26 Oct 11 To Roth or Not to Roth is the question

You need to weigh all options keeping in mind your long term goals.  If no-tax option for the withdrawals attracts you and your employer is also making you available Roth 401(k), then it is a very good addition to the retirement planning strategies.

On a traditional IRA, employees have the convenience of contributing through deductions made from their pay.  In this option, you make your contributions tax deferred until your retirement or until your withdrawal.  You can establish many IRA accounts up to one year before you reach the age of 70 ½.  There are annual rebates available for the contribution to such IRAs.

However in Roth IRA you forget your tax break now in anticipation of getting it at the time of retirement.  There is much sweeter version of Roth available under which you can combine the features of traditional 401(k) IRA with a Roth IRA, which is called Roth 401(k).

Roth IRAs are limited to adjusted gross income of $110,000 to individual taxpayers and $160,000 to married couples.  If your income is about the threshold for a Roth IRA, then Roth 401(k) is an attractive option for you.

The Roth 401(k) follows many rules of a traditional IRA.  The maximum annual contribution permitted is $15,000.  However your employer may fix a limit lower than this.  The employer may be willing to provide a matching contribution to yours, however the contribution will go into a traditional IRA.  If you are 50 or older then you can additionally contribute $5000 making it a total contribution of $20,000.

Refer to the following points before taking a final decision to call for a Roth 401(k) Future taxes are always difficult to predict.  If you anticipate a higher tax bracket for you at the time of retirement then you should go for Roth 401(k) At the time of retirement you are not going to claim deductions for dependents.  Also you are not going to claim deductions for mortgages.  So you may face a higher tax bracket.  In that situation Roth 401(k) can come to your advantage. The employees can contribute to this Roth 401(k) through a deduction from the payroll.  And the contributions are after tax, so that the participants can enjoy the withdrawals free of taxes after the age 59 ½. Roth 401(k) offers the benefit of a rollover of your funds directly to a Roth IRA.  This Roth IRA will not require distributions after the age of 70 ½.  This will increase the probability of tax for the gold top of assets and you can bequeath assets in higher value to your heirs. A Roth 401(k) IRA is a greater benefit at the time of retirement.  As per the present development, the funds can be rolled over directly without paying any tax to a Roth IRA.  This feature is not available presently for the traditional 401(k) account. There are two options for planning your retirement finances.  You can either contribute to a traditional IRA or A Roth IRA. It is not necessary to meet the income criteria while participating in Roth 401(k).

