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Five QuickBooks Apps to Benefit Small Businesses 7-18-16

Five QuickBooks Apps to Benefit Small Businesses

QuickBooks accounting software packages are usable with apps that are accessible via mobile devices and computer systems with Internet connections.  Intuit and its independent collaborators developed these apps for use in the small businesses that constitute QuickBooks’ target market.  QuickBooks apps expedite the processing of QuickBooks accounting data and thereby save time and money for the respective small businesses. The following paragraphs identify five QuickBooks apps that benefit small businesses.

  1. Transaction Pro Importer

Transaction Pro Importer is a QuickBooks app that benefits small businesses because it simplifies the process by which lists and transactions are imported from text and Microsoft Excel files.  This benefit derives from the field mapping, data editing, data validation and import log features of Transaction Pro Importer.  Transaction Pro Importer equips its QuickBooks users to define and save their own field mapping whilst they dispense with cumbersome import templates.

  1. Concur Expense Reporting for Small Business

Concur Expense Reporting for Small Business is a QuickBooks app that benefits small businesses because it facilitates the reimbursement of expenses.  Additionally, it automatically imports credit card fees and receives QuickBooks transaction data.  It benefits small businesses because it

  • is compatible with popular mobile telephones,
  • records receipts electronically and
  • is a travel and expense management tool when it is used with gratis Tripit Pro accounts.

This app synchronizes small business travel expenses with QuickBooks, ensuring that receipts are recorded and travelling officers are reimbursed.

  1. Method CRM

Method CRM is a customer relationship management app developed exclusively for use with QuickBooks.  Method CRM is beneficial to small businesses because it optimizes these organizations’ management of their customers’ affairs.  It does this because

  • it is easily customizable to the needs of small businesses,
  • it has self-serve portals that provide up-to-date information concerning the businesses and their customers,
  • its records are synchronized with the related QuickBooks records,
  • it creates customer leads for the businesses whenever potential customers access the businesses’ websites, and
  • it enables sales personnel to convert more customer enquiries into sales.
  1. eCC Cloud

eCC Cloud is a QuickBooks app that is particularly beneficial to small businesses that operate online stores and want to be in command of their accounting and e-commerce activities.  By synchronizing the small businesses’ QuickBooks records with transactions of the businesses’ online stores, eCC Cloud facilitates real-time accounting for sales, products and customers.  Owing to its compatibility with national and international e-commerce companies such as Amazon and eBay, eCC Cloud benefits small businesses by increasing their online sales.

  1. SOS Inventory

SOS Inventory is a QuickBooks app that benefits small businesses by enhancing their management of their manufacturing activities, inventories and orders.  Benefits derive from the app’s capability to

  • make small businesses account for items assembled from components,
  • update inventories of raw materials and finished goods, even in multiple locations,
  • integrate logistical processes for deliveries to customers,
  • provide order management data that QuickBooks Online cannot provide and
  • track individual inventory items.

QuickBooks® Features To Prevent Fraud 6-28-16

QuickBooks® Features To Prevent Fraud

In business, fraud is criminal or wrongful deception that intentionally produces personal or financial benefit; it often involves deliberate misrepresentations and defalcations that distort financial results. Most fraudulent transactions pertain to disbursements and often affect check preparation, expense statements and invoicing. As owners or managers, business leaders are principally responsible for preventing fraud in their enterprises. In enterprises that use QuickBooks®, QuickBooks® Administrators usually set up the software. By virtue of this function, the administrators reinforce the business leaders’ efforts to prevent fraud. With institutionalized internal control systems, QuickBooks®’ security features help to prevent fraud.

In setting up QuickBooks®, the administrator should assign one username for each user. Thus the administrator can set parameters for each user’s QuickBooks® activity for the enterprise. Additionally, unique user-names empower the administrator to monitor the users’ QuickBooks® activities. To ensure sustained fraud prevention, the administrator should regularly review set-up files and procedures.

QuickBooks®’ security features include its audit trail and other reports that prevent fraud. Older versions of QuickBooks® had audit trails that could be turned on and off; newer versions have audit trails that function indefinitely. The audit trail is an extensive document that provides details of every activity pertaining to each transaction. The activities include the editing, addition and deletion of transactions. Objectively reviewing the audit trail helps to prevent fraud. The audit trail provides no information about unauthorized access or changes to aspects of QuickBooks®. However, the software’s permission feature militates against fraud. To activate permissions, each enterprise’s QuickBooks® Administrator utilizes QuickBooks®’ Company menus and sub-menus.

