IRAs

The Non-Deductible IRA Trap -- and the Fix

twocents@thestreet.com (Andrew Tignanelli) — Tue, 31 Jan 2012 12:20 GMT

HUNT VALLEY, Md. (TheStreet) -- If you don't have any nondeductible IRA assets, this article will not be of interest to you. If you have ever made nondeductible IRA contributions, get ready to be shocked!

Nondeductible IRA assets happen when you are ineligible for an IRA deduction but make an IRA deposit. There is no limitation to make a deductible IRA deposit if you and your spouse (if applicable) don't have a pension plan at work. If you or your spouse has a pension, there are income limitations to deducting IRA deposits. In addition, every year after you make a nondeductible IRA contribution you must file a form 8606 to disclose your basis in an IRA. Here's an example: If you have ever made nondeductible IRA contributions, you should start thinking about the lowest-taxed way to get your money out. ...

Investors Must Keep Time on Their Side

twocents@thestreet.com (Frank Armstrong) — Tue, 31 Jan 2012 12:10 GMT

MIAMI (TheStreet) -- Time is such a valuable commodity that it's a shame when investors squander it. Yet many investors do, wasting a resource that can't ever be recovered.

Time is an investor's most valuable ally because returns increase exponentially over time -- as close to magic as most of us will ever see. Investment returns increase exponentially over time, which is as close to magic as most of us will ever see. ...

Banks Grab at Bigger Retirement Share

twocents@thestreet.com (Joe Mont) — Tue, 24 Jan 2012 12:25 GMT

BOSTON (TheStreet) -- Despite widespread complaints -- and considerable outrage -- directed at the nation's "big banks," Americans increasingly turn to them for investment advice.

Research by Hearts & Wallets, a firm that analyzes retirement market trends for the financial services industry, shows that banks now serve as the primary source of retirement advice for 43% of Americans, an increase of two percentage points from a year ago, with gains across all investment product categories. Despite anger at "big banks," more pre-retirees are turning to them for their nest egg needs.

The findings come from a survey of more than 4,500 households nationally and statistics based on 9,000 responses on specific financial firms. ...

New Rules of Charity From Your IRA

twocents@thestreet.com (Jim Blankenship) — Tue, 24 Jan 2012 12:20 GMT

NEW BERLIN, Ill. (MainStreet) -- At the end of December, the provision for Qualified Charitable Distributions expired. That provision allowed taxpayers 70.5 or older to make direct distributions from an IRA account to a qualified charity, bypassing recognition of the distribution as income.

With the expiration of this provision, you can still make charitable contributions of money from your IRA. The difference is that these contributions are no different from a contribution you've made from your savings account or regular income. To achieve a tax advantage from the contribution, you will itemize the charitable contribution on your tax return. (Of course, if the money is from your IRA you'll also have to recognize the distribution as income.) You can still make charitable contributions of money from your IRA, but the new year brought new rules.

Let's look at both ways to understand what's different. ...

The New Retirement Rulebook

twocents@thestreet.com (Joe Mont) — Tue, 17 Jan 2012 13:00 GMT

BOSTON (MainStreet) -- The rules of retirement are in need of a rewrite.

The loss of company pensions, longer lifespans, concerns over Social Security and a volatile investing world are among the forces that have made planning for a financially secure retirement more challenging than ever. Longevity and market volatility mean that retirement goals and how to reach them have changed.

Retirement strategy has long been almost entirely focused on the accumulation of assets, but study after study has continually moved the goal post for what is needed in savings -- $500,000, $1 million, $3 million. ...

How to Ensure Your Inheritance at Tax Time

twocents@thestreet.com (Jason Notte) — Mon, 09 Jan 2012 13:00 GMT

NEW YORK (MainStreet) -- Losing a person in your life is difficult enough without having to figure out how to hold on to what they left you.

The approaching tax season only brings more worries for those who've lost a friend or loved one and received an inheritance for their trouble. That last gift from mom, dad, the grandparents or anyone else in your circle can seem like a touching gift at first, but can also incur serious penalties for heirs unsure how to handle it. Estate tax and inheritance tax laws written in Washington and state capitals can take a bite of what's left behind, but they don't have to.

