Jan 31

Borrowing From Your 401k

You might’ve seen the recent study released by HelloWallet that said about 1/4 of American borrowed from their 401k plan in 2010 for non-retirement expenses such as mortgage payments, credit card bills and school expenses.  That amounted in $70 billion in early withdrawals.  While it’s strongly advised to never borrow from your 401k or other retirement accounts, there are some instances where you might get away with it.

First off, you should amass an emergency fund that you can tap into for unplanned events.  You should never go into your 401k for stuff like vacations or a fancy new car.  The more money you have in your plan and the longer it’s in there, the more it will grow and thus the more you will lose if you take it out.  But what if you don’t have any other options?

You may want to take a loan out from your 401k.  If your plans offers the loan option, you may borrow up to half your salary up to a max of $50,000.  The big concern here is that if you lose your job, then you have to pay the loan back quickly (usually within 60 days).  If you default, it’s treated like an early withdrawal and taxes are due in addition to a 10% penalty.  The advantage though is that you pay back the interest to yourself often at prime plus 1%.  It makes sense if you use the loan towards an investment or to eliminate high cost debt.

You might want to borrow if you suffer a hardship.  Primarily these reasons are foreclosure avoidance or to pay medical bills, a funeral or college expenses.  You may also use this to purchase your primary home.  Since 401k funds are protected from bankruptcy, you may want to elect that or foreclosure.  Talk to a financial adviser to see what’s right for you.

Finally, the biggest leak in 401k plans is cashing out when you leave your job.  This is not recommended but may prove worthwhile if you are young and are looking to further yourself in the present.

As I’ve stated before and will do it again, it’s never smart to borrow from your retirement nest egg.  But sometimes, life gets in the way and your hand is forced.  If you need help managing your retirement plans, contact the tax experts at the IRA Financial Group today.

Jan 30

Solo 401k Helps Unlock $100M for IRA Financial Group Clients

Solo 401(k) Plan Loan Feature helps IRA Financial Group clients unlock over $100 million in retirement funds tax-free and penalty free in 2012

IRA Financial Group, the leading provider of self-directed solo 401(k) Plans, announces that in 2012 it helped its clients unlock over $100 million in retirements funds tax-free and penalty free via its solo 401K loan feature. “Our solo 401(k) Plan allowed our self-employed and small business owner clients to unlock over $100 million in retirement funds tax-free and penalty free in 2012,” stated Maria Ritsi, a senior paralegal with the IRA Financial Group. “The Solo 401(k) Plan featured contained in IRA Financial Group’s solo 401(k) Plan, allowed our clients to borrow up to $50,000 tax-free and penalty-free and use those funds for any purpose,” stated Ms. Ritsi.

A solo 401k loan is permitted at any time using the accumulated balance of the solo 401k as collateral for the loan. A Solo 401(k) participant can borrow up to either $50,000 or 50% of their account value – whichever is less. This loan has to be repaid over an amortization schedule of five years or less with payment frequency no less than quarterly. The interest rate must be set at a reasonable rate of interest – generally interpreted as prime rate + 1%. As of 1/01/13 prime rate is 3.25%, which means participant loans may be set at very reasonable Interest rate. The Interest rate is fixed based on the prime rate at the time of the loan application.

IRA Financial Group’s Solo 401k allows participants to borrow up to $50,000 or 50% of their account value (whichever is less) for any purpose at a very low reasonable interest rate. “ A number of our retirement investors have been able to use the solo 401(k) Plan loan as a way to start a business, pay off debt, and even refinance their mortgage, stated Stacy Sanders of the IRA Financial Group. “Our Solo 401(k) Plan clients have been able to gain the ability to access up to $50,000 for use for any purpose, including paying personal debt or funding a business, stated Ms. Sanders.

IRA Financial Group Solo 401(k) plan is a perfect structure for any self-employed business owner seeking immediate funds for their business or to help pay personal expenses. With IRA Financial Group’s Solo 401(k) plan, a self-employed individual or small business owner with no employees can borrow up to either $50,000 or 50% of their account value – whichever is less to help finance or operate their business.. “As a result of the recent economic meltdown, banks and other financial institutions have severely limited their lending capacity to self-employed business owners, accordingly, entrepreneurs have been looking to IRA Financial Group to help unlock their retirement funds in order to buy a buy or finance a business, “ stated Ms. Ritsi.