Check Registers and reports titled Voided/Deleted Transactions, Closing Date Exception and Expenses by Vendor Detail are among QuickBooks®’ documents that aid the prevention of fraud. In the case of the Closing Date Exception report, the closing date enables monitoring of transactions recorded in closed accounting periods. QuickBooks®’ closing date is vital for preventing fraud and, because of this date, QuickBooks® users cannot enter suspect data in prior periods. The Closing Date Exception report enables responsible officers to monitor data entered up to the closing date.

Intuit, the developer of QuickBooks®, is strongly committed to its clients’ online security. Therefore, Intuit operates its Online Security Center that safeguards companies’ QuickBooks® data and reinforces the clients’ online security.

Some internal control systems that supplement QuickBooks® ’ anti-fraud features are safeguards for use of the Internet, best practices, documented policies and procedures, segregation of duties, periodic reconciliations of balance sheet accounts and periodic analysis of income statement accounts. Best practices include examining the antecedents of accounting employees and making employees know the importance of safeguarding the integrity of their QuickBooks® user accounts. Segregation of duties ensures that employees consistently utilize appropriate accounting checks and balances that prevent fraudulent activity concerning disbursements and receipts. Reconciliations and analysis foster the early detection and correction of any pertinent errors.

Fraud causes significant losses for business enterprises. In many cases, there is little or no restitution for such losses. QuickBooks®’ anti-fraud features, with supplementary internal control, are effective safeguards against fraud.

QuickBooks® Invoicing Feature 6-20-16

QuickBooks® Invoicing Feature

The QuickBooks® invoicing feature is easily accessible via desktop and online versions of QuickBooks®. Each of these versions has QuickBooks®’ characteristic user-friendliness that facilitates accounting tasks, including invoicing. The following points outline some fundamental procedures for users who want to create an invoice by means of the invoicing feature of QuickBooks® Online.

  1. On opening QuickBooks® Online, click the “Create” icon. The “Create” icon appears as a “+” sign at the top of the page, between the “Search” icon on the left and the “View” icon on the right.

  2. A drop-down list appears immediately after the “Create” icon is selected.

  3. On the drop-down list, under the “Customers” submenu, select “Invoice”. This selection produces a blank electronic invoice.

  4. Complete the invoice according to the prompts and names indicated for the data fields.

  5. To customize the invoice, click “Customize” at the foot of the invoice. This action results in the opening of the “Customize” window.

  6. In the “Customize” window, upload an organizational logo if this is desired. The “Customize” window permits changes to the invoice’s style, header, footer, columns, margins and other features.

  7. Use the “Preview PDF” function of the “Customize” window to assess changes to the layout of the invoice.

  8. Once customizations are deemed satisfactory, save them by selecting the “Save” button.

  9. Close the “Customize” window. This action automatically returns the user of QuickBooks® to the “Invoice” window.

  10. Click “Print or Preview” to assess the appearance of the invoice.

  11. If the invoice is deemed satisfactory, click “Save” if it will not be dispatched electronically; click “Save and Send” if it is to be dispatched by electronic mail.

  12. Click “Send and close” if the invoice is dispatched by electronic mail.

By facilitating the customization of invoices, the QuickBooks® invoicing feature accommodates unique invoicing requirements of individual organizations. With the QuickBooks® invoicing feature, organizations have the liberty to create original invoices or invoices modeled on QuickBooks®’ templates.

Besides facilitating the preparation and customization of invoices, the QuickBooks® invoicing feature aids the monitoring of invoices and their delivery online. An organization’s responsible officers may advantageously use the QuickBooks® invoicing feature to automate the invoicing process. Such automation is particularly beneficial to an organization that has customers who are invoiced periodically. By means of its “memorized billing transaction” capability, the QuickBooks® invoicing feature generates invoices for designated periods. Thus customers may recurrently, automatically and punctually receive individual or batched invoices from an organization. Automation safeguards the accuracy of invoices and minimizes the time required to prepare the invoices.

An additional advantage of the QuickBooks® invoicing feature is its ability to convert quotations to invoices. If a transaction is finalized on the basis of an estimate, the QuickBooks® invoicing feature can seamlessly generate the final invoice from the estimate. The QuickBooks® invoicing feature also is beneficial because it shows payments against invoices and presents updated balances for invoices and customers.