"Don't feel like you need to be in a rush to make an investment decision after a person passes away," says Chris Hobart, CEO and founder of Hobart Financial Group in North Carolina. "You're in a rush and don't know all the rules, then all of a sudden you realize you owe taxes on all this money after you've bought a car or bought a pool." ...

10 Resolutions For the Retirement Industry

twocents@thestreet.com (Joe Mont) — Tue, 03 Jan 2012 13:30 GMT

BOSTON (MainStreet) -- Heading into 2012, one can only hope that the economy improves and retirement plans continue to recover.

But whatever good news, bad news and curveballs the next 12 months bring, we offer the following 10 resolutions we hope folks who earn their living providing retirement services will consider making: If 2008 didn't make it clear, the party's over. And that means it's time for the retirement industry to make some profession-healthy resolutions for the new year.

1. We'll say enough already with the golf courses and beaches. For 2012, we urge a resolution that retirement marketing focus more on the reasonable dreams of real people, not the flights of fancy wealthier clients may harbor. ...

How to Use Retirement Funds to Start a Business

twocents@thestreet.com (Laurie Kulikowski) — Wed, 28 Dec 2011 12:45 GMT

NEW YORK (MainStreet) -- With access to credit still tough, small-business owners sometimes need alternative sources to fund a business.

Rolling over a qualified retirement plan is a good way to inject equity into your business without penalty, says Steve Stovall, vice president of business development at Benetrends, which helps entrepreneurs and small-business owners create funding strategies for their businesses. With access to credit still tough, rolling over a qualified retirement plan is a good way to inject equity into your business without penalty.

"While the Small Business Administration says there are all types of loans available, to actually find a bank that will fund a lot of business opportunities is very different, and those actual lenders can be very few and far between. So if somebody is up against a time constraint or if someone doesn't a have a job, without creating debt or without pledging collateral activity, using the 401(k) rollover is a great way to go," Stovall says. ...

The Tax Answer to Short-Term Capital Gains

twocents@thestreet.com (Michael Maye) — Tue, 27 Dec 2011 12:00 GMT

BERKELEY HEIGHTS, N.J. (TheStreet) -- If you want to be proactive about managing your 2011 tax liability, now is the time.

One of the items under every taxpayer's control is managing their realized capital gains and losses. The first thing to determine is what, if any, capital gains you have realized in your taxable accounts for 2011 -- either short term or long term, depending how long you have held the investment. (Investments that have a holding period of one year or less are considered short term.) Why should anyone care? Because short-term capital gains are taxed at ordinary income tax rates, meaning for a high-tax-bracket person that might mean paying taxes at a 35% federal marginal tax rate plus their marginal state income tax rate. If you've got short-term capital gains, consider tax loss harvesting.

Long-term capital gains tend to be of less concern, since the highest rate regardless of tax bracket is typically 15% with some taxpayers qualifying to pay even less. Certain long-term capital gains do have a higher rate -- collectibles at 28%, for instance, and certain commodity investments. ...

You're Ignoring Taxes and Retiring With less

twocents@thestreet.com (Joe Mont) — Fri, 25 Nov 2011 12:15 GMT

ATLANTA (TheStreet) -- An overlooked, often misunderstood impact on retirement savings can be summed up in one frightful word: taxes.

For years, the focus for retirement plans has been placed squarely on the "accumulation" phase and maximizing investment returns. The onslaught of 80 million retiring baby boomers has made the drawdown of those savings a more mainstream concern. Selling retirement assets without a tax strategy could be eroding 20% of retiree savings.

Big questions abound for retirees and near-retirees regarding their savings. Will they last? How much can retirees take, when and how? What's the best way to turn assets into income? ...

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E*Trade Cancels Its Own 'Sell Order'

twocents@thestreet.com (Antoine Gara) — Thu, 10 Nov 2011 22:42 GMT

NEW YORK (TheStreet) -- E*Trade Financial late Thursday put an end to speculation that its strategic review would yield a company sale.