IRA Financial Group is the market’s leading “checkbook control Self Directed IRA Facilitator. IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate without custodian consent.

To learn more about the IRA Financial Group please visit our website at http://www.irafinancialgroup.com or call 800-472-0646.

Jan 29

Don’t Go Broke in Retirement

With life expectancy growing, many people fear that they might outlive their retirement savings.  Fret not, there are ways to prepare yourself so this doesn’t happen to you.

First and foremost, create a budget for you and your family.  When you think of retirement, don’t think about expensive hobbies and jet-setting around the world.  Do your best to live by your means.  If you can afford those world cruises, go for it.  If not, you should forgo needless spending that could endanger your well being.  Figure out your guaranteed income (like pensions and social security) and couple that with your monthly bills to get a good sense of where you stand each month.

If you have both taxable retirement accounts like a traditional 401k and tax-free accounts like a Roth IRA, look to the taxable accounts for a regular stream of income.  This shouldn’t have a great impact on your taxes that come due and it allows your Roth accounts to continue to grow tax-free.  Use your Roth for major purchases (such as paying off your mortgage).  That way you avoid putting yourself in a higher tax bracket and owing more to the government.

Asset allocation may be needed to ensure you don’t outlive your savings.  Purchasing an annuity is one way to accomplish this, as is longevity insurance.  “If you are willing to absorb some volatility, then you may want to consider moving a portion of your assets into a carefully-selected mix of equities, such as blue-chip stocks or mutual funds. You can also increase the level of income from your investments by looking at corporate bonds, preferred stocks and ETFs that invest in income-producing securities”, says Ryan C. Fuhrmann at Investopedia.

Debt retirement is one thing to concentrate on as well.  Paying off your car loans and mortgage as soon as possible will free up more savings for everyday living expenses.  Lastly, you may want to consider long-term care insurance.  Premiums are high for this, but if you find yourself needing the care, it’s invaluable.

There are lots of things you can do to prepare yourself for retirement.  The first step is talking with a professional about it.  The tax experts at the IRA Financial Group are here for you when you’re ready to take the next step in your planning.  Call us today at 800.472.0646!

Jan 28

401k Record Keeping Services

Most small retirement plans appoint the employer as plan administrator. Management of the entity may designate an individual or an entity to perform these functions. Due to the complexity and timing involved, most small employers appoint an independent third-party to assist with the plan administration and recordkeeping services.

Our IRS approved 401(k) plan and bundled recordkeeping services are specifically customized to small businesses with less than 50 employees, which allows us to better understand their specific needs and concerns.

The plan record keeper is the person or entity responsible for the general day-to-day plan operations and administration. Record keeping services include the following:

  • Determining when an employee becomes eligible to participate in the plan
  • Providing complete, accurate and timely information and approvals in the manner and within the time frames reasonably requested by the Company
  • Providing all necessary employee census information for new employees and census updates for existing employees
  • Computing plan contribution amounts
  • Maintaining plan records
  • Preparing and filing plan tax forms
  • Preparing IRS Form 5500
  • Performing actual deferral percentage (ADP) test (IRC Sec 401(k)(3) )
  • Performing actual contribution percentage (ACP) (IRC Sec. 401(m) quarterly), if applicable
  • Performing minimum coverage test (URC Sec. 410(b)(1)(A) and (B)) annually, if applicable
  • Performing top-heavy test (IRC Sec. 416) annually, if applicable
  • Monitoring elective deferrals limit (IRC Sec. 401(g)), if applicable
  • Providing employee notices, information, and reports

401(k) recordkeeping services should be performed scrupulously to ensure that all IRS and ERISA rules and requirements are satisfied so that the retirement plan remains in full compliance. Recent IRS and ERISA rules require meticulous recordkeeping in order to track the various activities of the retirement plan and its participants. It is important that all retirement plan recordkeeping be coordinated in order to track, separately, employee deferrals and after-tax voluntary contributions as well as employer matching, qualified non-elective and profit sharing contributions. Distributions may occur on separation from service, as loans or hardship withdrawals; since each of these involve different types of transactions, it is vital that a recordkeeping service be in place to track all these activities separately.

In general, plan recordkeeping services can be performed by various types of service providers. They can be performed in-house, by a third-party administrator, a separate recordkeeping firm or a bundled service provider. Basically, in-house recordkeeping will be feasible only for larger employers. In the case of small or mid-size businesses with less than a 100 employees, it is far more cost effective to have a third-party perform all plan recordkeeping services.