DIY Bookkeeping Mistakes Noted by Accountants: 6-13-16

DIY Bookkeeping Mistakes Noted by Accountants:

The first mistake accountants across the board agree upon is using computer accounting software that is too complex for the user’s expertise. Let’s face it there is a plethora of accounting software on the market today and knowing what fits your needs as well as your expertise can be a difficult path to navigate. The best advice is to consult with an expert in the field of accounting software as they can evaluate your level of expertise and business needs to direct you to software that will fit you best.

The second mistake is not hiring a professional when you really need one. Medium and small business owners often fall into the trap of wanting to do everything to…. well save money. But the reality is no one can do everything and when you try to “do it all” something suffers. In business by and large it’s your bottom line the very thing you’re trying to preserve. It is difficult for some to delegate duties especially accounting as it is some of your most confidential information but when it’s done incorrectly the cost to you can be tremendous. With online accounting and the cloud the ease of outsourcing your accounting functions and the immediate availability to manage your finances anywhere at any time is an extremely appealing product. The security is comparable to that of the banking industry (which many of us have been doing online for years) and some say more secure. Of course, the cloud is not for everyone but it is one to consider when your knowledge in this area is not your strongest attribute to your business.

The third item I’d like to highlight is paying incorrect employee super contributions. Now if you read this and thought or said, “what’s that?” you need to outsource your payroll or hire a professional to do your payroll. Payroll is a complex system with a multiplicity of state and federal requirements. Many bookkeepers will tell you they’ve “done payroll” but you need to know what questions to ask to ensure they really understand the entire process not just processing payroll checks. The previously mentioned is a perfect example of a common mistake with regards to payroll; paying incorrect employee super contributions. This is the superannuation guarantee legislation where you, the employer, are mandated to pay 9.50% of an employee’s “ordinary time”. The confusion for many comes with understanding what constitutes ordinary time. Month end reconciliation process is another question you need to ask of the individual you are considering hiring. Like knowing what accounting software to purchase knowing what questions to ask a potential bookkeeper are crucial to ensuring they will meet your needs and provide effective, ethical record keeping for your business.

If you have questions regarding how to hire a bookkeeper, payroll or QuickBooks® software contact our office and let us see how we can help you navigate this complex overabundance of options and superhighway of internet information.

Balance Sheets Then and Now 6-6-16

Balance Sheets Then and Now

Of the variety of reports that can be generated in QuickBooks® today, the balance sheet (otherwise known as the Statement of Financial Position) is perhaps one of the best ‘snapshot’ reports available and yet least understood by users. By utilizing the balance sheet in both form and knowledge, business owners can use the balance sheet as a basis of understanding their current financial health, and a platform for making strategic decisions and future changes to the business.

What is a Balance Sheet?

The balance sheet is generated for a particular point in time, differing from other reports, such as the income statement; a balance sheet will list a particular day (As of December 31st, 2013), whereas an income statement or similar period report will reflect a span of time (For the Month of December 2013). Made of up three component categories (Assets, Liabilities and Equity/Capital) with subsequent sub-categories as appropriate, the balance sheet follows a simple formula in portraying values: Assets = Liabilities + Owner’s Equity. These titles correspond to what is owned and owed by the company and the net worth after accounting for the prior items.

The first recorded use of the balance sheet spans back to the 1200’s A.D., when Venetian merchants utilized a record-keeping system of their assets and liabilities in the midst of trading between European and Asian kingdoms. The theory of portraying static values while also communicating the dynamic changes in the financials were developed in the late 1800’s by Alexander Roudanovsky, who combined French, Italian and German theories of accounting into one functional theory; this theory developed throughout the 1900’s to the format we use today.

Creating a Balance Sheet in QuickBooks®

Generating basic reports in QuickBooks® requires only rudimentary knowledge to the location and format of the report; analyzing and using a balance sheet to its highest ability, however, demands time and understanding in choosing customized formats and appropriate outlining characteristics for the report. To generate a balance sheet that shows only categorical totals, choose Reports from the tool bar, then Company & Financial > Balance Sheet: Standard. The date can be changed from the fill bar at the top of the report screen to reflect the desired snapshot.

A Balance Sheet: Detail report (generated from choosing Reports > Company & Financial > Balance Sheet: Detail) will show all corresponding transactions for the date range provided, and end with a summary total for each category. This type of balance sheet report is useful when analyzing the types of transactions that run through each account on the balance sheet, e.g. changes to fixed assets through purchases, sales or monthly depreciation.