Tags: 401k rollover roth

26 Oct 11 Ideally your advisor can sell financial products from any provider.

Continue here for a complete comparison of IRAs and Roth IRAs as well as information about other types of IRAs. Financial advising fees will be dependent on the complexity of your finances. Given the myriad investment choices available to you and the complications implicit in retirement planning, professional advice can be a good idea. Depending on the distribution rules for your account, you could also open a Health Savings Account which can provide favorable tax status for your funds. A holistic approach to planning would take into account your 401k assets as well as your home equity, other savings, pensions and more – enabling these assets to work with each other to fulfill your retirement goals. Consolidating your retirement assets can be a particularly good idea if you are interested in working with a Financial Advisor who can holistically assess your retirement situation and allocate your assets to your best advantage. With an Indirect Rollover the check for your funds is made payable to you. Offers full disclosure on all fee and commission payments they receive. You can develop an investment strategy for your rollover IRAs funds to help cover Long Term Care and other medical costs. Rollover Choice Six – Respect the Distribution Rules! Your Social Security and most pension benefits are guaranteed for life. Security against your employer going out of business, merging with another company or other event that could potentially impact your 401k funds. It is very important that your advisor has this type of experience and can address everything from guaranteeing lifetime income to estate planning. Maximize Estate Planning: If you have managed to guarantee adequate lifetime income and have sufficient insurance, then you will want to consider rolling over your 401k into an IRA with a firm that provides financial tools and services for efficient estate planning. This is a big and important question and many retirees choose to work with a Financial Planner who can help them create a strong plan. This is the preferred way to conduct a rollover since there is no chance of there being tax consequences as is possible with an Indirect Rollover. Respect the Plan’s Distribution Rules for Withdrawals: This is particularly important if you rollover your funds into a Traditional IRA. Financial Planning Fees: There are two main routes to opening an IRA. Respect Distribution Rules with Rollover: When rolling over 401k funds or consolidating IRAs, it is very important that you follow the distribution rules. Rollover Choice Three – Choose Between an IRA and a Roth IRA There are two main types of 401k rollover accounts — IRA and Roth IRA. Others do not. Systematic Drawdowns: Taking scheduled withdrawals from your IRA and the interest earned on your IRA is probably the most common retirement income strategy. While many people do choose to conduct their retirement rollovers on their own, you should at least consider working with a qualified financial advisor. There are at least three common ways to insure lifetime income with your 401k rollover: Earn Interest and/or Dividends: If you have sizable savings to rollover, you will want to carefully consider how lifetime income might be achieved with interest and dividends earned from your capital. This can be a particularly good strategy if you also purchase a lifetime annuity that would start when you finish drawing down your assets – guaranteeing your income even if your longevity is longer than you expect. Fund Your Desired Retirement Lifestyle: While you must be diligently responsible with your retirement planning, most retirees also have a few fun ideas about how they would like to spend their time away from work. Focuses on retirement – not “retirement planning.” Using money in retirement is totally different than saving money for retirement. Provide Adequate Insurance: The second most important issue with retirement is having adequate insurance. These prepackaged combinations of annuities, insurance and investments are an interesting way to cover your retirement plan bases. The IRA is also sometimes referred to as a traditional IRA. Rollover Choice Four: Decide How Much Rollover Advice and Service You Need and Understand Fees and Minimum Balances When opening an IRA at retirement, there are two buckets of fees and costs that you will want to consider: IRA and Account Maintenance Fees: There can be fees associated with opening and maintaining an IRA. In most cases you should probably do a Direct Rollover. These options include: CDs Bonds and Bond Ladders Stocks Dividend Yielding Stocks Exchange Traded Funds (ETFs) Money Market Accounts Mutual Funds Annuities Insurance Managed Accounts Hybrid Products – offering benefits of many of the above products Many advisors are pointing people toward hybrid products. With a Direct Rollover, a check for your retirement funds is made payable to the new IRA custodian or financial institution. A Step by Step Guide to Your 401k Rollover or Retirement Consolidation – Understand Your Rollover Choices Rolling over your retirement assets into an IRA at retirement involves a lot more than paperwork! Puts you in charge of your account.

A professional financial advisor who specializes in retirement can help you with this process. Many retirees find that the additional advice and service a financial planner can provide will more than cover the fees. More control over when and how you can withdraw money and manage your account. You can be self directed or you can work with a Financial Advisor. And you must forward the money yourself within the allotted time period. The final step when conducting a Rollover is to respect the Distribution rules. Rollover Choice Two – Decide to Rollover or Keep Funds in Company Plan or with Existing Institution Once you have a better idea of how you need to use your savings for retirement, you can better decide if you require a rollover. If you are unsure whether or not you have adequate assets for retirement, use theNewRetirement Retirement Planning Calculator to find out, or consult with a Financial Advisor. Guaranteed lifetime income can come from Social Security, a pension, interest or dividends, a lifetime annuity or a combination of these sources. While there is no requirement to rollover your retirement funds, most believe it to be a good idea. Whether reading with grandchildren, an African Safari or a vacation home – your retirement interests should also be considered when allocating your retirement funds. When deciding what to do with your 401k, the most important consideration is your retirement plan and how it may need bolstering. It is a budgeting process for the rest of your life for which you must account for many unknowns like inflation, stock fluctuations, changes in real estate prices, personal health costs, taxes and your own longevity. Here we take you step by step through the various choices you will need to make when allocating your retirement assets. This money will be easier to manage in retirement if you consolidate it in one place – even if it is invested in different types of financial products. While you may automatically think that you would like a “no fee IRA,” you are actually likely to find significant costs associated with them when you read the fine print. Find the Best Rollover IRA for You Let NewRetirement help you find an institution offering a Rollover IRA that suits your retirement.Continue here to Find the Best Rollover IRA for you. However, if there is a shortfall between this income and your actual expenses, then you will probably want to choose to roll over your funds into an IRA that offers a financial product that will guarantee adequate income to make up that shortfall. In retirement, you need to use your assets not add to them. After all, if you make a bad decision with your retirement nest egg, how will you deal with the consequences? Even if you like your current 401k plan, there are no guarantees that your employer will stick with that platform. Combination of Goals and Strategies: Like anyone in any situation, most retirees will want and even need it all – guaranteed lifetime income, adequate insurance, an estate to leave behind and a satisfying life without work. The trick is in choosing the right financial products and strategies to achieve your retirement financial needs. The advantages of rolling over your 401k into an IRA at retirement include: Rollovers provide more flexibility in how you can allocate and use the money. Provides access to the widest variety of investment choices and vehicles. Depending on your situation, you may wish to rollover your 401k into a financial vehicle that will enable you to: Guarantee Lifetime Income: Most financial experts agree that guaranteeing adequate income for the rest of your life is probably the most important criteria when considering retirement and how to invest your retirement funds. Rolling Over from Existing Financial Institution: If you have already transferred your funds out of your company plan or if you have various accounts with different institutions, you may want to consolidate with a single financial institution that offers the type of investment vehicles and financial advice that you really need in retirement. Rollover Choice Five — Find a Financial Institution that Offers Qualified Investments that Suit Your Retirement Goals Depending on your retirement goal – guaranteed income, adequate insurance, estate planning or a combination of these objectives – you will want to choose an investment strategy for your 401k rollover. However, if your retirement funds are in a company plan, most financial planners advise that you rollover.