401K Administration Services works directly with numerous investment providers committed to superior service. By combining our core recordkeeping expertise with investment specialists who complement those strengths, we are able offer an “unbundled” investment approach.

By offering an “unbundled” approach, these investment providers are able to offer the following high quality options without any conflict of interest:

  • A high quality – well diversified investment programs
  • No fee and load fund options
  • Easy to operate online account platform
  • Helpful communication and education tools
  • Dependable advisor support

401(k) Administration Services is pleased to offer services in partnership with several providers who consistently meet and exceed these standards. Additionally, we continually actively observe the quality of services and their ability to meet plan sponsor needs and expectations. We have a very close working relationship with Fidelity, TD Ameritrade , and Scottrade who have provided our clients with an individualized well balanced and diversified investment platform.

Let’s us take care of your Retirement Plan so that you can take care of your business!

Contact one of our Retirement Experts today at 800.401k.762 to learn more

Jan 24

Forbes’s 401k Dummy Guide

Forbes.com put out a quick little five step “dummy guide” to 401k plans that I thought I would share with y’all.  This is for first time 401k users or simply those intimidated by all the options.

1. Don’t have a car payment.  You might ask what this has to do with retirement?  Well, many Americans are too busy paying off car loans and credit card bills and don’t save enough for retirement.  Take half the money you would be paying for a car and put it into a car fund so you can pay cash for a car later on.  Take the other half and contribute that to your 401k.

2. Calculate your expense ratio.  “Example: You are young and have a pot of retirement money divided equally between the Putnam Equity Income Fund (annual expenses, 1.32%) and the BlackRock High Yield Bond Fund (1.28%). Your combined expense ratio is 1.3%.   Suppose that your retirement plan gives you access to cheap exchange-traded funds and you had bought the ones from Vanguard for the Total Stock Market and Total Bond Market indexes. Then your combined expenses would be just 0.08%.  The difference between these particular actively managed funds and the inactive alternatives is 1.22% a year. What does that mean after 35 years of compounding? A third of your money.”

3. Own few funds.  You could have a dozen different funds such as a growth fund, a value fund, a rising dividend this, a strategic opportunity that.  Own all these over a long period of time and you’ll get the same return as an index fund.  But, you pay more in fees with all these funds.

4. Don’t own stock in your employer.  You might have a great job with a great employer, but it’s never good to have all your eggs in one basket.  You could find your stock taking a nose dive the same day you lose your job.  If your company match includes stock, sell it as quickly as you can.

5. Annutize.  If you have good health, convert lump sums in fixed monthly payments.  Spread your purchases around buying from different insurers and at different times in your life.

This is just one list of the many things you should be doing to save for retirement.  If you need help planning for your golden years, contact one of the tax experts at the IRA Financial Group today!

Jan 23

Unemployed? Solo 401k may be for You!

Though unemployment rates have slowly dropped over the past few months, there are still many Americans out there who don’t have jobs.  Whether you were laid off, quit or are simply can’t find a steady paycheck, you still need to find a way to save for your retirement.  One of your options may be a Solo 401k plan.

This plan, also known as an Individual 401k, is perfect for two types of people.  One is the small business owner and the other is a freelancer.  We’ll talk about the latter first.  Often times, when someone loses his/her job, they look for a quick source of income.  Some examples include contract work at an IT business, freelance for a magazine or a doctor who does consulting work.  Many people find this very appealing after working long at a 9 to 5 job.  They’re there own boss and set the schedule and jobs they want.  Others look to open up their own business.  They’ve rekindled a passion that got lost in the rat race of life.

Much too often though, these guys and gals focus all of their attention on the present goal and overlook the future one of retirement.  Many don’t know how or where to get started.  Don’t fall into that boat if you work for yourself.

The Solo 401k was created for people like these self-starters.  For 2013, a small business owner can contribute up to $51,000 ($5,500 or more if you are at least 50 years old).  Check out this link for more info on limits.  This plan is for owner only type businesses.  If you add employees (other than your spouse), you’ll need a traditional 401k.

So, if you’re looking to go out on your own, don’t forget about your retirement planning.  Setting up and maintaining a Solo 401k plan takes a bit of work so it’s best to get help from a financial adviser.  Contact one of the tax experts at the IRA Financial Group today to get started!