QuickBooks® also allows the user to customize reports to fit their particular needs. If a real estate company wants to breakdown the balance sheet effect by each property class, for instance, a Balance Sheet by Class can be generated by changing the Columns option to ‘Class’ in the toolbar of the report screen.

 

COGS in QuickBooks® 5-31-16

COGS in QuickBooks®

Tracking costs within a business demands attention to detail as well as specificity of the category for the particular cost. Accounting systems such as QuickBooks® normally label accounts according to the predominant category of expenses, such as ‘Office Expenses’ for printer ink and office-related purchases, or ‘Income Tax Expense’ for payments made to the federal government. The manufacture, production and sale of goods and services warrants a special type of account to track the input costs: ‘Cost of Goods Sold’, or COGS, refers to the accumulated costs associated with the creation of a good or service for sale by a business. This important distinction allows the business owner to accurately identify the total input costs for their product, as well as determine their Gross Profit (Sales – Cost of Goods Sold) and other pertinent calculations and ratios.

How is Cost of Goods Sold Calculated?

A business’s total COGS, as shown in a multi-step income statement, is actually a reflection of multiple components interacting within a simple formula: Beginning Inventory + Net Purchases (purchases less returns and allowances) – Ending Inventory. Depending on the format of the income statement, each of these values will show systematically immediately following the Total Sales/Revenue value, and before the Gross Profit value:

Total Revenues XXX

Cost of Goods Sold

Beginning Inventory XX

Net Purchases XX

Total Goods Available for Sale XXX

Less: Ending Inventory (XX)

Cost of Goods Sold XXX

Gross Profit/Loss XXX

The COGS calculation can be more specifically separated into three sub-categories: direct labor, materials, and overhead. Businesses providing services also include payroll taxes and benefits of employees generating billable hours into their COGS calculation. While the COGS formula can be customized to best fit the needs of a particular business, generally accepted accounting principles (GAAP) specifies COGS to include “…all costs of purchase, costs of conversion and other costs incurred to bring inventory to the present location and condition”.

Cost of Goods Sold in QuickBooks®

QuickBooks® adds the Cost of Goods Sold account to the Chart of Accounts depending on the industry specified in the settings, or with the first addition of an inventory transaction. COGS can be manually referenced in bills, credit card payments or checks just as other expenses are through the utilization of the Expenses drop-down screen; however, the most accurate application of COGS in QuickBooks® is through the use of the Items List. By adding items coded as COGS and referenced to specific inventory items, further detail may be added to invoices and sales receipts for customer review. When an inventory item that has been detailed with cost of goods sold information is sold, the Inventory account is deducted for the cost of the particular item, with the same value added to the Cost of Goods Sold account.

Generally Accepted Accounting Principles: An Introduction 5-23-16

Generally Accepted Accounting Principles: An Introduction

One feature of every human activity is the peculiar set of rules that, if followed diligently, guarantee that the activity will produce desired outcomes. As human civilization evolved, many of man’s activities developed into trades and professions that have had their respective guidelines. Today, professions and less formal human pursuits are still evolving; so are the respective guidelines. In the case of the accounting profession in the United States of America, generally accepted accounting principles (GAAP) have been formal occupational guidelines for many decades.

The extensive range of accounting conventions that constitute GAAP is the result of pioneering work by America’s accounting profession and its Securities and Exchange Commission (SEC). America’s Securities Act of 1933 and its Securities Exchange Act of 1934 first authorized the SEC to institute stipulations for reporting and disclosing business information. In 1959, the American Institute of Certified Public Accountants established its Accounting Principles Board (APB) to settle accounting controversies and document GAAP. Thus, differences between existing accounting practices were to be minimized or eliminated. Until 1973, when the APB ceased operating and was succeeded by the Financial Accounting Standards Board (FASB), the Opinions of the APB constituted the supreme sources of GAAP. Nowadays, Opinions of the FASB are the authoritative bases of GAAP.