Tags: 401k rollover roth

25 Oct 11 Rollover Choice Six – Respect the Distribution Rules!

You can be self directed or you can work with a Financial Advisor. The advantages of rolling over your 401k into an IRA at retirement include: Rollovers provide more flexibility in how you can allocate and use the money. The trick is in choosing the right financial products and strategies to achieve your retirement financial needs. There are innumerable criteria and strategies to consider. These options include: CDs Bonds and Bond Ladders Stocks Dividend Yielding Stocks Exchange Traded Funds (ETFs) Money Market Accounts Mutual Funds Annuities Insurance Managed Accounts Hybrid Products – offering benefits of many of the above products Many advisors are pointing people toward hybrid products. This is a big and important question and many retirees choose to work with a Financial Planner who can help them create a strong plan. Systematic Drawdowns: Taking scheduled withdrawals from your IRA and the interest earned on your IRA is probably the most common retirement income strategy. Whether reading with grandchildren, an African Safari or a vacation home – your retirement interests should also be considered when allocating your retirement funds. After all, if you make a bad decision with your retirement nest egg, how will you deal with the consequences? Puts you in charge of your account. With an Indirect Rollover the check for your funds is made payable to you. This money will be easier to manage in retirement if you consolidate it in one place – even if it is invested in different types of financial products. Consolidating your retirement assets can be a particularly good idea if you are interested in working with a Financial Advisor who can holistically assess your retirement situation and allocate your assets to your best advantage. Your Social Security and most pension benefits are guaranteed for life. Withdrawals on a Traditional IRA (also known as distributions) can begin at age 59 1/2 and are mandatory by 70 1/2. Rolling Over from a Company Plan: Some 401k plans require that you rollover the funds at retirement. Maximize Estate Planning: If you have managed to guarantee adequate lifetime income and have sufficient insurance, then you will want to consider rolling over your 401k into an IRA with a firm that provides financial tools and services for efficient estate planning. Combination of Goals and Strategies: Like anyone in any situation, most retirees will want and even need it all – guaranteed lifetime income, adequate insurance, an estate to leave behind and a satisfying life without work. You can develop an investment strategy for your rollover IRAs funds to help cover Long Term Care and other medical costs. Continue here for a complete comparison of IRAs and Roth IRAs as well as information about other types of IRAs. Many retirees find that the additional advice and service a financial planner can provide will more than cover the fees. Their expertise could help you navigate these important decisions. It is a budgeting process for the rest of your life for which you must account for many unknowns like inflation, stock fluctuations, changes in real estate prices, personal health costs, taxes and your own longevity. Rollover Choice Three – Choose Between an IRA and a Roth IRA There are two main types of 401k rollover accounts — IRA and Roth IRA. More control over when and how you can withdraw money and manage your account. Offers full disclosure on all fee and commission payments they receive. Rollover Choice Four: Decide How Much Rollover Advice and Service You Need and Understand Fees and Minimum Balances When opening an IRA at retirement, there are two buckets of fees and costs that you will want to consider: IRA and Account Maintenance Fees: There can be fees associated with opening and maintaining an IRA. Make sure that the advisor you choose: Has a holistic approach to planning – that they look at your goals and create a plan that maximizes the potential of all of your various assets. In retirement, you need to use your assets not add to them. A Step by Step Guide to Your 401k Rollover or Retirement Consolidation – Understand Your Rollover Choices Rolling over your retirement assets into an IRA at retirement involves a lot more than paperwork!