Jan 22

Should You convert to a Roth 401k?

Under the latest Taxpayer Relief Act, there was a provision that has allowed many workers the ability to convert to a Roth 401k.  Should you stick to the more traditional 401k plan or convert to a Roth?

First off, what exactly is the difference between the two?  With your traditional 401k plan, money is withheld from your paycheck and invested in your retirement plan.  You do not pay taxes on the amount withheld when they are contributed and therefore lower your taxable income in the years you contribute.  You only pay taxes when you withdraw the money in retirement.  This tax-deferred plan lets you have a larger amount of money earning for you.

On the other hand, a Roth 401k is funded with after-tax earnings.  You do not get that immediate tax break and your taxable income will stay the same.  However, when you take distributions in retirement, they will be completely tax-free.

Previously, you had to have “distributable funds” to convert to a Roth.  Basically, if you were under age 59 1/2, more than likely you could not convert.  In 2013, just about anyone can convert so long as your 401k plan offers a Roth option.  Converting is usually just a matter of filling out paperwork so it’s easy to do.  The biggest hurdle you face is the taxes you need to pay on the conversion.  In the year you convert, your taxable income increases because taxes become due from the traditional 401k.

There are many variables to consider when converting so it’s best to speak with a financial adviser when considering a conversion, but here are some general guidelines:

  • If you are in a lower tax bracket now than you think you will be when you retire, it’s a good idea to convert.  Pay off the taxes now at the lower rate and enjoy tax-free distributions.
  • If you already have a Roth IRA, you may not need to convert.  It’s good to diversify your tax exposure.
  • Lastly, if you don’t have money outside of your 401k to pay the taxes due on a conversion, it’s best not to convert.

Not every 401k plan even offers a Roth option, but if they do, it’s best to see if it’s the right move for you.  If you have any questions about this or other retirement related topics, contact a tax expert at the IRA Financial Group today!

Jan 18

No More Excuses Putting off Retirement Savings

I ran across a nice read in the Forbes Woman section at Forbes.com written by LearnVest.  In it, they talk about the 11 ways you’re sabotaging your future.  We’re going to focus on some of the important ones, but please read the full article here.

Retirement is the biggest financial challenge for three main reasons: the amount needed is the biggest sum of money we have to save, it’s easier to put off and we need to commit decades into saving for retirement.  Here are some of the excuses people give and some knowledge to contradict them:

“I can’t afford it.”  We know times are tough, but they’ll be a lot tougher as you get older.  I’m sure you can find $20 somewhere to contribute each month.  If your job offers a 401k, start with a 1% contribution.  If you have an IRA, put in an extra $20 per month.  $20 per month for 30 years equals $7,200 which would grow to $24,000 earning 7%!

“I’m still young!”  You are never too young to start saving for retirement!  The longer you wait, the harder your retirement goal is to accomplish.  The more you save today, the more money you’ll have later.

“I work hard for my money, I wanna spend it now!”  The 50/20/30 rule allows you to have fun and save for retirement.  Here that is in a nutshell:

  • No more than 50% of your take-home pay should go toward your Essential Expenses, which include housing, transportation, groceries and utilities.
  • At least 20% of your take-home pay should go to Financial Priorities, which include retirement contributions, savings contributions and debt payments. (Plus, if your employer offers a retirement plan, such as a 401(k) or a 403(b), you should be be contributing additional money toward retirement before your paycheck hits your bank account.)
  • Lastly, no more than 30% of your take-home pay should go toward your Lifestyle Choices, which covers the fun you can have today: shopping, entertainment, personal care, the gym, gifts and more.

“I’m going to lose money in a 401k or IRA.”  The market does fluctuate from year to year and 2012 wasn’t the best of years.  But over the long haul, the market has returned about 7% on investment.  You’re not going to find that kind of return elsewhere.

There’s a few to whet your whistle, please check out the entire article to see why you should start saving now.  Also, check out this handy link when you decide to start saving!

Saving for retirement is a daunting task and you might not know exactly where to get started.  The tax experts at the IRA Financial Group are waiting to hear from you to help you on your journey.  Give them a all at 800.472.0646 or visit their website at www.irafinancialgroup.com.