Rejecting pressure from its largest shareholder Citadel to sell itself to an online broker competitor such as TD Ameritrade or Charles Schwab, E*Trade chief executive and interim chairman Steven Freiberg said, "Following this review by our Board, the management team will continue to execute on our strategy designed to create value for both our stockholders and our customers."

E*Trade shares fell more than 5% in after-hours trading to $8.96. The pioneer in online retail investing of stocks and bonds, with $182 billion in customer assets worldwide, has seen its stock fall more than 40% year to date. ...

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Changes Could Lead Millions to Abandon Retirement Plans

twocents@thestreet.com (Joe Mont) — Mon, 03 Oct 2011 12:30 GMT

BOSTON (MainStreet) -- The government officials considering changes to how retirement savings vehicles such as 401(k)s work may want to note a survey this year by the Employee Benefit Research Institute.

Nearly 90% of respondents said it was either "very important" or "somewhat important" to deduct their retirement contributions from their work pay, with one in four of these full-time workers saying they would reduce -- or stop -- their contributions if the ability to deduct them from their taxes were eliminated, a change Congress could announce as soon as December.

Taxation changes under consideration in Washington could affect how you save for retirement. ...

Roth Change Strategy Can Lower Your Tax Bill

twocents@thestreet.com (Jim Blankenship) — Thu, 29 Sep 2011 11:15 GMT

NEW BERLIN, Ill. (MainStreet) -- If you have an IRA you probably know about the concept of a Roth IRA conversion -- in which you take distribution of a portion of your IRA and transfer that money directly into your a Roth IRA, paying tax as you go. Then the Roth IRA can continue to grow tax free (as Roth IRAs do) and you'll never owe tax on your qualified distributions.

In addition, if the investments you've made in the Roth IRA have lost money, before Oct. 15 of the following year you have the opportunity to recharacterize your Roth conversion. If you didn't recharacterize, you'd be paying tax on a conversion amount much lower now if there was a downturn in the investments, so your average tax rate is much higher than you'd hoped. By recharacterizing, you can undo the conversion or a part of it. You can use the Roth IRA recharacterization option to your advantage.

I had a question raised to me recently about using the recharacterization option to your advantage. Here's the gist of the strategy: If you have an IRA worth, say, $100,000, you could convert it into two Roth IRAs, one half invested in a 2x leveraged bull-oriented investment and the other in a 2x leveraged bear-oriented investment. ...

Retirees: Think Twice About Paying Off Your Mortgage

twocents@thestreet.com (CNBC) — Wed, 28 Sep 2011 21:35 GMT

By Shelly K. Schwartz, special to CNBC NEW YORK (CNBC) -- The countdown to retirement is on for millions of baby boomers and, thanks to a lifetime of diligent saving, some have amassed enough wealth to pay off their mortgages and live debt free.

Conventional wisdom says it's best to pay off your mortgage before retirement, but given the low-interest rate environment, and the need to preserve cash in an unstable economy, that strategy is no longer absolute.

"Paying off your house is one goal, but having a zero-mortgage liability is not the answer for everyone," says Jennie Fierstein, a certified financial planner (CFP) in Westborough, Mass. "If you don't have a stream of resources to replenish it, you might do yourself a disservice by taking money out of the bank to pay off your mortgage." ...

10 Tips for a Financially Sound Retirement

twocents@thestreet.com (CNBC) — Tue, 27 Sep 2011 11:35 GMT

By Vinita Singla, special to CNBC NEW YORK (CNBC) -- If saving for retirement was a struggle before the financial crisis of 2008, imagine how lost jobs, flat wages, underwater mortgages, higher energy and food costs, and local and state tax hikes have combined to make the goal even harder.

Insufficient retirement money is the number one financial worry among 66% of Americans, according to a Gallup poll. Yet many of them have long-term retirement savings plans.

Americans who don't save for retirement often outlive their assets. Of those folks, 68% have less than $1,000 in savings, according to the Employee Benefits Research Institute, EBRI. "More and more in today's environment, people really have to take responsibility for their own retirement security," says Jean Setzfand, AARP's vice president for financial security. ...

