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While pretax 401(k) contributions reduce your adjusted gross income, you'll owe levies on growth upon withdrawal. By comparison, Roth 401(k) deposits won't provide an upfront tax break, but the money can grow tax-free. Experts say these expected changes may also factor into the pretax versus Roth contributions analysis. Plus, recent changes from Secure 2.0 have made Roth 401(k) contributions more appealing for some investors, she said. Consider your 'legacy goals'"Legacy goals" are also a factor when deciding between pretax and Roth contributions, said Lawrence from Mariner Wealth Advisors.
Persons: Roth, , Ashton Lawrence, Lawrence, Lawrence Pon, There's, Catherine Valega, Valega, pretax Organizations: Mariner Wealth Advisors, Lawrence Pon CPA, Pon &, Green Bee, Green Locations: Greenville , South Carolina, Redwood City , California, Boston
Here's why: The failure to file penalty is 5% of your unpaid balance per month (capped at 25%) plus interest. Don't ignore IRS noticesAnother common mistake is ignoring IRS correspondence once you've fallen behind on your taxes, experts say. And if you miss a payment, the IRS can cancel the installment agreement and your remaining balance will be due, Pon warned. Offer in compromiseAnother option, offer in compromise, may allow you to settle for less than you owe. You can start with the Offer In Compromise Pre-Qualifier tool to gauge eligibility and send an application from the Offer in Compromise Booklet.
Prathanchorruangsak | Istock | Getty ImagesWhether you're starting a new job or updating retirement savings goals, you may need to choose between pre-tax or Roth 401(k) contributions — and the choice may be more complex than you think. While pre-tax 401(k) deposits offer an upfront tax break, the funds grow tax-deferred, meaning you'll owe levies upon withdrawal. By contrast, Roth 401(k) contributions happen after taxes, but your future earnings grow tax-free. Experts say these expected changes may also factor into the pre-tax vs. Roth contributions analysis. Plus, recent changes from Secure 2.0 have made Roth 401(k) contributions more appealing for some investors, she said.
Bigger contribution limits on retirement accountsIf you're eager to boost your retirement savings, there's good news for 2023: higher contribution limits for your 401(k) and individual retirement account. The contribution limits have also increased for IRAs, allowing you to save up to $6,500 for 2023, up from $6,000 in 2022. Higher income limit for Roth IRA contributionsThe 2023 inflation adjustments also mean more investors may qualify for Roth IRA contributions, experts say. "But how about Roth [IRA] contributions?" While some investors may seek "complicated" moves, like so-called backdoor Roth conversions, which transfer after-tax 401(k) contributions to a Roth IRA, Pon urges investors to double-check Roth IRA contribution eligibility first.
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