60-Day IRA Rollovers – How To Count?

May 1, 2012 By Leave a Comment

A “rollover“ is when you take money out of your 401k, IRA or Roth IRA and the distribution is payable to you. You can put the funds in your bank account, spend them, invest them, do anything you want with them. Then, within 60 days, you can put all or part of the amount distributed back into your IRA or Roth IRA. There will be no tax or penalty on this transaction. You had better be careful!
How do you know when the 60 days are up? You do NOT start counting from the date you request the distribution, the date on the check, or the date the funds left the IRA account. You start counting on the date you receive the funds if they are mailed, or the date they hit your bank account if they are transferred.

NOTE: It is 60 days, not 90 days as many taxpayers seem to believe based on PLR requests to IRS for an extension of time to complete a rollover.

It is never a good idea to wait until the last day to complete your rollover. You might find that the bank closed early for a holiday or that your 60th day falls on a weekend. The financial institution could make a mistake and put your funds in a non-IRA account. Any number of things could go wrong so you want to complete your rollover as soon as possible – not on the very last day.

In fact, don’t do a rollover at all. Do a direct transfer from one IRA custodian to another. Then you don’t have any of the problems or issues discussed above. You worked hard for that money – don’t lose it because of a stupid mistake.

To learn more about 401k, IRA or Roth IRA rollovers and avoiding mistakes, click HERE.

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Contributions to Retirement Accounts Reduces Taxes

February 28, 2012 By Leave a Comment

One of the best ways to legally avoid current income taxes is by contributing to an employer-sponsored retirement plan such as a 401(k) or 403(b). While it’s too late to make any contributions to those plans for last year, you have until April 17, 2012 to set up and fund a new IRA or add money to an existing one and have contributions count for 2011. The last day to contribute for the prior year is generally April 15, BUT in 2012 the 15th falls on a Sunday and the 16th is Emancipation Day, a holiday in the District of Columbia that affects tax filing deadlines.

Eligibility to deduct contributions made to Traditional IRAs depends on a somewhat complex formula that considers your income, your retirement coverage at work and, if applicable, your spouse’s retirement coverage. If neither you nor your spouse participates in an employer-sponsored retirement plan, then all of your Traditional IRA contributions will be deductible. However, if either one of you is covered by a retirement plan at work, phase-out ranges based on the amount of your modified adjusted gross income (MAGI) for the year could limit your IRA deductibility. You will know if you are considered to have particpated in your employer’s plan by checking your W-2 form for the year in question. If the “Retirement Plan” box is checked, then you have participated. If it is not, then you haven’t, simple, right?

Go here to view 2012 IRA and tax tables for phase-out ranges

The same contribution deadline for Traditional IRAs also applies to Roth IRAs. While you get no immediate income tax benefit by making a Roth IRA contribution, the growth will be tax-free when withdrawn, provided certain conditions are met. And while there are no deductibility phase-outs to deal with, the amount of your MAGI will determine whether you qualify to make a contribution.

Keep in mind that you must have earned income at least equal to the amount you wish to contribute to either a Traditional or Roth IRA. If you don’t qualify to make a deductible contribution to a Traditional IRA because of the income limitations, consider making a non-deductible contribution. The money in the Traditional IRA will grow tax-free until withdrawn. Also, special rules allow an individual with little or no earned income to use their spouse’s compensation to make an IRA contribution. You can view IRS Publication 590 for additional information on this topic.

Filed Under: IRA News - Be Smart

Investing – Can History Tell You Something?

January 9, 2012 By Leave a Comment

Investing history is a reliable source of information relative to asset categories as a whole. By looking at historical returns, we can assess the overall risk and volatility of an asset category. It is also possible to understand how different asset categories behave in relationship to one another (correlation) using history.

This type of information is useful in designing diversified portfolios that will achieve market rates of return over a long-term period of time.

Here’s the problem:

Historical information cannot offer us any indication of how any one asset class or individual investment is going to perform in the future. Past performance is not a guarantee of future performance. Therefore, it is imprudent to base future investing decisions on the track record of one asset class or individual investment. The Financial Coaching Group discourages financial professionals and investors from using short-term returns to make long-term investment decisions.

We believe in Markets, not Managers. Market performance is primarily determined by asset allocation, NOT stock picking or market timing. We believe that prudent and global diversification reduces risk. We believe that this philosophy can reduce risk, costs, taxes and expenses.

