Sep 28

Personalize Your 401k Plan

Typically, if you auto-enroll in your company’s 401k plan, you’re invested in a default investment fund.  Most of the time, the default plan is a target date fund or life cycle fund.  These are diversified and include cash, stocks and bonds all inside a single fund.  These types of funds rebalance the allocation and usually become safer as you get older (they take a riskier course for younger plan holders).

However, if you are automatically enrolled in one of these types of plans, they are not personalized to your individual needs.  These types of funds won’t let you move your allocations around.  If you want an increase in stocks and a decease in bonds, you can’t do it.  Also, if you want more stocks as you near retirement, you can’t do that either.

Another faulty move a worker does is they will cash out his or her 401k when they leave that job.  Nearly 50% of people who switch jobs cash out.  This is especially true for younger people who think the amount is not worth keeping in the plan.  All this despite having to pay income tax and a 10% penalty for early withdrawal.  Instead, consider transferring your 401k to your new employer.  If they don’t allow transfers or their plan is not as good as you old one, consider rolling it over into an IRA.  The more you save early, the more it will grow until you retire.

Have a question on what to do with your 401k?  Need help in setting up an IRA?  Contact one of the tax experts at the IRA Financial Group today!

Sep 27

DOL Launches Fee Disclosure Website

The U.S. Department of Labor has opened a new website dedicated to understanding your retirement plan fees.  You can visit it here.  From that site, “A new rule requires the plan’s administrator (often your employer) to provide plan, investment, and fee information to you. As a result of these new rules, you can determine the reasonableness of the costs you’re being charged to save for retirement and compare the costs associated with different investments”.

The site also includes new tips and tools for making smarter choices when saving for your retirement. Furthermore, there’s a list of FAQs, videos, publications and related sources.

Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi says: “Workers deserve to know how much they are paying for their retirement investments. These disclosures will help workers get the most for their money when it comes to their 401(k)-type retirement plans…Fees can eat away at retirement savings. Access to good information can lead to an increase of tens—even hundreds of thousands of dollars—in retirement savings over the course of a career.”

This new site is designed to help the average worker with a 401k plan better understand what they’re paying to maintain it.  If you need help or have any questions pertaining to your 401k, don’t hesitate in calling the IRA Financial Group at 800.472.0646 to speak with a tax expert today!

Sep 25

The Solo 401k Plan Solution

A Solo 401K Plan offers a self employed business owner the ability to use his or her retirement funds to make almost any type of investment, including real estate, tax liens, private businesses, precious metals, and foreign currency on their own without requiring custodian consent tax-free! In addition, a Solo 401K Plan will allow you to make high contribution limits (up to $55,500) as well as borrow up to $50,000 for any purpose. Have an investment opportunity, such as real estate or a business investment that you would love to make with your 401(k) funds? Want the ability to make high tax deductible or Roth contributions? Need to access up to $50,000 of your retirement funds for personal use? Then the Solo 401k Plan is your solution!

A Solo 401(k) is perfect for sole proprietors, small businesses and independent contractors such as consultants. A Solo 401K plan offers the same advantages as a Self Directed IRA LLC, but without having to hire a custodian or create an LLC.

The Solo 401(k) plan is unique and so popular because it is designed explicitly for small, owner only business.  There are many features of the Solo 401(k) plan that make it so appealing and popular among self employed business owners.

A Solo 401(k) plan is well suited for businesses that either do not employ any employees or employee certain employees that may be excluded from coverage. A Solo 401K plan is perfect for any sole proprietor, consultant, or independent contractor.

To be eligible to benefit from the Solo 401(k) plan, investor must meet just two eligibility requirements:

  • (i) The presence of self employment activity.
  • (ii) The absence of full-time employees.

Self employment activity generally includes ownership and operation of a sole proprietorship, Limited Liability Company (LLC), C Corporation, S Corporation, and Limited Partnership where the business intends to generate revenue for profit and make significant contributions to the plan.

Read more about Solo 401(k) Plans here!

Have questions or need help starting your own Solo 401(k) plan?  Contact the experts at the IRA Financial Group today!

Don’t forget to follow us on Twitter as well!  @Bergman401k

Sep 24

Managing Your 401k

If you manage your own 401k, there are a few things you should know….

Many, if not most, employers offer matching contributions when their employees contribute to their 401k plan.  Most of them will match up to 6% of the employee’s salary.  Therefore, the first step you should do is to make sure you’re contributing at least enough money so that you get the full match.  After all, that’s free money!

Although saving that 6% is a good start, you shouldn’t stop there.  Most workers need to place around 10% of their income to retire comfortably.  This is especially true if your employer-sponsored 401k is your sole means of retirement savings.