(Employer sponsored 401ks often have limits on when you can do this.) Ability to consolidate all of your 401k accounts into one IRA. These prepackaged combinations of annuities, insurance and investments are an interesting way to cover your retirement plan bases. Many retirees have 401ks at various companies. Security against your employer going out of business, merging with another company or other event that could potentially impact your 401k funds. When deciding what to do with your 401k, the most important consideration is your retirement plan and how it may need bolstering. In most cases you should probably do a Direct Rollover. Rollover Choice One – Figure Out Your Retirement Needs and How You Should Use Your Retirement Funds Retirement planning is not easy. The main differences between the two accounts are related to taxes and the rules surrounding withdrawals. Guaranteed lifetime income can come from Social Security, a pension, interest or dividends, a lifetime annuity or a combination of these sources. Provide Adequate Insurance: The second most important issue with retirement is having adequate insurance. Rollover Choice Two – Decide to Rollover or Keep Funds in Company Plan or with Existing Institution Once you have a better idea of how you need to use your savings for retirement, you can better decide if you require a rollover. Rollover Choice Five — Find a Financial Institution that Offers Qualified Investments that Suit Your Retirement Goals Depending on your retirement goal – guaranteed income, adequate insurance, estate planning or a combination of these objectives – you will want to choose an investment strategy for your 401k rollover. However, if your retirement funds are in a company plan, most financial planners advise that you rollover. It is very important that your advisor has this type of experience and can address everything from guaranteeing lifetime income to estate planning. While there is no requirement to rollover your retirement funds, most believe it to be a good idea. Here are a few tips for choosing the right advisor. Financial Planning Fees: There are two main routes to opening an IRA. Respect the Plan’s Distribution Rules for Withdrawals: This is particularly important if you rollover your funds into a Traditional IRA. Rolling Over from Existing Financial Institution: If you have already transferred your funds out of your company plan or if you have various accounts with different institutions, you may want to consolidate with a single financial institution that offers the type of investment vehicles and financial advice that you really need in retirement. Ideally your advisor can sell financial products from any provider. If you are unsure whether or not you have adequate assets for retirement, use theNewRetirement Retirement Planning Calculator to find out, or consult with a Financial Advisor. Respect Distribution Rules with Rollover: When rolling over 401k funds or consolidating IRAs, it is very important that you follow the distribution rules. Fund Your Desired Retirement Lifestyle: While you must be diligently responsible with your retirement planning, most retirees also have a few fun ideas about how they would like to spend their time away from work. Others do not. A professional financial advisor who specializes in retirement can help you with this process. Even if you like your current 401k plan, there are no guarantees that your employer will stick with that platform. Find the Best Rollover IRA for You Let NewRetirement help you find an institution offering a Rollover IRA that suits your retirement.Continue here to Find the Best Rollover IRA for you. Depending on your situation, you may wish to rollover your 401k into a financial vehicle that will enable you to: Guarantee Lifetime Income: Most financial experts agree that guaranteeing adequate income for the rest of your life is probably the most important criteria when considering retirement and how to invest your retirement funds. Here we take you step by step through the various choices you will need to make when allocating your retirement assets. This is the preferred way to conduct a rollover since there is no chance of there being tax consequences as is possible with an Indirect Rollover. Focuses on retirement – not “retirement planning.” Using money in retirement is totally different than saving money for retirement. Given the myriad investment choices available to you and the complications implicit in retirement planning, professional advice can be a good idea. The good news is that you have an ever growing number of tax friendly – “qualified” options. While many people do choose to conduct their retirement rollovers on their own, you should at least consider working with a qualified financial advisor. Depending on the distribution rules for your account, you could also open a Health Savings Account which can provide favorable tax status for your funds. Purchase an Annuity: A lifetime annuity can guarantee lifetime income and many annuities are available with favorable tax treatment for 401k rollovers. The IRA is also sometimes referred to as a traditional IRA. However, if there is a shortfall between this income and your actual expenses, then you will probably want to choose to roll over your funds into an IRA that offers a financial product that will guarantee adequate income to make up that shortfall. Provides access to the widest variety of investment choices and vehicles. Financial advising fees will be dependent on the complexity of your finances. There are at least three common ways to insure lifetime income with your 401k rollover: Earn Interest and/or Dividends: If you have sizable savings to rollover, you will want to carefully consider how lifetime income might be achieved with interest and dividends earned from your capital. You can rollover your funds into a vehicle suited to your particular situation. While you may automatically think that you would like a “no fee IRA,” you are actually likely to find significant costs associated with them when you read the fine print. A holistic approach to planning would take into account your 401k assets as well as your home equity, other savings, pensions and more – enabling these assets to work with each other to fulfill your retirement goals.