Jan 17

Roth 401k is a Great Estate Planning Tool

On January 1, Congress passed the American Tax Relief Act (the “Act”), which provides some permanent tax changes, including modifying the 401(k) Plan Roth conversion rules. The budget legislation passed Jan. 1 by Congress lets 401(k) participants convert money in their tax-deferred accounts to a so-called Roth 401(k) account, if their employer offers one. Money can then be withdrawn from a Roth 401(k) account tax-free once the plan participant has reached the age of 591/2 and the Roth account has been opened at least five years.

In the past, Roth conversions to Roth 401(k)s had been limited to certain funds and to plans that allowed the switches. “ The new Roth conversion law creates the opportunity for more workers to turn their pre-tax funds into a tax –free stream of income that can be passed on to family members tax-free, “ stated Adam Bergman, a tax attorney with the IRA Financial Group. “The new Roth 401(k) Plan conversion rules can act as a powerful estate planning tool to high net worth individuals looking to pass assets to your heirs tax-free, “ stated Mr. Bergman. “Also, younger employees can use the Roth Solo 401K Plan conversion option as a means of securing a tax-free retirement future since their young age would allow them more time to make back the money they lose in paying the tax, “ stated Mr. Bergman.

IRA Financial Group’s Solo 401(k) Plan allows plan participants to establish a Roth after-tax account.

IRA Financial Group’s Roth Solo 401K Plan is the ultimate tax-free retirement solution for the self-employed. With federal and state income tax rates expected to increase in the future, gaining the ability to generate tax-free returns from your retirement investments when you retire is the last surviving legal tax shelter. With a Roth Solo 401K, the Solo 401K plan participant can make almost any investment tax-free, including real estate, tax liens, precious metals, currencies, options, and private business investments and once the plan participant reaches the age of 59 ½, he or she will be able to live off the Roth 401K assets without ever paying tax. “With a Roth 401K, an individual can live off the Roth 401K investment income tax-free or take a portion of his or her Roth 401K funds and use it for any purpose without ever paying tax, “ stated Mr. Bergman.

To learn more about the IRA Financial Group please visit our website at http://www.irafinancialgroup.com or call 800-472-0646.

 

Jan 15

Three 401k Surprises

Here is an interesting article at Forbes.com written by  Hedrick Smith, author of the national bestseller Who Stole The American Dream.  He talks about three things you probably didn’t know about 401k plans: “(1) how it got started – accidentally; (2) how much they should regularly save to build a safe retirement nest egg; and (3) how big a bite mutual funds take out of their gains.”

The 401k was slipped into the Tax Code in 1978 from a New York congressman as a favor to execs at Xerox and Kodak who wanted the CEO and his circle of friends to have a retirement fund tax shelter.  The Treasury Department decided some time later that every worker should get the same opportunity.  Seeing a great money-making opportunity, the mutual fund industry starting selling DIY 401k to Americans who thought they could beat the Market.

As simple as the concept is of saving money for retirement is, millions of people fail to do so and have nothing when they reach their golden years.  Not investing enough (if at all), cashing out or borrowing are just some of the reasons that led to this.

Even those who are doing the right thing are not doing enough.  If you want to live the lifestyle you have grown accustomed to, you need to save 10 to 12 times your final yearly salary.  The average person making $50,000 per year, needs $500,000-$600,000 when they retire, but the median savings is under $100,000.

Most workers are saving about 8-10% including their company match, but many experts agree that that number should be more like 15% (even 18% according to some).  Mutual funds and financial advisers take a big bite out of your plan from transactions fees, setting up the funds, paperwork, etc..  Jack Bogle, founder and longtime CEO of the Vanguard mutual funds, said these fees comes to about 2% per year.

According to Mr. Bogle, a mix of stocks and bonds gains an average of 5% per year.  In numbers, $1 becomes $7.04 in 40 years….ergo $100,000 will become $704,000.  That buck over only 20 years becomes just $3.39.  If you calculate 2% in fees, that 5% return drops to only 3% and your dollar becomes only $3.26 in 40 years.

“Where did the nearly $4 difference go?” Bogle asks. “It went to the fund or to Wall Street in fees.  So you the investor put up 100% of the capital. You take 100% of the risk. And you capture about 37% of the return. The fund or Wall Street puts up none of the capital, takes none of the risk and takes out 63% of the return.”

Just some handy info we’d thought we’d share with you guys.  If you need help taking control of your retirement planning, contact the tax experts at the IRA Financial Group today!