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FAQ

How do I make a career switch into consulting?
From the tags I am assuming you are referring to 'management consulting' when you mention 'consulting'.Just to give some context of where I'm coming from: I moved into management consulting after working in unrelated industries, a different country and with little relevant experience. I did go to business school, but got my offer outside of business school recruitment rounds. I have helped a number of students and experienced professionals transit into management consulting.My thoughts:1. Understand the landscape of the consulting industry. Within management consulting, firms themselves are quite diverse. Some common groupings you would come across are 'tier 1' firms who traditionally do strategy development work but are diversifying, 'big 4' firms who are the large, generally full service advisory arms of accounting firms, 'boutiques' who generally specialize within a certain subset of services and/or industries, and 'technology' firms which are either the consulting arms of technology vendors, firms whose services are targeted at CIOs, or firms whose services have a strong technology or product bent. Every firm is unique, but there is some broad commonality within firms within each category and it would be useful to get across that to help you choose and articulate your preferences.2. Understand how you can fit in with the work that the firm is doing. Check if specific vacancies are recruiting generalist consultants or someone more specialized. Position yourself as a subject matter expert in a service or industry if you are a match. Beyond that, you can also be more nuanced and align yourself with a 'solution' or 'capability', which is a combination of tools/processes/competencies that consulting firms sell and deliver. Other dimensions you could think about are the geographical familiarity and strategic relationships that you may be able to bring to the table.3. Rewrite your CV based on the consulting firm's point of view. This might consist of recasting your work in terms of discrete pieces of analysis and/or delivering and managing projects as opposed to fulfilling a functional role within an organization. There are lots of resources on management consulting CVs so I'll just say keep it short, keep it focused on outcomes, quantify any benefits you have delivered, and ruthlessly remove whatever is not relevant. While I cannot speak on behalf of HR recruitment officers, my CV at the time was something like 70% on 6 months of my life which encapsulated my understanding of consulting and one small project that was somewhat consulting relevant, and 30% on the rest of my accumulated experience up to that point.4. Don't underethe interview process. I did interview unsuccessfully for two consulting firms before I got an offer. I encountered multiple rounds of interviews that went far beyond behavioral questions - one gave me a take home case to formulate an approach to find a solution overnight, another round required me to conduct a workshop on the spot. You would have also likely come across the 'case interview' format, which is both quite a skill in itself, as well as a fair indicator of if you would like consulting as a career. While it may come natually to some people, that particular format might require an investment of time and effort to understand what is required and practice the mechanics. This is especially the case for experienced hires who might be thrown more cases, and more complex cases.5. Meet consultants in person. Beyond a certain point there is nothing closer to reality than having chats one on one with practicing consultants. I personally dislike 'networking sessions' so I used Linkedin extensively to contact management consultants to buy them coffee. I basically contacted those with similar backgrounds to myself and were at the same level or one level more senior than the level I would enter at.If you are committed to getting into consulting, don't give up if you get knocked back a couple of times (or even many times). Once you have identified a few realistic positions you could move into, it could be a two step process to get there (e.g. you may require an interim role that would fill a capability gap). But you'll get there!All the best :)
How can somebody whose making $100k a year from self-publishing on Amazon Kindle make a savings/retirement account?
Roth IRA - $5,500/year up to earned income ‡ max it out ‡ double it if you are married (fill up your spouse’s account too), and you get a bonus if you are oldRoth 401(k)/401(k) combo - open a self employed Roth 401(k) and put all earned income here up to the limit; this gets matched in the regular 401(k), but the math gets tricky because what goes in the traditional 401(k) doesn’t count as earned income for Roth 401(k) or Roth IRA purposes with a 2% match and a profit of $102, you can only put in $100 to your Roth 401(k) because the other $2 is the match and this affects your Roth IRA contribution as well. These must be coordinated with your work plans as well (457, 403(b), and 401(k) are generally considered distinct; but a self employed Roth and a work 401(k) likely have a single limit.The above plan gives me 3 growing pots of retirement money with different restrictions and I can decide how much goes where within limits. I use TD Ameritrade, but there are many great discount brokers.My daughters have a Roth IRA and a SEP IRA only because the amount they earn is small (a couple hundred each year) so the 2% (or 1% or even 3%) would barely cover the commission in the traditional 401(k) and would cause me a lot of extra work at tax time; but if all of you go and buy their books at Rainbowdash Publishers LLC and they start making over a thousand a year, I may rethink that strategy. In the mean time, they also put money in a Coverdell IRA ($2,000 limit per kid), and a 529 account (complicated max and mutual funds not stocks) for college.SIMPLEs are another way to go—never had one, so I can’t talk about it.Tax laws are complicated and neither Rainbowdash Publishers LLC nor I are tax experts; do your own homework and read more answers here and consult a tax expert before deciding what is right for you. This does not constitute tax advise. Disclaimer, disclaimer.
