Maitrayee emails: I really enjoy your column on Yahoo! I am employed by a corporation but I also have a business of my own. I am the sole employee of my own business. I have put in the maximum contribution to my 401(k) from my employer but I don't know if I am permitted to use a SEP-IRA or some other retirement vehicle from my own business? Please advise me accordingly and let me know how to report this on my taxes.
Self-employed workers and business owners like you definitely can — and should — maximize their retirement savings by opening up an individual retirement account, in addition to their full-time employer’s 401(k) plan. If you’re an employee but don’t own any stock in your company, accounting experts say you can open both types of accounts.
According to the IRS, the 2013 maximum contribution to a SEP (Simplified Employee Pension)-IRA is 25% of your self-employment income or $51,000, whichever is less. Your exact contribution limit is also based on your business’s net earnings. “It’s a complicated formula but there is a worksheet in circulation… and most tax software will also help you calculate that,” says Jeffrey Levine, IRA consultant at IRAHelp.com.
“An advantage [of the SEP-IRA] is that the set-up and administration is much less than that of a 401(k). It’s a simple form you get from a broker or bank,” says Avery Neumark, a certified public accountant in the New York area. When it comes to making income deductions on your tax return, there’s no conflict, he says. “A 401(k) is not deducted on a return because it’s… already netted in the W2. The SEP is deducted on the return." The money in your SEP-IRA becomes taxable when you withdraw. [Read: The Basics of IRAs]
@Adnan1980 tweets: When applying for a credit card, what do banks look for in your credit report? In your score, what's the percentage breakdown of payment history, debt and inquiries?
Lenders have yet to ease standards for obtaining a credit card, according to a recent bank survey by the Federal Reserve. If you’re in the market for a top-notch card offering low interest and a high limit, you’ll need to prove you’re employed, have a squeaky-clean credit history, credit score in the high 700s and low debt-to-income ratio. Specifically in your credit report, banks will want to review your track record to see how well or poorly you’ve managed credit in the past. Were you ever late to pay? Did you ever declare bankruptcy or foreclose on a home? These are all red flags.
Your credit score, meantime, plays an equally important role in the approval process and reflects much of the data tracked on your report. Payment history accounts for the biggest chunk of your credit score calculation (35%), according to FICO, the top credit score issuer. That’s followed by your debt-to-credit ratio, or amounts owed (30%). Racking up a large amount of debt on a credit card, for example, and failing to pay it off in full at the end of the month, can result in a high debt-to-credit ratio, which can damage your score. The longer your credit history is, the better, too. Length of credit history makes up 15% of your score. The variety of credit you possess — from credit cards to a mortgage to car loan — can also work in your favor, as credit scores give extra points to those who can manage a wide mix of credit well. This variable is 10% of your score. The final 10% goes to new credit. Be careful when applying for new cards. Too many credit inquiries from issuers may signal that you’re a riskier borrower. According to FICO, stats show that people with six inquiries or more can be up to eight times more likely to experience bankruptcy, compared to those with no inquiries.
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