401(k) Tax Changes May Be On Fast Track

twocents@thestreet.com (Joe Mont) — Fri, 23 Sep 2011 15:32 GMT

WASHINGTON D.C. (TheStreet) -- In the coming weeks, Americans could face sweeping changes to the tax deferral status and funding strategies of their retirement plans.

The Senate Finance Committee last week held a hearing (a webcast and testimony can be found here) to discuss proposals for strengthening the nation's retirement system as well as dealing with the reality that these plans are a ripe target for deficit reduction plans. A rethinking the tax structure of 401(k) and IRA plans could be included in Congress' deficit reduction proposals due in December.

As officials in Washington grapple with debt reduction and the need for increased revenue, rethinking the tax structure of 401(k) and IRA plans has come under consideration and could be included in deficit reduction proposals due in December. ...

How to Make the Best of a Bad 401(k)

twocents@thestreet.com (Jim Blankenship) — Thu, 22 Sep 2011 11:15 GMT

NEW BERLIN, Ill. (TheStreet) -- Chances are, you have a 401(k) or some other sort of Qualified Retirement Plan such as a 403(b), 457 or some other numerical combination. And chances are, unless you're in the extreme minority, your 401(k) plan has some features that are lacking. Most often, we'll see such things as limited options for diversification (although this is less likely these days), expensive fund choices and limitations for access to funds (not necessarily a bad thing).

How do you make the best of a bad 401(k)? Unless you're in the extreme minority, your 401(k) plan has some features that are lacking, and you'll have to go through the funds to see where the weaknesses lie.

Review your fund options carefully. You should have the basics available to you in terms of diversification choices: domestic stock, international stock, money market (often referred to as stable return or something similar) and fixed income or bonds. If you don't have at least these basic allocation options available to you, you need to have a serious talk with your administrator. ...

Time to Retire One IRA Withdrawal Strategy

twocents@thestreet.com (Andrew Tignanelli) — Thu, 15 Sep 2011 15:32 GMT

HUNT VALLEY, Md. (TheStreet) -- Among the theories on how to withdraw funds from an IRA in the most tax efficient manner, here are three popular concepts: Withdraw some funds in your 60s so less is required to be withdrawn in your 70s based on the required minimum withdraw. Wait until the end of each year before withdrawing. Convert to a Roth IRA to eliminate all future taxation since tax rates are supposedly going higher.

Each concept has some merit, but assumptions are necessary to validate them. Withdrawing from your IRA in your 60s when there is no need makes zero sense today. There are better strategies.

The idea of withdrawing from your IRA in your 60s when there is no need makes zero sense today, even if it did two years ago. The idea is to take money out and pay taxes on it so your balance is not so large when you turn 70.5 (the age you are forced to take required minimum distributions). The concept was flawed to begin with, but now is completely without merit since you are now eligible to do a Roth conversion. ...

A Who's Who Guide to Financial Advisers

twocents@thestreet.com (Jeanine Skowronski) — Tue, 13 Sep 2011 14:45 GMT

NEW YORK (MainStreet) -- Consumers in need of a little professional financial advice have more choices than they may realize. Choice, though, can be a source of confusion.

"There are over 2,000 financial designations," says Joel Redmond, a certified financial planner based in Syracuse, N.Y. There are more than 2,000 financial designations, but fortunately, only three primary financial adviser fields consumers needs to know.

Furthermore, these days, wealth management companies have integrated so many services into their business model that many in the industry have obtained the right to list more than one acronym after their name. ...

Are Credit Unions FDIC Insured?

twocents@thestreet.com (Philip van Doorn) — Tue, 13 Sep 2011 10:40 GMT

NEW YORK (TheStreet) -- Are credit union deposits FDIC-insured?

No, but it doesn't matter.

For starters, the Federal Deposit Insurance Corp. only insures deposits in banks and savings and loan associations. Federal credit unions have their own insurance fund, which is run by the National Credit Union Administration, of NCUA. ...

Retirement Strategies Take a Shine to Gold

twocents@thestreet.com (Joe Mont) — Tue, 13 Sep 2011 10:06 GMT

BOSTON (TheStreet) -- Worries over domestic debt, fear of a double-dip recession and a desire to hedge against inflation are among the issue that have heated up gold fever and spiked the price of the precious metal to roughly $1,800 an ounce.

