Most financial advisors want to do the “right” thing for their clients. However most of them use some of the slickest financial phrases that they were taught to help sell you a product or investment. Click on the image below and watch this powerful 2-minute video of the major broker lies that are being used and how they can effect your and your money.
No matter how well it has been designed and implemented, an investment strategy by itself can never bring you peace of mind. Although most of the financial world likes to pretend that investment decisions are based purely on logic and rational thought, the truth is that the vast majority of investment choices are driven by emotional and psychological factors. Click on the image below to watch this powerful 2-minute video outlining the typical process investors go through when facing financial decisions.
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.
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?
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.
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.
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!
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.