Financial Tips

When it comes to money, whether or not you know the rules in advance can make a big difference. For example, if you do not understand the law regarding estate, you may end up leaving most of your life's saving to Uncle Sam instead of your hires.

US-China treaty gives Chinese students and scholars a $5000 tax break each year. This means the first $5000 taxable income you earned while being a student or visiting scholar is exempted from federal tax. Some states honor this treaty for state tax too. Others don't. Check with your International Students Office. This applies to the first 5 tax years you are in the US.

Traditional IRA and Roth IRA. IRA standards for Individual Retirement Account.
Both traditional IRA and Roth IRA allow you to contribute up to the following amount:

Tax Year	Under Age 50	Age 50 and Over
2001	$2000	$2000
2002-2004	3000	3500
2005	4000	4500
2006-2007	4000	5000
2008 and later	5000	6000

Traditional IRA allows you to take tax deduction of your contribution. Money in traditional IRA grows tax-deferred, meaning you will only need to pay for capital gain tax when you take money out of your IRA account after you are 59 and 1/2 years old.
Roth IRA contribution is not tax-deductible, but the money grows tax-free, meaning you never owe any tax on the money and the capital gain it generates.
The requirement for contributing to an IRA is that you have earned income no less than what you contribute, in which case you can contribute on behalf of both you and your spouse. People who participate in an employer-sponsored retirement plan (e.g. 401k plan) and have 2005 individual income of more than $60,000 (or $80,000 for a couple) do not qualify for tax-deductible traditional IRA.
Allowed contribution amount for Roth IRA is reduced if earned income is more than $95,000 for a single (or $150,000 for a couple). People whose individual income is more than $110,000 (or a couple with combined income of more than $160,000) cannot contribute to Roth IRA. For more detailed IRA rules, see this SmartMoney.com page.
IRA contributions are on a yearly basis. The last date to contribute to a year is the tax-filing deadline date for that year (usually April 15 of the next year).
Both IRAs have early withdrawal penalty. For traditional IRA, you pay 10% early withdrawal tax if you are not 59 and 1/2 years or older. For Roth IRA, the 10% penalty applies only if your are under 59 and 1/2 AND that you have had the IRA for less than 5 years.

Suggestions:
1. Start contributing to IRA even when your are in school (as long as you have earned income greater than your contribution amount), as long as you can spare the money.
2. If you can afford to skip the tax deduction (or if you are in a low tax bracket), contribute to Roth IRA. Otherwise contribute to traditional IRA.

Education Savings Account, UGMA, and 529 accounts. Each year you (and other) can contribute up to $2000 to a child's education savings account. The total amount of contribution to a child's name cannot exceed $2000 a year. The money is not tax-deductible, but grows tax-free. UGMA stands for Unified Gifts to Minors Act. It allow people to give money to a child's account without the strict amount limitation for education saving account. Investment returns in an UGMA account are tax free until they exceeds a certain limit. See the tax page for more details. 529 accounts are offered by each state. You don't have to live in a state to put money into the 529 plan offered by that state.

401(k) plan (or 403b for university employees) Once you work full-time, you can start saving for retirement by contributing to a 401(k) plan. The first nice thing is that your contribution is tax-free. The capital gain from a 401(k) plan is tax-deferred (until you retire). The second nice thing is that your employer usually will match part or all of your contribution (which means you get more money by contribution to the plan). There is a limit on how much you can contribute each year (e.g. 10% of your salary). The amount you can contribute to such a plan is as follows:

Year	Under Age 50	Aged 50 or Over
2003	12,000	14,000
2004	13,000	16,000
2005	14,000	18,000
2006	15,000	20,000
2007	15,500	20,500
2008	16,000	21,000

Have a will, and designate beneficiaries for your account. Make sure that all your bank and investment accounts have at least one designated beneficiary. If you have significant assets (say worth $5,000 or more), consider having a will so that in case something happens to you, the assets would belong to someone you choose instead of the government.

Reduce your estate by giving money to people you love over the years. This applies to people who have a significant amount of money and are concerned about estate(遗产) taxes. You can give up to $10,000 (or $20,000 for a couple) to your children, grand children, or anyone else without paying for any gift tax. The recipients don't need to pay any tax either. This way part of your estate is transferred to the people you love without paying tax to the government, But you have to plan early to really take advantage of this.

What's next?

Find out how much you need to save, and how much to invest in stocks and bonds, go to Financial Planning.
Find out how you should invest in stocks.
Find out how you should invest in bonds.
Understand the tax rules, and be a tax-smart investor.

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