GAAP are a combination of authoritative standards, established accounting principles and routine accounting methods. The FASB establishes the authoritative standards, whereas accounting methods and principles evolve with accounting practice. GAAP govern the preparation of financial statements for organizations and individuals. Accountants, as they record and report financial data for their clients, resort to GAAP for assurance concerning the integrity of their output. When independent auditors attest that clients’ financial statements conform to GAAP, they confirm that such statements benefitted from the application of FASB standards, established general accounting guidelines and acceptable accounting procedures. With this confirmation, users of the statements have a basis for attributing credibility and consistency to the statements. These attributes are essential for these users’ analysis of the performance documented by the financial statements.

The reliance on GAAP is consistent with the perspective that investors and creditors entrust resources to managers and accounting facilitates reporting on the managers’ stewardship of these resources. Financial statements have enhanced credibility if they are based on GAAP, since GAAP are independent of managers’ and other persons’ preferences for particular financial results.

On account of GAAP, users of accounting information may safely presume that accounting methods for an entity are consistent from period to period and, consequently, facilitate the comparison of the entity’s periodic financial results. Additionally, consistent use of GAAP facilitates comparisons of the entity’s financial results with those of other entities and the particular industry. GAAP facilitate standardization of accounting assumptions, definitions and procedures.

With the advent of International Financial Reporting Standards (IFRS) early this century, the SEC has been contemplating substituting IFRS for GAAP. Work still needs to be done in this regard.

Reconciling in QuickBooks® 5-16-16

Reconciling in QuickBooks®

The day-to-day operations of a business vary from interactions with vendors and customers, management efforts and decision-making, and employee compensation, among others. Though different in function and purpose, these varying facets often share a distinct similarity: effects to the accounting records through cash transactions. The dual-process approach of entering transactions, both cash and non-cash, into QuickBooks® and then matching these transactions to the business’s banking institution reconciles the completion of these transactions, thereby ensuring the accuracy of the accounting records. Regular quarterly, monthly or even weekly reconciliations of a business’s cash accounts (savings, checking, investments etc.) is a regular function of good accounting practices, allowing management the ability to accurately interpret the financial reports and mediate outstanding items or discrepancies for the benefit of the company.

How Does Reconciling Work in QuickBooks®?

QuickBooks® compiles the transactions applicable to the account and date range chosen for reconciliation in the Reconciliation screen. After navigating from the main toolbar (Banking > Reconcile), the Begin Reconciliation screen appears, asking for basic information regarding the statement to be reconciled; the account, statement ending date, ending balance, and any applicable service charges and interest earned must be entered prior to continuing to the Reconcile screen.

(Note: the Beginning Balance information appearing in the Begin Reconciliation screen is populated from the ending balance of the last reconciliation. If the account has never been reconciled, this amount will show either the beginning balance entered when the account was created or a zero balance, the latter indicating that no transactions have been cleared through the account.)

After continuing from the Begin Reconciliation screen, QuickBooks® navigates to the Reconcile screen, populating two columnar categories: Checks and Payments, and Deposits and Other Credits. Whether simply matching the transactions within QuickBooks® or manually entering the transactions from the bank statement, the process is the same: as a transaction is verified to have cleared the bank (via the bank statement document provided from the institution on a quarterly or monthly basis), the line item should be checked, adding to the cleared balance for the designated time period. Often, banking institutions provide the total Debits and Credits (designating the two types of transactions in the Reconcile screen, separated by columns) for the time period, further adding to the accuracy of the reconciliation process by matching the provided total with the total generated by QuickBooks® in the lower left corner of the Reconcile screen.

An account is successfully reconciled when the Ending Balance and Cleared Balance equal each other, and the Difference is zero (from the lower right corner of the Reconcile screen), even if transactions remain appearing in either one of the columns unreconciled to the bank account. Choosing Reconcile Now navigates the user to choose a reconciliation report to save with their records; alternatively, if the reconciliation process is unfinished but will be returned to at a later time, QuickBooks® users can choose the Leave button, which saves their reconciliation work up the point of navigating from the screen.

QuickBooks® Billing by Invoice 5.9.16

QuickBooks® Billing by Invoice

No matter the industry, businesses must have an organized method of recording sales and receiving payments. Information regarding the current cash status and accounts receivable can be instrumental in purchasing, hiring and even investing decisions. A need to track payments and open balances for customers arises if a company expects partial or periodic payments for services provided, such as in the construction industry. QuickBooks® offers an easy-to-use tool for billing this type of customer: the invoice.

Invoices versus Sales Receipt in QuickBooks®

Before a business decides to use invoices to record transactions in their accounting file, consideration should be shown to the flow, and type, of normal transactions. Does the business receive payments for services periodically, throughout a contracted period? Are funds received in advance, or in installments based on completion of a project?