What are some tax deferred retirement options for founders?
You can invest through an IRA but the limits are lower. Is there the possibility of having the company start a sponsored plan? I was in a similar situation 20 years ago. We started out with a SIMPLE-IRA ($12.5k contribution) then later “upgraded” to a 401k plan to maximize benefits.You can also look into a SEP-IRA but whether that makes financial sense will depend on the number of employees, salaries, how much you are willing to pass over to them, etc.
How should small business owners think about retirement planning?
As a small business owner, you are completely responsible for your own retirement planning. If you have employees, you may feel responsible for helping them plan for a successful retirement. The considerations and retirement savings plans that work you, as a small business owner, should be paramount when planning for both your own retirement and that of your employees.It might seem strange that developing a business exit strategy should be one of your first considerations when planning for retirement. But consider this: the small business you spend your life building might become your largest asset. If you want it to fund your retirement ‡ and to stop working ‡ you’ll need to liquidate your investment. To prepare to sell your small business one day, it needs to be able to operate without you. It’s never too early to start thinking about how to accomplish that goal and about how to find the best buyer for your small business.Market conditions will affect your ability to sell your business. You might want to build flexibility into your retirement plan so you can sell your stake during a strong market or work longer if a recession hits. You definitely want to avoid a distress sale: One problem you’ll encounter if you wait until the last minute to exit your business is that your impending retirement will create the impression of a distress sale among potential buyers and you won’t be able to sell your company at a premium.Are you business owner and need to know more about retirement planning and execute it visit Heartland Consulting Group, Inc.
Is investing in Roth IRA worth it?
Totally -Let’s be honest, no one likes to think about planning and saving for retirement. The thought of putting your hard earned money away to an account that you cannot touch until you are 65 isn’t a desirable concept, but it’s oh so very necessary! You have to find a financial balance within your retirement account for it to grow. A Roth IRA could be the best tool in your retirement portfolio and you may not even know it.Whether you are new to retirement saving or a seasoned veteran, a Roth IRA can be a welcomed addition to your portfolio. Along with your 401(K) and traditional IRA, this account will allow for increased flexibility with your current retirement planning.What is a Roth IRA and Why is It So Special?A Roth IRA is an individual retirement account allowing a person to set aside after-tax income up to a specified amount each year. Both earnings on the account and withdrawals after age 59½ are tax-free.Tax- Free GrowthThis plan sounds pretty simple, right? Well, that is because it is. Roth withdrawals in retirement are tax-free, unlike payouts from traditional IRAs, which are taxed at your top tax bracket. This benefit is the perfect incentive for young savers. With a Roth, you will not be subject to the higher tax rate on your withdrawals if you are working after 59 1/2. Other than growing TAX-FREE, having a Roth has some other serious benefits.Penalty Free Withdrawals (Generally)Most retirement plans penalize you for making any withdrawals before retirement but, this is not the case with a Roth. You can withdrawal your contributions, if you need, at any time without paying taxes or penalties. The earnings in your account, meaning the money your money has made for you, must remain there for at least five years or until you are 59 1/2, or it will be subject to penalty and tax.First Home WithdrawalsIn addition to the ability to withdraw all your contributions after five years, if needed, you can also withdraw for a new home. Up to $10,000 of your earnings can be withdrawn without penalties or be subject to tax if you are using the money to buy your first home. This incentive is a benefit that could come in handy.Contribution FlexibilityUnlike most 401(K) retirement plans which mandate that all contributions have to be made by the end of the calendar year, you have until Tax day of the following year to make your contribution. Meaning any money you put towards your $5,500 contribution limit before April 15th, can be applied to your account for the prior year.Take It or Leave ItWith a traditionally IRA or your 401(K), you must start your retirement distributions by age 70 1/2. A Roth IRA will allow you to keep your money in your account as long as you like. If you never decide to take a distribution, you can Will your funds to an heir, and they can withdraw tax-free distributions. The only caveat is that the heir must start annual withdrawals or RMD, the death year of the account holder.Find out if a Roth IRA is right for you, take the quiz here.Bonus Tip –Because the contributions to you Roth IRA are an after-tax deposit, you can open an account at any time. I started my Roth when I was just 17 years old and it has been growing ever since. The earlier you start the better, to allow for maximum growth.For more great finance tips - check you the Personal finance section of my siteFinance Archives | Busy Wife Busy Life
What are other options available besides an IRA?
