Know Your Value: A Guide to Fair Market Values

You want to get the most out of your investment. After all, the point of any investment is to make money, so the last thing you want is to be getting less than you deserve.

The problem is that you don’t really know the fair market value. You don’t want anyone ripping you off after all of your hard work, so what do you do to make sure this never happens?

This article will show you exactly what you need to know about fair market values. Read on to find out more.

What Is Fair Market Value, Exactly?

The first thing you need to learn is what fair market value actually is. To put it simply, the fair market value is the price that an asset (such as your investment) would sell for on the open market. It’s the typical value under normal circumstances.

There’s a bit more to this, of course. For starters, it has to be a clean trade. Specifically, both the buyer and seller have to be reasonably knowledgeable about the asset, they have to be free of any pressure to trade, and they need enough time to complete the transaction.

Because of this, the fair market value should represent an accurate valuation of the product in question.

How to Calculate the Fair Market Value

Although there are nuances to calculating the value of your asset, for the most part, it’s actually pretty simple to add things up.

In the case of your investment, you’re going to take the price of your asset during the time of your original purchase and subtract values due to factors such as general wear and tear, depreciation, or any sudden damages that may have lowered the value.

In some lucky cases, you may be adding more to the original price. In that case, you would add any increase that accumulated to the price you originally paid for the asset, and get a new value for your investment.

This is an extremely simple way to calculate your investment’s value and get the most out of your product that you deserve.

The Company You Can Trust

Now you know about the fair market value and how it applies to your investment. However, the investment world can be a tricky one, and you’ll want all the help you can get to navigate it carefully and successfully. We’re the right team to have on your side.

At Quest Trust Company, we offer investment aid in fair market values, general investments, and even real estate. We also work with all types of IRAs, including traditional, Roth, SEP, and Simple IRA.

Ready to get started? So are we. Simply reach out to us and we’d be more than happy to lend you a hand.

We look forward to helping your investment reach its fullest potential!

Choosing Between a SEP and Simple IRA

When entering the world of entrepreneurs, there are important decisions to be made when talking about the steps to prepare for retirement, and what benefit plans for your employees are the most manageable and are the most effective in terms of cost. Large companies can offer plans where savings are encouraged, mostly seen in 401k plans. Companies can also stay competitive in the market by matching some contributions. However, if you work in a business where you are self-employed, a different strategy is needed in order to take full advantage of the compensation benefits. Small business owners can form two types of plans: SEP IRAs or A SIMPLE IRA.

Many similarities can be seen between both types of plans, but there are important differences that need to be recognized when making a decision about which one can benefit your company more. Both plans can be easy to establish, and both plans can be easy to keep in-tact, which is perfect for those owners of a small-business and might not have payroll or a department that can help look over employee packages that seem complicated.

A SIMPLE IRA gets most funding from contributions made by employees, but there is a contribution that is required to be made by employers. Some companies do not offer other qualified plans, in which the company would have eligibility to get this plan. For some companies, participation in this kind of plan would be the most beneficial, because then there is not one burden on one person. The employees get to decide what contribution is made. Even though employer’s are required to make a contribution, there can still be a choice made to cover the employer’s part, and there are two options. The employer can either fully match the first 3% of the compensation or make a contribution of 2% of every the employee’s compensation who is eligible.

Employers fund SEP IRAs. No funding requirements are required annually, which means that if the businesses has expenses that could be considered fluctuating, expenses have the option of being prioritized by the owner. A SEP IRA is available to a business with one or more employees. If you are more interested in making a greater amount of contributions to your retirement retirement, a SEP IRA plan is probably the best plan for you. You also have the option to make an IRA that is personal to you, while still having the SEP IRA. A person is given the ability to make contributions that are able to be fully deducted to the plan of the employee, which can be of benefit to the worker.

Regardless of the type of business you own, there can be benefits shown from both SIMPLE IRAs or SEP IRAs. Expenses will not only be deductible and can have the potential to lower the self-employment tax, but there will also be opportunity for a benefit of value to be provided, so that you have the chance to save up and contribute to your personal retirement.

What Is a SEP IRA?

A SEP IRA is a retirement fund made for people who are self-employed and people who own businesses. SEP stands for Simplified Employee Pension and IRA stands for individual retirement accounts. It is a really basic account for retirement, just like traditional IRA. Contributions made to these accounts are tax deductible, and until retirement, investments are tax-deferred until a person has reached retirement. At that point, distributions are taxed as income.

Who is it best for?