Tags: 401k rollover roth

25 Oct 11 This event makes it even more appealing.

The posting below was originally sent to our clients in mid-2007 – well before the current market decline.   If your balance is lower now than it was then, this strategy might make EVEN MORE sense.    “What can I be doing in the meantime?”   It is almost always a good idea to maximize retirement savings. Chappell Mayfield and Associates supports being green.  So, here is a recycled idea…………..   For some, this may even impact your 2008 taxes.  There is still enough time to make a substantial impact on your 2010 retirement savings – and beyond.   If you aren’t able to contribute to a Roth now, contribute to a traditional IRA….we can convert it in 2010. Consider rolling it over to an IRA and funding it…we can convert it in 2010.   “OK.  So how will this affect me?”   The main advantage of a Roth IRA is that withdrawals are made, after age 59 ½, totally income tax free.  Also, there is no required minimum distribution after you reach 70 ½, like there is with a traditional IRA.

Originally sent March 2, 2007 2010: A Roth Odyssey   On May 17, 2006, President Bush signed the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA).  The law contains many provisions, however, there is one provision that is one of the most exciting things I can remember in my 10 years in this business. 2010 should be an exciting year for investors who are still saving for retirement (and even those who may have to start saving again!).   Drum roll please…………: In 2010 (because of TIPRA), one can convert an IRA, 401k rollover, and virtually any type of retirement plan to a Roth IRA regardless of income.   The decision to convert, or not to convert, will be affected by many issues, such as life expectancy and your tax bracket expectation at retirement.  Needless to say, we will have calculators and other resources to help you make your decision.

   First, let’s review:   Withdrawals from a traditional IRA at retirement are subject to income tax, withdrawals from a Roth IRA at retirement are not subject to income tax (with few limitations – consult your tax advisor).   I have been searching for ANY silver lining to the current stormy clouds that almost all investors have been weathering. Under current law, a couple (or single for that matter) must have an adjusted gross income of under $100,000 to convert an IRA (or 401k rollover) to a Roth IRA.   The rules also allow the taxpayer to spread the tax on the conversion over the next two years (2011 and 2012)!   Many 401(k) plans allow you to rollover your balance even while you are working.

Tags: 401k rollover roth

25 Oct 11 Contribution levels to employer-sponsored retirement accounts were increased to $5000 annually.

Charitable giving regulations were increased, making it tougher on donors seeking deductions for charitable giving.  Taxpayers must now fill out a form detailing non-monetary charitable gift giving.  Any home appliance that is donated to a charity and valued above $500 must be appraised before the deduction can be taken.  Monetary donations of any sum now require documentation like a receipt, cancelled check, or a credit card statement.  Donors of age 70 ½ and older can make charitable donations directly from an IRA for the next two years.  This change will benefit many older taxpayers who take the standard deduction.  Since the donation comes directly from an IRA, it will not be considered income.  This is helpful because taxpayers usually cannot donate more than 50% of their income. Employees can receive investment advice on their 401K.  This is done because some 401K depositors might want to participate in riskier investments in order to win bigger rewards.

Two new provisions allow non-spousal benefits.  A non-spousal rollover allows retirement benefits to roll over to a designated beneficiary instead of a spouse.  A hardship distribution also allows for emergency distribution of funds from a retirement account to be used to help with medical or financial emergencies of a designated beneficiary who is not a spouse or dependent.

The IRS now allows tax rebates to be direct deposited into IRAs. You can now make withdrawals from 529 college savings plans without tax penalties.  This was enacted as part of the Pension Protection Act to help cash strapped parents from tapping into their IRAs. When an employee leaves a job, they can now rollover their employee-sponsored retirement accounts directly into a Roth IRA.  Before, they were required to cash out their employer-sponsored retirement accounts and pay the tax penalty before rolling over to the Roth IRA. In 2006, the Pension Protection Act was signed into law.  The law encourages taxpayer contributions and penalizes companies who under-fund their pensions.  Some of the changes have affected taxpayers of all ages, regardless of their retirement status.  Here is some of what happened.

Tags: 401k rollover roth