Your $ensible Money Coach

[Sassy]

My brother has started a financial blog. If you are looking for a good source for fiance information, he's a good start. If you have questions or a topic that you would like to see some information on, post it here and pass it along to him to answer.

Your $ensible Money Coach

 

[Sassy]

Tax free retirement income? Sign me up!

**broken link removed**

Roth IRAs are wonderful thing, but most of us are not aware of all the advantages of using one. Let me explain why you should be fully funding a Roth IRA each year.

Tax diversification - Most of us know that withdrawals from a Roth IRA, after 59 1/2, are free of income tax; but there is more to it. You can better control your income burden in retirement. If you find yourself in a lower tax bracket in retirement; withdrawing money from Traditional IRAs first is best. This allows Roth IRA money to continue to grow. If you are in the same tax bracket, you may want to delay taking distributions from a Traditional IRA until you are required to by law. Having both types gives you more options for managing your income taxes each year.

No required minimum distributions - The IRS requires that you begin taking a minimum amount of money from Traditional IRAs, 401(k)s, 403(b)s and other pretax retirement plans when you reach age 70 1/2. This can be a real tax problem for many in retirement. Roth IRAs have no minimum distribution requirement. That's right, you don't have to take money from your Roth IRA at all if you don't want to. This is a great way to pass money along to your children and grandchildren without creating a huge tax burden for them later.

Flexibility - Even though you should be using a Roth IRA for long term retirement investing, the IRS does allow penalty free withdrawals before 59 1/2 in some limited circumstances. You may withdraw contributions at any time for any reason without taxes or penalties. After five years, you may withdraw earnings without penalty (earnings are still subject to income tax) for qualified college expenses, first time home purchases, to pay medical insurance premiums when unemployed, and to pay unreimbursed medical expenses above 7.5% of you adjusted gross income.

Conversions - If you have a Traditional IRA funded with deductible contributions or an IRA funded with non-deductible contributions, converting those accounts to a Roth IRA may be right for you. Make sure you can pay the income taxes due on the conversion with after-tax money. If you are under 59 1/2 and use money from the IRA to pay the income taxes due on the conversion, that amount will be considered a premature distribution subject to taxes and the 10% penalties. The bottom line is: don't pay taxes due on a conversion with money from an IRA!

As you can see, there are some tangible benefits to investing in a Roth IRA. The odds are good that tax rates will be higher for almost everyone in the future. Tax free free income will become even more important to retirees down the road. So, if you are eligible, make sure to fund a Roth IRA annually.

 

[Sassy]

My brother just emailed that he is changing his blog to a new website, so I'll let you know when it is up and running.

It is underconstruction....

LifePathFinancialPlanning.com

Stay tuned!

 

[Sassy]

You Are In Charge of Your 401k Account

New link to his financial blog **broken link removed**

**broken link removed**

"GOA:Workers hurt when rolling over 401(k) plans to IRAs"

Recently, a Government Accountability Office (GOA) investigation found that 401(k) plan participants were being encouraged to rollover their accounts to IRAs at the plan provider's retail investment divisions with virtually no financial planning guidance. The gist of the article is that plan participants were being advised by call center representatives, from the plan provider, to rollover their 401(k) account to an IRA when the service center representative knew virtually nothing about the individuals financial status. Why is this a problem? When you leave an employer, you need to seek professional financial planning advice to help you make the best decision regarding the retirement savings you have accumulated. Unfortunately, you may not be getting the level of advice you are expecting. This underscores the importance of knowing exactly who you should be taking financial advice from.

When you leave an employer; you are usually provided a packet describing your options for maintaining your account in the 401(k) or rolling it over to an IRA. Your first inclination is to contact the plan provider to find out more about your options, so you end of talking to a call center representative. This person is usually trained to provide you with the options and encourage you to rollover to an IRA (or at least talk to one of their "rollover specialists") with their company's retail division. In general, a rollover to an IRA is not a bad choice for someone, it just depends on your specific circumstances. It becomes a financial planning decision and you need to talk with an experienced, unbiased professional to help you make the right decision. Unless the call center rep is also a registered investment advisor or a credentialed professional, like a CFP®, ChFC, and CLU, they are not usually going to be the person you want to seek advice from. The GAO found that the call center rep was the person most plan participants were taking the advice from.

The bottom line is, you are in charge of your retirement plan, so be sure to seek advice regarding one of your most important financial assets from a qualified professional.

 

[gogotren]

It doesnt matter if your IRA is a roth, traditional, you have a keogh, 401k, if its in stocks its all gonna be worth 30-50% less after the federal reserve stops feeding free money at 85B/mo on top of the 1T federal spending deficit. The clock is ticking on anything related to stocks.

 

[Sassy]

Investing in the stock market is always risky. There will always be a chance of loosing money. Also keep in mind that the stock market has always had highs and lows. If you put money in for long term investment, then you have a much better chance at recovering losses than if you doing it for short term gains. By purchasing small lots of shares throughout a long-term period, you will be buying share a various prices (both high and low) this also helps even out the losses/gains.

You aren't going to increase your investments by putting your money in a CD, savings or money market account with the low interest rates that banks are paying.

Unless you are retiring in the next few year, the stock market is about as good as it gets.

 

[gogotren]

Unless you are retiring in the next few year, the stock market is about as good as it gets.

I guess everybody has an opinion, some just more naive than others. The US stock markets are just barely higher than they were 6 years ago, yet most people are not yet back to even. Tell the people of Japan to just keep buying and go for the ride. The Nikkei is at the same level it was at 27 years ago! We are not facing the same problems of demographics they started having 25 yrs ago. From the crash of `29 it took 25 years until the Dow was back to even!

In a deflationary environment the stock mkt is the LAST place you wanna be.... at least on the long side of things. But while the fed is pumping, the mkt will continue on upwards making zero sense.

 

[Sassy]

I'm not saying totally invest in stock. You have to have a diverse portfolio. I have stocks and bonds.

I'm curious... what do you suggest investing in?

 

[gogotren]

I'm curious... what do you suggest investing in?

sustainable, reliable cash flow or even just plain old USD. A few places left to do that. R/E... at the right price but not much of that left. Utility company dividends, BDC`S (basically private 1st, 2nd tier debt, 8 rungs above corp. bonds in security, floating rate most of the time) non-traded is preferred, or non-traded REIT`s although there is a lot of shitty stuff there as well. Or short the mkt once the fed pulls out, but who knows when/if that will happen. Def. a very tough mkt/world to invest in.

In deflationary times, profits are squeezed, this obviously is not good for earnings. If you want to debate inflation is coming... the fed buying $85B/mo + $1.5T in federal spending deficit/yr and we have a mere 2% inflation, according to the always accurate govt #`s. Debt is still being writen off as fast as it is being printed, its a wash. The ONLY thing holding this mkt up is the fed`s current pump. You own bonds...What and Why? 10 yr govt bonds are 1.9%, rates can only really go up which means price goes down. Junk bonds are very over valued as many people are reaching for yield/return and have bid these up into another bubble.

 

[Sassy]

Tax Exempt Bonds...

Tax exempt bonds... Because I don't want to pay any more taxes and it's money that I might need but I don't want sitting in a money market making .01%.