I’m surprised at some of the other responses here because some have compared IRAs with various forms of investment. An IRA is NOT an investment - it is a type of retirement account. Just about any investment can be used within a Roth IRA account (if you have the IRA at an investment or mutual fund company) and many kinds of investments can be used within other types of retirement accounts such as 401k accounts. I cannot tell from your question whether you want to compare IRAs with other types of investment accounts or other types of retirement accounts.Other types of retirement accounts are:Roth IRASEP IRASimple IRARoth 401k, 403b, and similar (employer-sponsored accounts)Conventional 401k, 403b, and similar (employer-sponsored accounts)And the following two insurance accounts, which are also investments (in other words, they are accounts that have, essentially, only one investment option):AnnuitiesUniversal Life InsuranceI’ve listed the above in order of rough overall desirability, although individual circumstances differ. What’s best for one person may not be best for another. All offer some form of tax protection if you are saving money for retirement. But those higher on the list usually have better investment return because they offer a greater variety of investment options, lower expenses and fees, and sometimes have better tax protection benefits.Other types of investment accounts are:All of the other types of retirement accounts listed above.Brokerage accounts.Mutual fund accounts.Bank accounts, such as savings, checking, CDs, etc.(the latter are not tax protected if you are saving for retirement)There are also certain specialized kinds of investment accounts that are not aimed at retirement but do offer some tax protection, such as:529 accounts for saving for education expensesHSA accounts for saving for medical expensesWithin any of these accounts there will typically be several investment options. As a rule, the largest selection of investment options will be in brokerage or IRA accounts if opened at a stock broker or mutual fund company. 401k options depend on the employer - some are very flexible with a lot of options, and others are much more restrictive. Insurance accounts, bank accounts and specialized accounts generally have the most limited set of options for investment (although they will work very hard to sell you what they have.)InvestmentsWithin most of the account categories above you will have investment options. Here are the main ones:Mutual Funds - offer a lot of diversification - a very valuable featureIndex funds - offer very low cost, and many have relatively low risk (which is why these are so popular)Managed funds - higher in cost, focused on specific objectives and managed by a management team (a few do better than index funds, most don’t)Within the above categories, there are also other ways to categories mutual funds, such as bond funds vs stock funds vs balanced (mixed) funds; high risk vs low risk funds; funds focused on dividends vs funds focused on long term growth; life cycle funds (which invest based on the age of the investor, designed to give maximum growth when young and maximum stability when retired); and many other categories.Real Estate Investment Trusts - a diversified way to invest in real estateIndividual stocks, bonds, or real estate investmentsMoney market funds - sort of like savings accounts that earn a bit moreSavings accountsChecking accountsCDsAnd many more options, some that are rather difficult to explain.In order to prbetter information, you need to specify:your goal - what you are investing foryour time horizon - how long before you will need the moneywhether you are investing a large amount all at once (such as an inheritance or lottery winnings or a bonus from your work) or regular, smaller amounts (such as monthly contributions from a salary)your risk tolerance ‡ in other words, how well you can handle the normal ups and downs of the investment world. (As a rule, the greater the risk the greater the potential returns., and most experts advise taking modest risk when young and tapering off to lower risk as you approach retirement.)And a good investment adviser will also want to know things such as:Do you have enough insurance for the various kinds of risks one encounters in life (car insurance, homeowners or renters insurance, health insurance, term life insurance, disability income insurance, etc.)?Such insurance policies can be obtained at low to moderate cost if you get the right advice.Do you have an emergency savings account in case of a sudden need for a large sum of money (such as a job loss or a flooded home or some other emergency need)?What sort of life style is reasonable for you to plan for in retirement?And many other things.
