A type of Individual Retirement Account (IRA) allowed by the Employee Retirement Income Security Act of 1974 (ERISA) in which contributions are paid into the bank's interest-bearing financial instruments or a self-directed account. The difference between a self directed account and the bank's interest bearing financial instrument is that the investor is in charge of investment decisions. Self-directed accounts are usually set up by a brokerage and the investor is charged an amount above trading costs. ERISA is federal legislation enacted to ensure that pension/retirement plans of employers are fair and secure. It is the law that established rules and regulations to govern private pension plans, including vesting requirements, funding mechanisms, and general plan design and descriptions.
A dividend or distribution that a co-operative pays to its members or investors. Patronage dividends are given based on a proportion of profit made by the business. once this amount is figured out the dividend is calculated according to how much each member has used the co-op's services. Tax rules view these profits essentially as an overcharge, which can be returned to patrons and deducted from the co-op's taxable income. As the name implies, patronage dividends are paid to individuals as a result of belonging to the co-operative. One example can be seen when families purchase groceries through a co-operative and receive income or a credit on their account in return. Although they are taxed as ordinary dividend income, they may also contain an alternative minimum tax adjustment amount and are usually reported on Form 1099-PATR. Some co-ops will use the dividends to reduce the selling price of items, thus, in a way, the more you spend the more you receive.
A type of personal savings system in which the plan contributor automatically deposits a fixed amount of funds at specified intervals into their investment account. The typical structure of this type of savings system is an automatic transfer from an individual's bank account into a different savings or investment account every two weeks. Then, every time the individual receives a paycheck from their employer, their desired savings amount is automatically transferred into their savings account. An automatic savings plan has other advantages than just the convenience of not having to manually deposit funds into your savings account each month. For instance, this type of system makes it easier to stick to a personal budget, since it is harder to overspend and dip into your savings once they are automatically removed from your bank account. This type of system also helps investors continue contributing savings to their investment portfolio over a long period of time, something that can become emotionally difficult to keep up after suffering losses on a few investments or personal experiences.
A loss incurred through a rental property, limited partnership, or other enterprise in which the individual is not actively involved. Passive losses can only be used to offset passive income, not wage or portfolio income.
A rollover of a participant's qualified-plan balance to an IRA without the participant's authorization. This usually occurs for involuntary cash-outs of balances between $1,000 to $5,000. The plan administrator is responsible for establishing the IRA on the participant's behalf.
Earnings an individual derives from a rental property, limited partnership or other enterprise in which he or she is not actively involved. As with non-passive income, passive income is usually taxable; however it is often treated differently by the Internal Revenue Service (IRS). There are three main categories of income: active income, passive income and portfolio income. Passive income does not include earnings from wages or active business participation, nor does it include income from dividends, interest or capital gains. For tax purposes, it is important to note that losses in passive income generally cannot offset active or portfolio income. It is important to note that, by some, portfolio income is considered passive income; in which case dividends and interest would be considered passive. The important definition is the one the IRS uses, and to be sure your taxes are filed correctly, it would be prudent to check with the IRS or a tax professional on this matter if you have a blend of active, passive, and portfolio income.
A person who is authorized to perform business-related transactions on behalf of someone else (the principal). In order to become someone's attorney in fact, a person must have the principal sign a power of attorney document. This document designates the person as an agent, allowing him or her to perform actions on the principal's behalf. The extent of the power of attorney document determines the amount of responsibility that the attorney in fact possesses. Attorneys in fact operate under general power of attorneys, meaning that they are not restricted and can represent their principals in any transaction. In the case of a special power of attorney, the attorney in fact has restricted powers and can represent the principal in specific situations.
An activity from which you have the potential to profit but in which you do not physically participate. The income from rental properties is a good example of a passive activity. Making a distinction between passive and active income is important because you can claim a passive loss only against income generated from passive activities. You cannot claim a passive loss against active income.
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