Aug 06

401k Plans Still a Good Option

Don’t expect too much from your 401k Plan.  It’s not a get rich quick scheme, but a way to save for your retirement.  Yes, it’s nice to collect 7 to 10% on your money, but if not, so what?

If you think getting a huge return on your investment is the only way that your 401k will work, you’re missing the point.  It’s there to provide financial stability for you when you retire.  Every dollar you put in there is one you can’t spend now on (usually) frivolous things.

John Norris of the Montgomery Advertiser breaks it down here.  If you put 5% of a $50,000.00 per year salary into a 401k, after taxes that would be about $83.33 per week (based on a bimonthly paycheck).  Do you have the resolve to save/invest that money?  Like many of us, probably not, so why not invest in a 401k?

Norris sums it up best saying, “I have never met anyone who was rich only because they bought a few penny stocks and hit a home run or two — never. On the flip side, just about every rich person I know has saved and participated in their company’s retirement plan”.

Still have doubts?  Contact one of the tax experts at the IRA Financial Group now.

Aug 03

401k Plans Get Relief from Foreign Asset Reporting Law

Thompson.com reports that “retirement plan administrators that do business with foreign financial institutions may breathe a sigh of relief now that regulators have further clarified a reporting exemption that applies to them under the Foreign Account Tax Compliance Act.”

FATCA, enacted March 18, 2010, aims to curb tax evasion through the use of offshore bank accounts, by requiring foreign financial institutions to report their American account holders’ assets above a certain threshold, to the IRS.

On July 26, 2012, the U.S. Treasury released a model intergovernmental agreement for implementing FATCA to improve offshore tax compliance and reduce burden.  The U.S., along with France, Germany, Italy, Spain and the United Kingdom, agreed to list specific exempt types of retirement plans in an appendix.

For more information and to see how this effects you, contact the IRA Financial Group today!

 

Jul 30

Target Date Funds Lean Towards ETFs

Target Date Funds are portfolios that adjust their allocations based on a target retirement date, becoming more conservative by shifting more assets from equities into fixed income over time.  According to San Francisco based Callan Associates, about 70% of 401k plans use these.

Exchange Traded Funds (ETF) are baskets of securities that trade on exchanges like individual stocks, are cheaper than mutual funds. ETFs come in a number of different flavors covering areas such as equities, fixed income and commodities.  “ETFs … are low-cost ways of accessing certain areas of the market,” said Paul Justice, an ETF analyst at Morningstar Inc, who believes more target date fund managers will use them.

ETFs will help fund managers deal with volatile markets at lower cost than mutual funds.  Jessica Toonkel delves deeper into this growing trend in this article on Reuters,

Let the tax experts at the IRA Financial Group help you better understand your 401k.  Call us today at 1-800-IRA-0646!

Jul 27

Is it OK to Borrow From Your 401k?

As reported by the TransAmerica Center for Retirement Studies, more than 1/3 of those with 401k plans who lost their job have taken money from their retirement savings.  Furthermore, 20 to 30% are borrowing from their plans and defaulting on those loans costing as high as $37 billion a year according to Navigant Consulting.

If at all possible, avoid dipping into your 401k plans.  If you are forced to, considering the following: if you’re under age 59 1/2, you’ll be paying a 10% penalty on top of the federal and state taxes.  A $50,000.00 nest egg could turn into almost half that amount!  In turn, if you leave that $50,000.00 in your plan, even a 3% return on investment will take your 401k to $77,000.00 in 15 years.  This article delves deeper.

Taking out a loan is not a good solution either.  If you lose your job, you usually have to repay the loan with in 60 days, or face the same taxes and fees.  Here, David Nicklaus, points out a new idea called “loan-default insurance”.

Let the tax experts over at the IRA Financial Group help you sort through your 401k questions.

Jul 26

Is Maxing Out Your 401k Good Enough?

You might think that having twice your salary saved along with maxing out your 401k every year will be enough to live comfortably during retirement…but don’t assume that’s a certainty.

There are way too many factors to consider that could greatly effect your financial future.  Your investments could do worse than you anticipate (as they did for so many in 2008).  You may get laid off or suffer a severe medical condition.  Be proactive when it comes to managing your 401k.

T. Rowe Price’s Retirement Income Calculator is a great tool to keep you on track.  Walter Updegrave delves a little deeper here.

To see if you’re doing all you can for your retirement, contact one of the tax experts at the IRA Financial Group.

Jul 25

401k Plans Finally Working

When employers began switching their pension programs to 401k plans in the 1980s, employees were the ones who suffered.  Since the plans were optional, many didn’t participate and those that did had little knowledge in how to invest their money.

One of the major reforms that employers use with today’s 401K plans is automatic enrollment.  Money is automatically deducted from the employee’s paycheck unless he/she decides to opt out.  A Vanguard study shows that 72% of employee under 25 save under this reform (as opposed to only 18% where automatic enrollment wasn’t there).

For more details on this and other reforms such as target funds, click here.

Need advice in managing your own 401k?  Contact the tax experts at the IRA Financial Group.

Jul 23

Protect Yourself From Rising Taxes

Are you a high income earner looking to avoid higher taxes?  With the Bush tax cuts set to expire at the end of 2012 (and President Obama’s proposal that does not extend those cuts to individuals making over $250,000.00 per year), a Roth 401k may be the answer for you.

Just as in a Roth IRA, you can use already taxed earnings to fund a Roth 401k.  Once you are age 59 1/2, all distributions are tax free as long as certain conditions are met.

Read more about how to avoid those higher taxes by investing in a Roth 401k and other ideas here.

If you have any questions, contact one of our tax experts at The IRA Financial Group!

Jul 12

Solo 401k Rules

In 1981, the IRS formally described the rules for 401k Plans. The Solo 401k Plan is an IRS approved type of qualified plan. The Solo 401k plan” is not a new type of plan. It is a traditional 401k plan covering only one employee. The plans have the same rules and requirements as any other 401k plan. The surging interest in these Solo 401k plans is a result of the EGTRRA tax law change that became effective in 2002.