Ask an Expert
APRIL TOPIC: Personal Finance
Justin J. Carbonneau:
Partner at Validea Capital Management |
OUR EXPERT:
Justin J. Carbonneau is partner at Validea Capital Management, a systematic-based investment management firm utilizing strategies of Wall Street legends. He has worked with hundreds of high net worth investors, helping them grow and compound their wealth using Validea’s investing system and guru-based models. |
Could you please explain the difference between a traditional IRA and Keogh IRA - who can put money in and how much can go in? Can you still put money in if you have no earned income? Are there age restrictions? ~ Elizabeth Knight (Australia)
Both traditional IRAs and Keogh plans are retirement account types that enable individuals to save pretax income for retirement. Money invested in these accounts can grow tax free and taxes are only due when distributions or withdrawals take place. The key difference is Keogh plans were originally established for sole proprietors (i.e. self-employed individuals) and allow for a much higher level of contributions. According to the IRS web site, the law no longer distinguishes between corporate and other plan sponsors, and the term, i.e. Keogh plan, is seldom used. For 2018, the traditional IRA contribution limit is $5,500 ($6,500 if you’re age 50 or older), while SEP IRAs, SIMPLE IRAs and 401K plans have higher limits. The IRS is a great resource and reference for the differences in IRAs, limits, restrictions and more.
Resources:
Tax Information for Retirement Plans
Retirement Plans for Self-employed People
Both traditional IRAs and Keogh plans are retirement account types that enable individuals to save pretax income for retirement. Money invested in these accounts can grow tax free and taxes are only due when distributions or withdrawals take place. The key difference is Keogh plans were originally established for sole proprietors (i.e. self-employed individuals) and allow for a much higher level of contributions. According to the IRS web site, the law no longer distinguishes between corporate and other plan sponsors, and the term, i.e. Keogh plan, is seldom used. For 2018, the traditional IRA contribution limit is $5,500 ($6,500 if you’re age 50 or older), while SEP IRAs, SIMPLE IRAs and 401K plans have higher limits. The IRS is a great resource and reference for the differences in IRAs, limits, restrictions and more.
Resources:
Tax Information for Retirement Plans
Retirement Plans for Self-employed People
I have always been puzzled as to how to integrate bonds into a financial portfolio. My confusion is in regard to yields and the indirect relationship between bond prices and interest rates. Are they an important part of your portfolio and what are the differences and advantages/disadvantages of corporate vs. government or municipal bonds? ~ Lisa Roman (Connecticut)
Bonds can play a very important role in an individual’s investment strategy. In general, most bonds provide diversification to an equity portfolio. Bonds, particularly shorter term duration bonds, can act as a way to help reduce the amount of risk an individual is exposed to. In bear markets like 2000-2002 or 2008-2009, bonds can help buffer a portfolio from declines as they tend to fall less than stocks. On the flip side, bonds typically don’t, over the long term, have the upside of equities, and during rising interest rate environments and/or inflationary times, bonds will fall in value as investors seek out higher paying bonds issues. Bonds offered through different entities – the government, municipalities and corporations carry a host of pluses and minuses. Generally speaking, U.S. government bonds tend to be perceived as the lowest risk because they carry the full backing of the U.S. government and the U.S. tax payer. Municipal bonds are tied to debt issuance by states and cities and can be tied to a specific project with revenue associated with it or with just general borrowing. In many cases, municipal bond income is not taxed by the Federal government. Corporate bonds are issued when a company wants to borrow money. Bonds carry ratings with them, and the better the rating the better the creditworthiness of the entity and typically the lower the interest rate. It’s important to understand that not all bonds are the same and each issuance can carry a different time to maturity and come from various entities with different credit ratings.