Should the mindset of gold bugs -- despite some recent price declines -- play into a retirement strategy, especially given the corrosive effect on savings inflation can have? The "golden years" live up to their name as annuities and other products turn to the precious metal.

In recent months, some annuity providers have been starting to index their products to commodities. Among them is Investors Insurance, a subsidiary of SCOR Global Life. Its PremierMark SE fixed-index annuities include a product that links credited interest to performance increases in the price of gold during the term. ...

Recharacterize Your Roth IRA Conversion

twocents@thestreet.com (Jim Blankenship) — Sat, 10 Sep 2011 14:00 GMT

NEW BERLIN, Ill. (MainStreet) -- Last year a large number of folks took advantage of an option newly available to them by converting IRA funds to a Roth IRA. The conversion had not been available to folks with an income above $100,000, but the law was changed to allow folks with any income. In addition, for last year only, when you converted you had the option to delay paying tax until the following two tax years.

Since the market has taken a downturn in recent months, there now are a great many folks who may be looking to "undo" a conversion. The rules generally allow you to do this until Oct. 15 of the year following the conversion (it's actually Oct. 17 this year). This "undo" activity is known as recharacterization. With the market downturn in recent months, you may want to hit the free "undo" button on your Roth.

You might want to recharacterize your conversion if your investments in the Roth plan have gone down in value. If this is the case, you would be paying taxes on more money that you converted, making the tax cost of the conversion much higher than you thought. This recharacterization is a one-time option that allows you to put the money back in the traditional IRA where it started and wipe the slate clean -- as if you didn't do the conversion at all. ...

Asset Managers Forced Into Rethink

twocents@thestreet.com (Financial Times) — Thu, 01 Sep 2011 20:24 GMT

By the Financial Times (Financial Times) -- Asset management bosses are unusually glum. Not only are markets in turmoil, but their businesses are increasingly under pressure from clients who are switching to alternative investments while pushing for lower fees.

Michael Dobson, chief executive of Schroders, the fund manager, was the first last month to highlight the rush of investors pulling out of equity and bond funds to hoard cash in a headlong flight to safety.

With the exception of Peter Hargreaves of Hargreaves Lansdown, few chief executives in the industry have since missed an opportunity to caution publicly that more market turbulence is on the way while privately worrying that further bouts of poor investment returns and renewed calls for lower charges will permanently dent profitability....

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Another Active ETF to Launch, in Pimco's Backyard

twocents@thestreet.com (Financial Times) — Tue, 30 Aug 2011 21:52 GMT

By the Financial Times (Financial Times) -- U.S. money market fund specialist Federated Investors is entering the active exchange traded fund field, in hot pursuit of a fast growing Pimco ETF.

The Pittsburgh-based manager has filed with the Securities and Exchange Commission to introduce an actively managed ETF series investing in everything from equities and fixed-income securities to currencies, though derivatives will remain off-limits.

The series' first roll-out appears designed to reclaim money fund business siphoned off by Pimco's Enhanced Short Maturity Strategy, which trades under the MINT ticker. MINT has built up $1.42 billion in assets since its November 2009 launch, ranking as the biggest active ETF, by appealing to yield-starved money fund investors....

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End of Stock Picking? Don't Try to Beat an Index

twocents@thestreet.com (CNBC) — Mon, 29 Aug 2011 19:25 GMT

By John Melloy, CNBC Executive Producer, Fast Money & Strategy Session NEW YORK (CNBC) -- The correlation of moves in individual stocks and the S&P 500 index is at a record, making the job of long-only mutual fund managers to differentiate from the benchmark virtually impossible, according to a report from Goldman Sachs.

The correlation for the S&P 500 and its members is at 0.73, according to Goldman, meaning that the majority of stocks move in lockstep with the index on a daily basis. This is at least the highest in 20 years and therefore likely a record.

"Record high S&P 500 and sector correlation poses a challenge for fundamental investors," said David Kostin, chief U.S. investment strategist at Goldman Sachs, in a Friday note from the Wall Street firm. ...