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Portfolio Checkup – Start Your Year Right

January 3, 2012 By Leave a Comment

If you’re checking in on your portfolio holdings every day–or worse yet, throughout the day–you may be tempted to trade more than you need to. In turn, you may run up high tax and transaction costs, and you’re also more likely to chase hot-performing stocks and funds in the hope that they’ll continue to outperform. That can be a recipe for disaster. In fact, when it comes to investing the truth is: Activity (trading) = Loss of Control and Worse Performance. So don’t do it!

Many of the basic rules of investing are counterintuitive. For example, rising interest rates may be good news for those shopping for CD’s and other short-term savings vehicles, but they’re generally bad for bond funds. And here’s another zinger: The lazy investor is often more successful than the hard-working one.

Because it is possible to shoot yourself in the foot with overzealous trading, I’m a big proponent of conducting a portfolio review just a few times a year–semiannually or quarterly. The purpose of this portfolio checkup is to systematically troubleshoot problem spots and identify changes you may want to make as part of your rebalancing program. (You should plan to rebalance your portfolio–remove money from those investments that have performed well and plow it into your portfolio’s underachievers–at least every few years.)

Observe the following five steps as you conduct a portfolio review. Take notes as you go along. You can always get a profession free portfolio checkup by contacting us here.

1. Make sure your asset mix is in line with your targets.
One of the most important determinants of whether your portfolio is positioned to meet your goals is your asset allocation–how much you hold in stocks, bonds, and cash.

2. Analyze your portfolio positioning.
Once you’ve assessed your portfolio’s asset allocation, turn your attention to how your stock and bond holdings are positioned.

3. Review your individual holdings and have a purpose.
Once you’ve checked out your aggregate portfolio’s positioning, it’s time to conduct a quick checkup on each of your individual holdings. (Cash, stocks, bonds, annuities, etc.) Ask yourself: “What is the purpose of this money?” Then find the investment that solves that purpose.

4. Examine performance.
It’s a big mistake to focus too much attention on short-term performance, but your quarterly or semiannual portfolio review should include a quick assessment of what is going on.

5. Rebalance your portfolio
After you’ve reviewed your portfolio’s current status, it’s time to plan your next move. It’s not likely that you’ll uncover a portfolio problem you need to address right away, but you should make sure your portfolio is rebalanced quarterly – if needed.

Simply put – this is usually way too much for the average investor. Not only is it confusing, but most people don’t have the tools to make this happen. This is part of our overall service we provide to our investing clients.

Does your investing and planning mean a lot to you? Then get your FREE portfolio checkup for 2012. Contact us right away!

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Must I Take My RMD’s as Cash?

December 14, 2011 By Leave a Comment

Question of the Month: Must I take my required minimum distribution as cash?

Q: Is it mandatory that my required minimum distribution (RMD) be taken as cash or can a specific stock the value of my RMD be moved from the IRA account to a regular taxable account? How about a specific stock used as an RMD to a Roth conversion account? Would this be taxed as a conversion and an RMD?

A: An RMD can be satisfied by distributing an asset in-kind or in cash. If you are distributing an asset to satisfy an RMD, it will be based on the fair market value of that asset upon distribution. You will have to check with your IRA custodian to determine if they will allow an in-kind distribution to satisfy an RMD.

An RMD in cash or in-kind cannot be rolled over to a Roth IRA. You can, however, use the cash to make a contribution to a Roth IRA – if you are eligible to make a contribution.

To get started with your FREE Retirement Analyzer and see what’s missing from your retirement – CLICK HERE

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Dealing With Retirement Myths

December 12, 2011 By Leave a Comment

The richest generation of all time is now experiencing the effects of our recession. More seniors are becoming impoverished, and many use credit cards to make ends meet. The No. 1 reason is out-of-pocket medical expenses and increasing health insurance premiums.

The National Academy of Science reported nearly one in five (almost seven million) seniors have fallen below the poverty level. The average credit card balance for seniors is $11,000 and climbing. Meanwhile, retirement-planning myths continue to provide shaky financial foundations for all Americans. Here are a few of the worst offenders:

  • You will not need as much income in retirement. Actually, many retirees have higher medical costs, higher housing expenses or rental costs and higher energy costs because they need to stay warmer or cooler. There are many other examples of expenses actually increasing.
  • Taxes will be lower in retirement. Our government’s circumstances are changing dramatically. The government’s need for revenue will continue to increase exponentially. Many retirees could actually see an increase in taxes (though it may not be called a “tax”).
  • I will use my house as a retirement savings vehicle. Obviously, this does not work. Many purchased much larger homes than they could afford, believing that increasing values would provide retirement benefits when their homes were sold. That did not happen, and many people lost money on these purchases. Additionally, large house payments and extra living costs prevented people from using that money to save for retirement.
  • I can make larger returns in the stock market. The stock market has averaged approximately 6 percent from 1926 to 2008 and has actually lost money in the last decade. Many experts believe that could last for another decade.