How do I make a retirement account at the age of 21?
Whether you’re saving for retirement or seeking wealth through the magic of compound growth, the “secret” is really just a simple three-step plan:Earn a decent living and live beneath your meansInvest that difference automatically, and increase the investment with each raiseInvest in a way that takes advantage of your tax situation and choose ultra-low-cost (0.20% per year or less), passively managed, widely diversified (across stocks and bonds and across domestic and international) index funds that are appropriately balanced for your age.If you’re already saving $100 per week plus bonus, then you’re already doing well on the first point. :-) So here are some ideas about how to take advantage of that difference between what you make and what you spend so that you can invest for retirement, and so you can reach the point where you can do whatever work you do because you *want* to, not because you *have* to. That kind of freedom is a very nice feeling!In America, you'll want to use legal ways to avoid taxes where you can. Your employer probably has a web site describing your options: a 401(k) plan -- especially if it includes a match from your employer, where they contribute if you do -- is usually at the top of the list. Other things include a 403(b) (if you're at a non-profit), 457 (if you work for some states), and 529 (if you want to save for your children's future expenses). You can also fund your own Traditional IRA if you want, directly through a brokerage like Vanguard or Fidelity. You can't do *all* of them, though; the IRS determines which combinations you can do.All of these are tax-deferred, meaning that the money you invest won't be taxed now (and that lowers your tax at your marginal rate, which is probably at least 25% plus whatever your state income tax is). It puts the money away until you're 59.5 or thereabouts and then you finally pay income tax when you take it out (but if you've stopped working by then, it'll almost certainly be at a lower rate because it'll be your total tax rate, not just the higher marginal rate). Don’t worry too much about the fact that you want to retire at 50 and the money isn’t accessible until you’re 59.5; there’s something called a 72(t) withdrawal that can let you get to the money without penalty and there are other investment options that will help you bridge that gap between the day you retire and age 59.5.There are limits to how much money you can put into these, though, and if you're disciplined about investing, you're probably going to hit them. :-) That's okay, you have more options: the Roth IRA is like a 401(k), but you pay taxes now, but never have to pay taxes on any of the profits, ever. You'd set one up through Vanguard or Fidelity, there's a $5,500-per-year limit on that (and you can’t have both one of those as well as a Traditional IRA). It has one other nice feature -- you can take your contributions out in an emergency if you have to, without any penalty, as long as you leave the profits you've made in there (and then you can put the money back in if you want).If you exceed all of those limits for contributions, you can keep going in other ways -- it won't have the tax savings that the other money does, but it's still going to grow in a compound, exponential way. Vanguard or Fidelity are good spots to do that.Which funds should you pick? My advice is super-low-cost, passively-managed, widely-diversified index funds.Super-low-cost means that the OER (Operating Expense Ratio) charged by the brokerage is no more than 20 cents, per $100 invested, per year -- or 0.20%.Passively-managed means that there isn't a human or team of humans who run the fund trying to "beat the market". The problem with that is they (a) need to be paid, by you and the other investors, and (b) they beat the market, on average, about 40% of the time. A chimp could do better and gets paid in bananas.Widely-diversified means the fund includes lots and lots of stocks and/or bonds so that you're not exposed to one particular company. You don't want to be that guy who puts his entire retirement fund in Enron stock, then loses the whole thing. There's no need for you to gamble; you're going to pile up a *lot* of money playing it safe.Index funds try to match well-known stock indexes like the S&P 500 or the MSCI International index. The managers of these funds don't try to pick the best stocks; they just try to match these publicly-known indexes as closely as they can. For the most part, they're just buying shares in the appropriate amounts; that's why they can charge so little to their investors.If you don't want to pick and choose index funds yourself, there's good news -- you can just take your birth-year and add 60 then go to vanguard(dot)com and invest in the Vanguard Target Retirement fund that's closest to the year you calculated (you'll want your fund to be with Vanguard in that event). That fund invests in stock index funds and bond index funds, both US and International, in