For those that cannot set aside 10% right away, you should activate the automatic contribution escalator that’s available in most large plans.  Try to get to that magic 10% each year by upping your contributions a little bit each year.  If money is tight, you can scale it back a little, but do your best to meet the 6% employer match.

Finally, when you reach the age of 50, you may make “catch-up” contributions.  That’s another $5,500 you may contribute to your 401k.  Obviously, the more money in your plan, the more earnings potential it has.

Don’t have an employee-sponsored 401k?  Look into a Solo 401k Plan.

Need help managing your retirement plans?  The tax experts at the IRA Financial Group are waiting to hear from you.  Give them a call today at 1-800-472-0646.

Sep 21

Does Your 401k Have an Annuity?

An article over on talks about how annuities are gaining steam in people’s retirement portfolios.  Many people are worried about not having a steady stream of income come retirement.  “The people we hear from express a desire for an income stream protected from market volatility, which can be addressed through some types of annuities,” said Charlie Nelson, president of retirement services for Great-West Life. “People don’t want to be caught, as many were in 2008, with 401(k) losses that cause them to work another five years.”

Defined benefit plans that guaranteed a lifetime of income have gone by the wayside.  Replacing them have been defined contribution plans such as 401(k)s.  “Of the $9.7 trillion in private pension assets at the end of 2009, only 22 percent remained in defined benefit plans, while 24 percent were invested in defined contribution plans and 44 percent in IRAs, according to Federal Reserve data”, says Rob Reuteman.

Annuities are quite complex and people have been hesitant to use them for several reasons.  Some were worried about dying too soon (those who die early subsidize those who don’t in risk pools) with no benefits for his/her survivors.  Others worried inflation would erode returns.  The market is looking to quell fears with plans that offer death benefits, withdrawals, participation in equity returns and other features.

“The word ‘annuity’ has some scary connotations for some individuals,” admitted Nelson, of Great West. “But annuities exist in all shapes, sizes flavors and colors. Broad generalizations do make some participants — and some plan sponsors — shy away. But I’m actually pretty optimistic this will change.”

The IRA Financial Group is here for all your retirement needs.  Give us a call today at 800.472.0646.

Sep 20

Are You On Track?

You’ve been consistently contributing to your 401k, whether through an employer or a Solo 401k plan.  However, are you putting in enough to retire when you want to?  The first thing you should do is check out a retirement calculator and plug in the numbers (such as salary, 401k worth and percentage you are investing).  This will give you a good understanding of where you are right now and where you will be come retirement.

The calculator will approximate your projected savings plus your Social Security income to see if you’re on track to retire comfortably.  Typically, most people need to save 10-15% of their annual income throughout their working career to retire on time and have a secure and easy retirement.  This number may be a little less if you’re in an employer matching plan.

Not on track yet?  Don’t panic!  There’s always room for improvement when it comes to saving for retirement.  The foremost way to boost your retirement outlook is to contribute more (duh!).  You can use the calculator to plug in different percentages to see how much you need to save to retire when you want.  If you can’t afford it, you can always push back retirement a couple of years.  A study by the Boston College Center for Retirement Research shows that only about 55% of American households that retire at 66 are prepared to retire.  However, the percentage of those that worked until age 70 that could maintain their pre-retirement lifestyle jumps to 85%.

There are other ways as well ranging from getting part-time work during retirement to moving to a less expensive area to live.  Whatever the case, it’s best to get in touch with a qualified tax expert to see where you stand and what you can do to improve your standing.  The pros at the IRA Financial Group are waiting to hear from you!  Give us a call at 800.472.0646 today!

Sep 19

Pay off Credit Card Debt?

If you have a lot of credit card debt but know you should be saving for retirement, is it best to pay off the plastic, start saving for retirement or a little of both?  There are different approaches you can take obviously.  There’s the feel-good approach and, more often than not, the correct way to do it.

In regards to the feel-good approach, the choice is to do a little of both.  Since it’s harder to save for retirement later in life, young people should work on paying off their credit cards combined with investing in a 401k or IRA retirement plan.  This works well since your debt is diminishing while you’re savings for retirement grow.  If you wait to save until your debt is wiped, you may never get started since people in general aren’t disciplined enough to pay off debt.

Gail Marks Jarvis gives an example here:  A 20 year old starts saving $20 a week in a stock market mutual fund in a 401k or IRA.  He or she will have $1 million at retirement if the stock market performs the way it has historically.  A 45 year old with nothing saved will need to contribute $245 per week to be in the same position.  (This is assuming a 10% return)

In an analysis by David Blanchett of Morningstar however, he saw that you can increase your 401k value by 14.1% if you paid of your debt first rather than paying the minimum each month.  He assumed a person had $400 to spend on debt or for retirement.  He found a 30 year old with $15,000 in credit card debt would take over 36 years to pay it off with minimum payments (based on an interest rate of 15%).  Someone who would take the whole $400 to pay off the debt would be debt-free in 6.6 years.

