why I teach against tithing, that’s it. I don’t care if you disagree with my thoughts about why tithing no longer applies to Christians. I’m not here to debate the Law versus Faith (or Grace) ideas with you. But can’t we agree that teaching a giving standard based on Jesus’ gift to us will result in more generous, more sacrificial, and more cheerful Christian givers than teaching based on tithing? Let me know in the comments.

In Giving, Personal Finance Bible Study
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Traditional IRA Contribution Limits

Corey —  March 29, 2010

Contribution Limits

       The maximum amount you can contribute to a Traditional IRA depends on your age. These are the correct Traditional IRA contribution limits for 2009 and 2010. This limit can be split between a Traditional IRA or Roth IRA, but the combined total of your contributions to your Traditional and Roth IRAs cannot exceed this limit.

  • Under age 49 at the end of the year: $5,000

    •  

  • Age 50 or older by the end of the year: $6,000

Deadline for Contributions

       Contributions for a year can be made any time that year or until the due date of your tax return for that year. Contributions for 2009 must be made between January 1, 2009 and April 15, 2010. Contributions for 2010 must be made between January 1, 2010 and April 15, 2011. You can designate for which year (current or previous) you are making contributions if you contribute between January 1 and April 15.

Tax Deduction for Contributions

       How much of this contribution you can deduct on your tax return depends on your adjusted gross income and whether or not you are covered by an employer-sponsored retirement plan at work.

       You may also be eligible for the Retirement Savings Contribution Credit.

In Investing, Retirement, Taxes
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Why Are You Here?

Corey —  March 26, 2010

       Sorry to sound so rude, but I have a question for you.

       Why do you read what I write on Provident Planning? What are you looking for? Why do you come here? What do you need?

       I’m asking because this is often a very one-sided thing for me. I try to figure out what people need to learn or want to learn, and then I write the articles to provide that information. (OK, so sometimes I just write stuff because I can’t think of anything else. But most of the time I do put a lot of thought into the articles I write.)

       So I’m asking you to help me make Provident Planning better. Help me make it something that meets your needs. Help me make it amazing! I can’t do it without your help because I don’t have all the answers.

       What do you need to do to help me? Simply leave your answers/suggestions in the comments below or contact me directly. Again, I want to know why you’re here, what you need, and what you’re looking for from Provident Planning. Also, I’d appreciate any ideas you have to make Provident Planning better. What would you like to have on here that I don’t yet? What could help make this site great?

       Remember, I need your help to do this. Without you, this website is just me talking to myself. Thank you so much for your help!!!

In Miscellaneous
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Investing Basics: What Is a Stock?

Corey —  March 25, 2010

       In our last Investing Basics article, we talked about securities and what that term includes. The next few articles in this series will focus on the specific types of securities available. We’ll look at stocks, bonds, mutual funds, options, futures, and short-term savings options. Today, we’re going to talk about stocks.

What Is a Stock?

       As I explained in the post about securities, a stock represents ownership. Stocks are also referred to as equities, which simply means they represent an ongoing ownership interest in a business. Each share of a company’s stock represents a piece of ownership interest in that company. When you own a share of stock, you own a part of a company.

       The return you get from owning a stock comes in one of two ways: dividends or capital gains/losses. Dividends are payments the company makes to its shareholders (owners) from its earnings. If a company declares a dividend of $1.00 per share and you own 100 shares, you’ll get $100 in dividends.

       Capital gains or losses result from changes in the price of the stock. If the stock’s price goes up from where you bought it, you’ll have a capital gain when you sell it. If the stock’s price goes down, you’ll have a capital loss when you sell.

       Stocks are considered riskier investments than bonds because of what happens when a company liquidates or goes bankrupt. Stockholders are the last people to be paid when a company goes belly-up. Bondholders get paid before stockholders, so there’s less risk. If there’s no money left when it comes time to pay the stockholders, then they get absolutely nothing.

       Finally, there are two main types of stocks: common stock and preferred stock. The biggest difference between the two is in how dividends are paid out. Common stock comes with no dividend guarantees. Preferred stock comes with a stated dividend rate (either a specific dollar amount or a percentage of the stock’s par value – the face value). Also, preferred stocks have priority over common stocks when dividends are paid. That means that dividends owed to preferred stockholders must be paid out before common stockholders receive anything. They’re a little more complicated than that, but that’s the basic difference.

       In the next article, we’ll look at bonds. Make sure you sign up for free updates to Provident Planning if you want to learn more!

In Investing
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