such a way that will be aggressive when you're young and more conservative as you age, which is exactly what you want to do with a long-term investment -- and it'll happen automatically, without you having to keep track of it.Some of these investment types, like the 401(k), might be required to be with your employer's broker of choice and you might have a limited number of options for investment funds. That's okay, there's almost always a few funds that are pretty low-cost, passively-managed, diversified index funds. If you want, you can look at the ratios of stock vs. bond, US vs International funds in the Vanguard Target Retirement fund you want and replicate those ratios as closely as you can in your own investments outside of Vanguard. It'll take a little work on your part to keep up with the changing Target fund, but you can actually save a little bit of the OER expense (and you're going to soon have a LOT of money, so it'll be worth it to do so).Finally, do it automatically, like you already are. Figure out where you want your money to go and how you want it invested, then have the money taken out of your paycheck before you ever see it. When you get raises and promotions that bump your salary, bump up your investments, too. This is a strategy that will put you on the path to being a multi-millionaire without much chance of failure, to be honest -- if you're 25 years old now, you'd likely be ticking off your third million before you're 50. There are no guarantees in the world, of course, but based on the history of the world economy, you'd be as likely to do *better* as to do worse.Now for the bad news: $100/week probably isn’t going to get it done. If I up that to $125/week (to account for bonuses you say you’re also investing) and assume inflation goes up at 2% but your income and contributions increase at 3% per year, as well as assuming 8% growth on your investments, you barely get to $1,000,000 by age 50. That probably won’t be enough (though I don’t know what you expenses are like now, much less in 30 years!). Consider upping your contribution if at all possible, especially when you’re 21 ‡ every dollar you set aside will be worth $9 or $10 when you’re 50 and make that early retirement so much easier.Good luck to you!
As a small business owner, I have to decide whether to set up an SEP IRA or 401k plan for myself and my employees. How should I decide?
It all comes down to whether or not you need the extra benefits of a 401(k) plan. A 401(k) plan has higher administration fees and therefore should only be selected if the extra benefits are desired. So, to help you make a decision, here are some key benefits of a 401(k) over a SEP -A 401(k) plan allows your employees to contribute to the plan. A SEP only allows for employer contributions.A 401(k) plan allows employees to contribute ROTH deferrals. SEP does not.A 401(k) plan allows employees to borrow against their accounts. SEP does not (at least as far as I know).A 401(k) plan allows for a vesting schedule. This means that any employee who terminates employment without meeting certain service requirements will forfeit all or a portion of the employer contributions you made to their account. This effectively lowers the cost to fund the plan. A SEP requires all employer contributions be immediately vested.A 401(k) plan allows you to exclude certain groups of employees from benefiting in the plan. For example, a Dentist may choose to exclude Hygienists from his 401(k) plan. A SEP does not allow for this.A 401(k) plan allows you to give different funding amounts to different groups of employees. A SEP requires you give the same percentage to each employee.A 401(k) plan allows you to save up to $60,000 per year (if age 50+). A SEP is limited to $54,000 regardless of age.A SEP limits your deduction to 25% of covered wages. A 401(k) limits your deduction to 25% of covered wages PLUS $18,000 (or $24,000) in 401(k) contributions. Because of this, a 401(k) is preferred when you have lower income, but want to save more than 25%.A 401(k) plan can offer Employee Voluntary After-Tax Contributions that could be later converted to a Roth. Thus, allowing for up to $60,000 per year in Roth contributions depending on your staff demographics and testing results. SEP does not allow for this.Depending on your state, A 401(k) has a much higher level of asset protection from creditors and litigation than do IRAs. Not sure if SEPs also offer this higher level of asset protection.A properly designed 401(k) plan should have access to institutional-class investment options. Most SEPs have access to retail or advisor shares.So, while the 401(k) has better benefits and flexibility, it comes with a cost. A 401(k) plan generally requires you to engage a recordkeeper and investment manager. For a start-up plan, this usually means the employer will pay about $2021 per year in administration fees.If on the West Coast, let me know if you’d like to discuss further.
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