I am not being a doomsayer: I just know that many retirees and potential retirees struggle when it comes to what their assets can and will do for them.

To find out right now what your assets can do for you and get answers to the most requently asked retirement questions with facts, get your FREE Retirement Analyzer today.

Filed Under: Investor Education Tagged With: , , ,

Contributing To An IRA For A Spouse

December 1, 2011 By Leave a Comment

With the recent volatility in the stock market it is not surprising that a poll conducted by Prudential Funds found that 58% of investors have lost faith in it, while 44% say they never plan to invest in U. S. stocks again. Market turmoil and a sputtering economy make it doubly difficult to save and invest your money wisely for retirement.

Unfortunately, no amount of wishing or praying on our part will affect the natural (or unnatural) ebbs and flows of the investment markets. There is just not much we, as individuals, can do about them. However, we could, and should, continue to be disciplined about saving for retirement, no matter how hard it becomes from time to time.

We have written extensively about IRA contributions, including both the annual savings limits and deduction rules. Over the years, we have received a lot of questions about the calculation of contributions for married couples where one spouse has little or no compensation. On the surface, the “Spousal IRA Contribution” rules seem complicated, but they’re really quite simple. Here’s how it works:

1. Determine the amount of contributions to be made by the spouse who has the most compensation for the year, keeping in mind the annual contribution limit (currently, the smaller of 100% of eligible compensation earned solely by this spouse or $5,000 if under age 50 / $6,000 if age 50 or older);

2. Combine the eligible compensation of both spouses and then subtract from it the amount of any contributions calculated in #1 above;

3. Using the adjusted joint eligible compensation amount calculated in #2 above, calculate the spousal IRA contribution for the other spouse, adhering to the annual contribution limit.

4. File a joint income tax return in order to qualify for the spousal IRA contribution.

Once the correct contribution amounts have been calculated, each spouse is free to choose whether he or she wants his or her contributions to go to a traditional IRA, a Roth IRA, or some combination of both, keeping in mind the income limits imposed on Roth IRAs.

As always, it makes sense to utilize the services of a highly trained financial advisor to make sure your IRA contributions are calculated correctly. While a potential IRS penalty exists for over-contributing to your IRA, there is also a self-imposed “lost opportunity” penalty for failing to maximize your contributions to the fullest extent possible.

Note: The Financial Coaching Group is not a tax advisor. Please consult with your tax professional for your specific needs.

Filed Under: 401k News Updates, IRA News - Be Smart Tagged With: , , , , , ,

Is Online Trading & Technology Helping You?

November 10, 2011 By Leave a Comment

We have so many ways of avoiding all the “extra” information that comes out way. Think about it for a second – we don’t open any emails that we think are spam, we delete most of our messages without even reading them, we throw away half our mail without opening it, and we fast-forward through television program commercials with our current DVR or Tivo systems.

When it comes to our investment decisions and what to buy, sell or trade, having information is very important. Would you ever think of making a decision without being informed? NO!

Having said that, allow me to provide some information that will help ALL of you when it comes to investing decisions. I like facts vs. fiction. This will help you too.

FICTION:

You can use online trading & technology to help you make smart investments with better than market returns?

FACT:

DALBAR, a financial services market research firm, states that “investor behaviors continue to fall prey to market forces.” For the 20-year period through 2010, annualized returns for equity investors were 3.83 percent and 2.56 percent for asset allocation fund investors, compared to the S&P 500 return of 9.14 percent, according to DALBAR’s 2011 Quantitative Analysis of Investor Behavior. For the same period, DALBAR reports that fixed income investors earned 1.01 percent, versus the Barclays Aggregate Bond Index annualized return of 6.89 percent.

FICTION:

Online trading allows me to be in control and make better investment decisions.