When considering if it’s good for you, it is important to consider if you currently have employees who the IRS would consider eligible to be participants, you must make contributions on their behalf, and the contribution should be an equal compensation to yours. Participants who are eligible are 21 years or older, have worked for you for three years out of five, and in the past year, have earned $600 from you within the past year. Because there is a rule that requires equal compensation of contributions, SEP IRAs are usually best for people who are self-employed, or people who own small businesses but have few employees.

Are there contribution limits, and if so, what are they?

The limits are what make SEP IRAs stand apart from traditional IRAs. When talking about a regular IRA, you are allowed to put away a certain amount of money in a year, but when talking about them, you can hold up to around ten times more than what you could have originally stockpiled with a regular IRA. But there can be some limits. Contributions that you put towards them are not allowed to be less than 25% compensation and $54,000 in the year of 2017. 25% of the compensation is the same limit for how much you can contribute for each employee that is eligible. You are able to combine two types of IRAs. Employers contributions don’t reduce the contribution you can make to an IRA, but your traditional IRA contribution can be reduced when you’ve reached higher income levels when you combine both plans, if you are an employee that gets covered by them.

How Can I Open an Account?

The process for opening an account is very similar to the process of opening a traditional IRA. A good number of people who provide IRA accounts also offer SEP IRAs, and the account can be opened online.

The steps are as follows:

    1. Make a written agreement. This can be done with an IRS form, or it can be done through the company that provides the account.
    1. Make sure eligible employees are informed about the SEP IRA. Information can be obtained through the account provider, or they can be given a copy of IRS Form 5305-SEP.
  1. Each eligible employee must have a separate SEP IRA account, so it’s important to set that up with the employee provider.

How Do I Invest my SEP IRA?

Understanding that a SEP IRA is not an actual investment is super important. You can choose from offered investments once the account has been opened. Options usually include mutual funds, stocks, and bonds. The less time there is towards retirement, the more important bond funds will become. You can also look into index funds for bonds.

Four Differences Between SEP and SIMPLE IRAs

Just because you own a small business doesn’t mean you aren’t qualified to offer retirement plans to your employees. Because Americans like options, there’s not just one option for you to utilize, there are two—the Simplified Employee Pension (SEP) IRA and the Savings Incentive Match Plan for Employees (SIMPLE) IRA. While each are designed to help small businesses with retirement plan options, there are differences between the two in their set-up, flexibility, and employee participation rules. Explained below are four key differences between SEP IRA and SIMPLE IRA retirement plans to help you better decide which would work best for you and your company.

  1. Eligibility and Participation. Only employers with fewer than 25 employees can participate in a SEP IRA plan. This plan is more flexible for the business as they allow employers to adjust annual contribution limits and frequency. Individual employees are not allowed to contribute to their plans however.

SIMPLE IRAs can only be utilized by companies who have 100 employees or less. For an employee to participate in this plan, they must prove an income of at least $5,000 for the previous two years as well as be expected to earn at least that much in the current year. They must also prove they have no participation in any other qualified retirement plan concurrently. Employees can contribute to their accounts, but are only guaranteed an employer contribution regardless of their own contribution under a non-elective 2% plan.

  1. Contribution limits. For a SEP IRA, only the employee’s first $270,000 of income is eligible for up to 25% contribution, creating a total of $54,000 annually that can be applied to their account.

For a SIMPLE IRA plan, employers can either choose to match an employee’s contribution up to 3% of the employee’s salary or offer a non-elective guaranteed 2% contribution regardless of employee contribution. In each case, the employee contribution amount cannot exceed $12,500 per year, or $15,500 if older than 50. An employer can offer 2% of the employee’s income in the non-elective plan only up to an income amount of $270,000. If an employer chooses the 2% plan, they must contribute to all eligible employee plans in this way.

    1. Taxes. Contributions for both plans, as well as matches for SIMPLE IRAs, are tax deductible for the employer only, even for their individual plan. Contributions and earnings grow tax deferred, but the employee must pay an income tax on all amounts withdrawn.
  1. Early Withdrawals. Funds removed before the account holder reaches 59 ½ may be subject to a 10% early withdrawal penalty for either type of account, on top of the income tax required for the amount. SIMPLE IRA early withdrawals within the first two years of participation in the plan will incur a hefty 25% fee.

Each plan holds unique costs and benefits for both employer and employee, and only you will know which is right for your personal business. Before choosing a plan, be sure to talk with your financial advisor for additional information and counsel.