The person who only paid the minimum each month (with the rest of the money invested in a 401k) would have $333,608 at retirement.  While the one who devoted the whole $400 to pay off the debt until it was erased and then started contributing the whole $400 towards a 401k would have $380,516.

This dilemma faces millions of Americans each year.  Let an expert at the IRA Financial Group help you decide how to handle your retirement investments.

Sep 17

Traditional vs. Roth

The 2012 Presidential Election is almost upon us.  With that, there are sure to be tax changes in the upcoming years.  One of the main questions facing those saving for retirement is whether to utilize a traditional or Roth 401k Retirement Plan.  The basic difference between the two options is that with a traditional 401k, you pay taxes when you withdraw from your plan (tax-deferred), with a Roth 401k, you pay the taxes now and distributions are tax-free.

The deciding factor usually is what tax bracket you are in now, compared to the one you think you will be in come retirement.  If you think you’re in a higher bracket now, deferring taxes is the better plan, if not then the Roth is the better option.

However, it’s not always as simple as it appears.  “When you contribute to a retirement plan, you’re contributing money that would normally be taxed at your marginal tax rate. However, when you withdraw money in retirement, some of the money is likely to be taxed at some of the lower tax brackets.” says Erik Carter at  Therefore, an individual making $60,000 per year who contributes $17,000 to a 401k plan is taxed 25% on the entire $17K.  Assuming that when they retire all things stay the same, the average tax rate is only around 18%.  Why?  The first $8,700 in taxable income is taxed at 10%, the next $26,650 is taxed at 15% and only the last $24,650 is taxed at 25%.

Although, since pre-tax contributions lower your income taxes, you can afford to contribute more in a traditional 401k than a Roth.  “If our hypothetical person can afford to max out their Roth 401(k), they can also afford to take the tax savings from pre-tax contributions and invest them in an outside account. The problem is that if that outside account is taxable, they would end up with less money overall in retirement after taxes than if they had maxed out the Roth instead, even after factoring in the lower 18% effective tax rate. On the other hand, if they can invest those tax savings in a Roth IRA, they’ll be better off with the pre-tax 401(k)” continues Mr. Carter.

Read the full article here to read more in determining which plan is best for you.

There are many things to considering when deciding the best plan for you, so it’s best to contact a tax expert like the ones at the IRA Financial Group.

Sep 14

You’ve Reached Retirement…Now What?

You’ve been vigilant about contributing to your 401k Plan.  You haven’t dipped into it.  You’re nearing or have already reached retirement.  Now what?  That’s the biggest question facing so many baby boomers today.  With so much out there about how and why to invest in a retirement plan, there’s not as much about what to do when you finally do retire.  Here are a few basic ideas to use that money to live out the rest of your life.

How do I make it last?  One of the most important things to consider is what your day to day living expenses will be.  As you age, insurance rates rise and medical expenses become more prevalent.  Another thing is to figure out your life expectancy.  I know that’s a hard thing to figure out, but based on your current age and health along with your lifestyle choices, you should have a broad idea of how long you have.  Do you have enough money saved to live off of?

Inflation is another risk to consider.  To combat it, keep some money in stocks.  They should help you outperform inflation with their long-term growth potential.

Let’s assume, after everything is considered, that you have enough saved to live off of.  First you should spend down your taxable accounts such as mutual funds.  This lets your tax-deferred accounts (traditional 401k and IRA plans) to continue to grow.  If you have tax-free accounts, like a Roth IRA or 401k, try not to dip into them so they continue to grow tax-free.  (Note: you must take required minimum distributions or RMDs from most tax-deferred plans once you reach age 70 1/2.)

Make sure you maintain a good balance in your portfolio as you spend down your accounts.  If you have concerns about outliving your assets, you may consider an annuity.  Insurance companies and mutual fund companies have been offering retirees ways to ensure a steady monthly income as long as you live.  Talk to a financial adviser before making any decision however.

That last line shouldn’t be overlooked.  You’ve worked hard your whole life and now that you’re retiring, it’s time for you to relax.  With that said, don’t assume you know everything.  Talk to an expert who will look at your unique situation and build a plan based around you, your family and your needs.  That’s where the pros at the IRA Financial Group come in.  If you’re nearing retirement, don’t put it off any longer!  Make the call today at 800.472.0646.