Drawing Down Assets Is a Tough Balancing Act

twocents@thestreet.com (Joe Mont) — Tue, 16 Aug 2011 15:35 GMT

BOSTON (TheStreet) -- The focus for retirement plans has always been on accumulation, building your lifetime of invested assets into a pool large enough to sustain your lifestyle once you stop working.

But that's only half the battle. Increasingly, investors and their advisers are paying as much attention to the flip side of the equation: decumulation, or how and when those savings are optimally drawn down. With roughly 77 million baby boomers entering retirement, much old, standard advice is being challenged by growing human longevity and retirees' risk of outliving their money.

In the not-so-distant past, that second phase of retirement planning was viewed rather simplistically -- a one-size-fits-all approach being to draw down roughly 4% of your savings during each year of retirement and supplement those withdrawals with Social Security stipends. ...

Retirees Face Social Security Tax on 'Earnings'

twocents@thestreet.com (Joe Mont) — Tue, 09 Aug 2011 11:45 GMT

BOSTON (MainStreet) -- If you are nearing retirement and haven't paid much thought to "line 8a," you need to -- or risk losing thousands of dollars of income for years to come.

Line 8a on your tax return is for recording taxable interest. Even shrewd and safe investments can lead to having a portion of Social Security checks kicked back over to the government based on what is claimed.

If you are not careful, you may end up losing Social Security benefits to taxes. ...

Peek in Your Refrigerator Is Recipe for Portfolio

twocents@thestreet.com (Joe Mont) — Mon, 08 Aug 2011 12:30 GMT

BOSTON (TheStreet) -- The next time you head into the kitchen for a snack you may also be able to satisfy your appetite for quality investments.

A common bit of advice is that you should invest in what you know, and food is something we all know well. Are there benefits to a "refrigerator portfolio," choosing investments based on the brands you and your family buy? A common bit of advice is that you should invest in what you know, and food is something we all know well.

Open the fridge and take a peek. Are there Heinz, Coca-Cola or Pepsi bottles? Hormel meats (Spam anyone?) or Tyson chicken strips, perhaps? ...

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Tapping Into 401(k) Early Gets Warning Flag

twocents@thestreet.com (Greg Plechner) — Sat, 06 Aug 2011 14:00 GMT

BOSTON (TheStreet) -- If you spend time at the beach this summer, you may notice the "current conditions" flags that warn swimmers about the water currents or surf. A red or black flag generally means it's too rough and one should avoid swimming; a yellow or orange flag typically signals light surf and advises swimmers to use caution; a green flag usually means calm waters.

With finances, we can use the same flags to help identify when it is a good idea to use a particular financial strategy or when the circumstances suggest it's best to avoid it. There may be some rough waters ahead, but using your 401(k) as a life vest isn't always best.

Tapping into your 401(k) prematurely may be one of those "yellow/orange" flag circumstances. To avoid drowning in debt or another emergency situation, it may be tempting to access funds originally set aside for retirement. Proceed with caution, though. Before using your 401(k) as your life vest, review the conditions carefully to assess whether you should dive into your retirement savings funds or perhaps swim elsewhere. ...

Retirement Plans for 1,000-Year-Olds

twocents@thestreet.com (Joe Mont) — Tue, 02 Aug 2011 12:30 GMT

BOSTON (MainStreet) -- Medical strides have allowed people all over the world to live longer. According to one researcher, we are on the cusp of routinely living to 150, and the first person to blow out 1,000 candles on their birthday cake could be born within the next two decades.

Biomedical gerontologist Dr. Aubrey de Grey, of the California-based Strategies for Engineered Negligible Senescence Foundation, made those claims in a recent research paper. His prediction is that the increasing ability of scientists to engineer replacement tissue will allow for customizable, replaceable organs in the not-so-distant future. As life expectancies increase, what does retirement look like for 100-, 150- and 1,000-year-olds?

Living to 150 or even 1,000 may not be as far-fetched as it might seem. In the U.S., life expectancy has nearly doubled since 1900. More telling, the number of 100-year-olds in 1990 totaled roughly 37,000, but there are more than 84,000 now and, according to Census Bureau projections, by 2050 there could be more than 580,000 Americans older than 100. ...