FACT:

According to DALBAR, one of the reasons investors fall short in their average return is their reactions to market movements and news. Its study found that investors in stock mutual funds held their funds 3.22 years on average in 2009 versus 3.27 years in 2010. These rates are far short of the number of years needed to benefit from a long-term, buy-and-hold investing strategy according to DALBAR.

SUMMARY:

What can investors do to break their bad habits? If you’re uncomfortable with dramatic changes in the value of your investments, you may have a low tolerance for risk. You’ll want to keep that in mind as you develop your investment plan. It’s okay to re-evaluate your tolerance for risk over time, especially after the bear market of 2008-2009, but you want to make sure changes are based on your appetite for risk and volatility over the long term, not on today’s emotions.

Another piece of advice: Don’t follow the herd. It’s not a good idea to buy any stock or fund just because everyone else is piling in. Likewise, avoid selling holdings when the market drops. Find some way to tune out the noise of the market. Don’t let greed and fear take over. And don’t tinker with your well-thought-out investment plan. If you stick with your plan and keep your emotions out of your investments, you’ll be rewarded down the road.

WHAT SHOULD YOU DO?:

Get your own FREE Retirement Analysis that will answer all the questions while eliminating the emotions of online trading & technology.

Filed Under: Financial Lies & Truths, Investor Traps Tagged With: , , ,

Avoid RMD’s in a Tax Shelter?

November 7, 2011 By Leave a Comment
Question of the Month:

Can I avoid tax on Required Distributions in a Tax-Free Shelter?

Q: My wife and I are 69 and 70 years old respectively, and our 401(k) is worth $505,000 as of today. We are both retired with a monthly income of about $7,000. We have about $150,000 in life insurance. We will soon have to start taking money from the 401(k) as per the IRS rules. Where can we find information on tax-free shelters to avoid the heavy tax when we take required mimimum distributions (RMDs)?

A: There is no way to avoid the taxation on required minimum distributions of taxable amounts from the 401(k) plan. Moving the 401(k) funds to a tax-free shelter will not avoid the required distribution rules. Perhaps you should consider converting your 401(k) to a Roth IRA if you have enough money to pay the tax. There would be no required minimum distributions going forward with a Roth IRA.

Filed Under: IRA News - Be Smart Tagged With: , , , , ,

Avoiding Retirement Mistakes in a Divorce

October 31, 2011 By Leave a Comment

Avoid these mistakes in 5 Easy Steps.

When a divorce occurs, the financial assets of a couple, including their retirement accounts, are often split. If mistakes are made during this process, the stress of a divorce can be compounded when one or both spouses find they are subject to unnecessary taxes or penalties.

1. IRAs in divorce. To properly divide an IRA as a result of a divorce, specific language on the structure of “who gets what” should be included in the marital settlement agreement (MSA) or other divorce agreement. A copy of this executed agreement should be given to the IRA custodian. The money should NOT simply be withdrawn from the IRA and given to the other spouse, as this would be treated as a taxable distribution for the IRA owner.

2. Qualified plans in divorce. Qualified plans can’t be split by an MSA or divorce agreement. They require a special court order, known as a “Qualified Domestic Relations Order,” or “QDRO” for short. Once a QDRO has been issued, it should be sent to the qualified plan’s administrator. The terms of the plan will determine when the spouse receives the funds. In some plans, a lumpsum distribution will be available immediately, while in other funds, benefits may not be payable until the ex-spouse retires.

3. What to do with the received funds. If you are receiving a portion of an IRA, you will likely want to roll the funds over to your own IRA to avoid incurring tax and possibly the 10% early distribution penalty. However, If you are receiving a distribution pursuant to a QDRO, you will want to consider if you will be using any of the funds prior to age 59 1/2. Funds received directly from a plan under a QDRO are exempt from the 10% penalty. If you roll those funds over to an IRA and later take a distribution prior to age 59 1/2, the 10% early distribution penalty will apply.

4. Name new/update beneficiaries. One of the most common mistakes after a divorce is the failure to properly update beneficiary forms. This is NOT something that should be overlooked. There have been many documented cases where a failure to properly update beneficiary forms led to an ex-spouse receiving funds that were intended for children or even a new spouse. DON’T let this happen to you.

5. Reassess retirement preparedness. For many, a divorce is an emotionally draining and traumatic event. But for some, the emotional impact is compounded by a significant change to personal finances. So just like any other major life event, it’s beneficial to reevaluate your retirement and financial plans to determine the best course of action.

To learn from our Retirement Resources, visit our Website.

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