A regulation relating to IRA rollovers stipulating that whenever a financial asset is withdrawn from a retirement account or IRA (for the purpose of funding a new IRA, for example), it must be rolled over into the same property (or format) of an IRA. Unless the party involved is over 59.5 years of age, failure to comply with this rule will result in the IRS taxing the withdrawn asset as ordinary income. Suppose George, a 50-year-old male, decided to buy some shares with money from his IRA account. After, he decides to place the shares in a new IRA in order to defer taxes. Since his withdrawal asset changed properties (it changed from cash to shares) during the rollover and he is under 59.5, he will end up owing tax on the withdrawn amount at a rate that equals his normal income tax rate and also incur a 10% penalty.
A cash- or deferred-contribution arrangement of an employer-sponsored retirement plan, under which participants can choose to set aside part of their pre-tax compensation as a contribution to the plan. This kind of contribution is also called an elective-deferral contribution. Employees defer the tax on the money until it is distributed to them.
The period in a person's life following retirement in which earning income has come to a stop and the person is living off government subsidy, retirement plans, investments and/or money saved for retirement. During the spending phase of a person's life, income may decrease substantially, but this likely coincides with a decrease in expenses. Children are usually no longer dependent on their parents in the spending phase, and major assets (such as mortgages) may be paid off. Traveling, relaxing and enjoying retirement are the principle goals of someone living in their spending phase.
A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits include retirement income, disability income, Medicare and Medicaid, and death and survivorship benefits. Social Security is one of the largest government programs in the world, paying out hundreds of billions of dollars per year. based on the year someone was born, retirement benefits may begin as early as age 62 and as late as age 67. The amount of income received is based on the average wages earned over the worker's lifetime, with a maximum calculable amount of $102,000 as of 2008. Spouses are also eligible to receive Social Security benefits, even if they have limited or non-existent work histories. The original program was part of President Franklin D. Roosevelt's New Deal plan to lift the U.S. out of the Great Depression. Today, the program is funded through payroll taxes collected by employees and companies; monies are placed into the Social Security Trust Fund and payments are managed by the government along with the Federal Reserve Board. Social Security has faced serious solvency issues for many decades; today's payments are made from current payroll contributions by workers who may not have money available for them when they retire. Social security reform, whether through legislation, tax law changes, or privatization, has been a major political issue that draws strong opinions from different demographic segments. Social Security faces the real threat of becoming insolvent because of factors such as longer life expectancies, a large baby boomer population currently entering retirement age, and inflation.
An account used by the United States federal government to record excess contributions paid into the Social Security system. The Social Security Trust Fund is used when contributions made by workers and employers exceed the amount currently needed to fund the Social Security system and those retired workers currently collected Social Security benefits. The monies held within the fund are invested in interest-bearing federal securities in order to increase while being held in trust. The Social Security Trust Fund was originally created to account for an anticipated future shortfall in benefits needed to pay out retirees. Following an increase in the Social Security payroll tax in the 1980s, the excess contributions from the tax increase were deposited into the Social Security Trust Fund to be used at a future date when the current assets of the Social Security system are no longer sufficient to cover their obligation.
The monetary benefits received by retired workers who have paid in to the Social Security system during their working years. Social Security benefits are paid out on a monthly basis to retired workers and their surviving spouses. They are also paid to those who are permanently and totally disabled according to the strict criteria set forth by the Social Security Administration. Social Security benefits may be taxable depending on the taxpayer's level of income. Single taxpayers who have income above $25,000 per year and married couples filing jointly with more than $32,000 of income may have a portion of their Social Security benefits taxed. Social Security disability payments are usually tax-free.
The shock associated with opening an investment statement and seeing that the value of your portfolio has dropped more than expected. Statement shock most commonly occurs as a result of an unexpected drop in value, but it can also be caused by lower-than-expected returns. Statement shock is most likely to occur following large downturns in the market. Many investors will contribute to an investment fund and receive statements in the mail on a monthly, quarterly or annual basis. The average investor usually does not follow the day-to-day fluctuations of his or her portfolio and therefore will be shocked to see a large change in value from one statement to the next.
An income statement that identifies any transactions that alter the net assets that are available for pension benefits. Pension fund statements list additions and deductions from the available asset list on the "statement of changes". The largest adjustments typically involve changes in the fair value of investments and pension benefits. The statement of changes in net assets available for pension benefits includes additions to available benefits such as investment income, employer contributions and any rental income. Deductions are also listed, including pension benefits paid out, death benefits and administrative expenses. These statements are typically produced yearly and/or monthly.
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