Finance Article

Bankruptcy is often the only “clean” way out of debt. For many people bankruptcy represents something not good, in fact it is so misunderstood that it is associated with hopelessness and desperation. But the truth of the matter is that bankruptcy is the only debt alternative that is provided for in law, therefore seeks for the best of your interests. This includes protecting your from debt collection harassment and giving you enough space to regroup your efforts and live a debt free life. Being debt free is not the end of the story. It also includes getting back the life you had before bankruptcy. One of the most important issues is the access of post bankruptcy credit cards. Is it possible to get back on track with credit and ALL its advantages even after bankruptcy?

The first thing you need to remember is that bankruptcy is not forever. Your case will be closed, your creditors paid up, your credit standing can go a nudge higher. These are all good things and through an optimistic outlook, you can slowly begin to rebuild whatever you have lost with bankruptcy. Legally, bankruptcy can follow your trail for about 10 years. Most of the bad part of bankruptcy however will be removed after your seventh year making you a more attractive prospect for banks and other financial institutions. This is a step forward from the first day after bankruptcy.

The second thing you need to remember is that to rebuild your credit life, you need to get back to using credit right after bankruptcy. It does not heal on its own. You have to pursue it again with the primary purpose of building a “name” that can be trusted again. Through acquiring credit and faithfully paying up, your credit score will go up gradually until such time that you get back to your original credit standing or even better than before.

The things you need to watch out for are the obvious traps in credit. After your bankruptcy there will be numerous credit card companies that will offer you pre-approved credit cards. These companies know you will have a hard time accessing easy credit with the bankruptcy overshadowing your credit standing. Be careful about signing up for these cards. They can bury you to debts that do not help you at all in improving your credit scores. These cards can fetch high annual fees, very high late fees and up to 30% in interest.

You can talk to your bank and get the best deal following bankruptcy credit cards options such as a secured card. Make sure to be patient and careful about your payments with the secured card. Gain favor with your bank and give your credit status a favor. Overtime this card can shift to being unsecured and the credit rebuilding process is initially complete.

The self-employed and the small business owner carry the same retirement needs as those who head for the office cube every morning. Fortunately, Uncle Sam help you out in socking away retirement savings, so that you can build a nest egg for your golden years and lower your tax bill at the same time.

Keep in mind, that when looking for a plan for the self-employed, there are several things to consider such as tax benefits, plan costs, contribution requirements, and deadlines for establishing the plan. So, here are some common types of plans you can look into:

Solo 401K
This is a great option for anyone who has no employees except for a spouse, and wants to maximize their contributions with a tax-deferred plan.

A solo 401k combines both a deferral portion and a matching one. So, you can contribute $16,500 (or $22,000 if you will be 50 or more at year’s end) plus 20% of your self-employment income (this is your total business income minus half of your self-employment tax) or 25% of your compensation if your business is incorporated — for a maximum of $49,000 (or $54,500 if you are 50+).

You must establish your plan by Dec. 31, 2010, if you want to claim a 2010 tax deduction.

SEP IRA
Also known as Simplified Employee Pensions, these plans are uncomplicated with low fees. They are 100% tax-deductible and investments grow tax-deferred. The SEP IRA allows you to contribute and deduct up to 20% of your net self-employment income, meaning – self-employed income minus one-half of the self-employment tax. Also, if you run an incorporated business and your income is based on a W-2, the contribution limit is 25% of that income.

The SEP IRA is best for high-income business owners who can rake-in income of at least $245,000, to reach the maximum contribution of $49,000. But, if you contribute to other defined contribution plans like a 401k or an IRA, that will affect your contribution limits with the SEP. In other words, all of your defined contribution investments cannot exceed $49,000 in total.

Just like with regular IRA’s, withdrawals after age 59.5 are taxed as ordinary income and withdrawals prior to age 59.5 may incur a 10% IRS penalty, as well as income taxes.

April 15th is the deadline to establish and fund a SEP for the prior tax year. If an extension was filed, you can establish and fund a SEP IRA by October 15th.

SIMPLE
A SIMPLE IRA is exactly that, simple. But, it actually stands for Savings Incentive Match Plan for Employees. It was created for small businesses with up to 100 employees earning at least $5,000 in the previous year. For this plan, the maximum contribution is $11,500 plus 2 or 3% of income. The cost and the complexity of opening a SIMPLE plan is low, with an application of only a few pages and can be done in as little as 15 minutes at your local bank, brokerage firm or mutual fund.

A SIMPLE IRA plan can be set up effective on any date between January 1 and October 1, only if you have not set up a SIMPLE IRA plan before. If you have, then a SIMPLE IRA plan can be set up effective only on January 1.

Keogh Plan
This plan is the copy-cat of retirement programs similarly found at corporations. It’s certainly the most expensive and complicated plan of all self-employed retirement plans.

The Keogh Plan is also a tax-deferred plan much like a regular IRA, but the difference is the contribution limits and that depends on the type of Keogh and this depends on the plan. There are two types of plans: profit sharing and a defined benefit pension.

Annual contributions to Keogh profit-sharing plans are based on a percentage of self-employment income and are capped at $49,000. A plan document must be drafted in Year One (this may cost a couple hundred bucks), and the IRS requires an annual report.

The Keogh defined benefit plan is set up to receive a specific benefit at retirement. A plan can be created that can provide an annual retirement benefit up to $195,000 a year, but the actual amount is determined by a formula, based on desired benefit, income, assumed investment returns and how many years until retirement. Also, with this kind of plan, you are burdened with the expense of an actuary.

Set the Keogh Plan up by the end of the tax year, for which you would like the plan to take affect.