Construction companies, furniture stores and others who may offer terms for customers, such as a two percent discount if payment is received within 30 days, choose to use invoices to record transactions. Invoices link directly to accounts receivable balances for each customer listed in QuickBooks®, and can collect partial payments before the balance is fully paid. Payments collected at a later point in time than when services were rendered should also be recorded within an open invoice for the customer, such as in the case of a vehicle repair shop ordering replacement parts to a damaged vehicle.

Small businesses, restaurants, medical offices and retail stores will often utilize sales receipts, primarily for daily sales transactions. The function of the sales receipt is focused on the receipt of payment at the time of sale or service, whereas invoices may be more contractual in nature. Unlike an invoice prepared in QuickBooks®, sales receipts directly affect the cash balance and inventory balance (if utilized as a function of QuickBooks® Enterprise).

Setting up an Invoice in QuickBooks®

Invoicing in QuickBooks® can be broken into three portions: creating the invoice, receiving payment, and making a deposit.

Invoices can be highly customized to include company logos, memo messages, and detailed information regarding the items, rates, terms and charges related to the transaction. At minimum, invoices should reflect enough information to inform both the customer and future users of the document within the business what service was given and the cost related to the service. Invoices can be customized to auto-populate entry fields, further simplifying the data entry process. Since invoices directly affect accounts receivable balances for listed customers, and may be sent or given directly to the customer, each component of the invoice should be carefully checked for accuracy.

Payment may be applied to an invoice using the ‘Receive Payment’ option from a customer’s snapshot display; the following screen displays open invoice balances, and the user may choose to apply the payment to the appropriate bill. The payment is then classified as an ‘Undeposited Funds’ within QuickBooks® until deposited into the bank account using the Deposit function.

Contribution Limits on Retirement Investments 5.1.16

Contribution Limits on Retirement Investments

The increasing attention paid towards savings for retirement or other significant savings goals, such as a child’s college education, warrants the need for elementary knowledge of the monetary limits set by the Internal Revenue Service (IRS). These contribution limits impose a standard to the investment holder of a certain amount, which cannot be exceeded within a given year without penalty. The IRS evaluates these contribution limit values each year, periodically adjusting for cost of living and inflation.

Let’s examine the most common investment accounts and the related contribution limitations for each:

401(k) Retirement Savings Plan

A 401(k) retirement savings plan, offered through an employer as a deduction of a paycheck to invest in retirement savings, is offered in two major types – Traditional and Roth. The difference hinges on when the funds are taxed and able to be withdrawn. In a Traditional 401(k), the investment amount is deducted from each paycheck, taxed upon withdrawal and limited to access until age 59 ½ or penalized at 10% of the amount of the savings in addition to the normal taxes imposed on the beneficiary. Roth 401(k)s receive taxed contributions, thus allowing the beneficiary to receive these funds tax-free upon withdrawal as soon as five years after establishment.

Both 401(k) types are limited to a set amount of elective salary deferral (that is, the amount chosen by the beneficiary to contribute into the retirement savings plan), though also offer limited additional ‘catch-up’ contributions for age 50 and older. This limit applies to all 401(k) accounts within a designated year; if, for instance, an individual holds more than one job or switches jobs in the middle of the year, the contribution limit is still imposed.

Traditional and Roth Individual Retirement Accounts

Individual Retirement Accounts (IRA’s) differ from 401(k) plans based on the management of funds: whereas 401(k) savings plans run through the employer or their chosen financial investment manager, IRA savings accounts are initiated by the beneficiary, serving as a savings account managed either directly or indirectly by the individual. These retirement savings options may be contributed in addition to a 401(k) offered through an employer, and those filing joint returns are allowed to make contributions to an IRA even if only one spouse has taxable compensation within the year.

Anyone with earned income younger than 70 ½ years old can contribute to a Traditional IRA, whereas Roth IRA accounts have limitations based on a modified adjusted gross income calculation (earned income less certain adjustments). Similar to Traditional and Roth 401(k)s, the former is taxed upon withdrawal while the latter is taxed prior to contribution. Withdrawals are mandated with Traditional IRAs in the form of minimum distributions at age 70 ½; Roth IRAs do not mandate withdrawals at any point, though limit withdrawals on earnings to five years after establishment and age 59 ½.