Question:
A 30-year-old employee of my small company is contributing to our SIMPLE IRA. I was explaining to her about converting her existing personal IRA into a Roth, then I thought, given the tax differences when she begins withdrawing, many years from now, is it better for her to put her money into the Roth (pay the taxes now, let it grow and withdraw completely tax free), OR contribute to the SIMPLE IRA, being that the company is making a contribution for her? I’m assuming she doesn’t have the funds to do both. Is there such a thing as a SIMPLE IRA that is structured as a Roth? Can she convert a SIMPLE IRA to a Roth?
Answer:
SIMPLE IRAs are generally used for employers with 100 or fewer employees that do not have any other retirement plan. The maximum annual deferral is $11,500 or 100% of compensation in 2012, per employee and an additional catch-up contribution of $2,500 for employees age 50 or older. In a SIMPLE IRA, the employer must either match the employee contributions dollar for dollar up to 3% of compensation, or the employer can contribute 2% of each eligible employee’s compensation, even if the employee does not contribute to the plan.
That said, our answer depends on how the employer is contributing to the SIMPLE IRA. If she is receiving an employer match up to 3% of her salary, we recommend she contribute enough to get the full benefit of the employer match. This match is basically a 100% return on her investment up to 3%, regardless of market performance. That is hard to pass up. If she has any money for savings leftover, we recommend she contribute to a Roth IRA, providing she is under the eligibility income limit.
If her employer is contributing 2% of her compensation to the SIMPLE IRA regardless of whether she contributes, we suggest that she puts all of her savings directly into a Roth IRA up to the maximum of $5,000.
Question:
What stocks do you like in Consumer Discretionary, and IT? Also do you like Teva with it going on to the NYSE next month?
Answer:
Teva Pharmaceutical Industries Ltd. (NASDAQ: TEVA) announced in March that it would transfer its listing to the New York Stock Exchange. The company expects to begin trading on the NYSE on May 30th. We feel the move is good for Teva; however we do not see it as a reason to buy shares. We feel Teva is a solid investment. However, there has been unsubstantiated talk that Teva may spin off their branded pharmaceutical business. Teva has spent nearly seven years building their branded drug lineup so the company is more than a generic drug maker. We feel this would be a poor decision for the company, and hope that this merely just a rumor.
As for stock picks in the Technology sector, we like Qualcomm, Inc. (NASDAQ: QCOM), Apple, Inc. (NASDAQ: AAPL) and Intel Corporation (NASDAQ: INTC).
In Consumer Discretionary, we like names like The Walt Disney Company (NYSE: DIS), Aaron’s Inc. (NYSE: AAN) and Darden Restaurants Inc. (NYSE: DRI), all of which we own.
At Henssler Financial we believe you should Live Ready, which includes researching the best values for your portfolio. If you have questions on your holdings, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or e-mail at experts@henssler.com.
Disclosures:
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing.
