Archive for the ‘retirement plans’ Category
Tips for Keeping Your 401k in Good Shape in the New Year
If you’re ready to improve your financial situation in the New Year, make sure you don’t neglect the value of your 401k. Your 401k account is a very valuable asset and can help to set you on the path to a comfortable retirement. Saving for retirement doesn’t have to be too much of a struggle when you get your finances in order and make sure you’re being consistent with your contributions. There are also several ways you can keep your 401k in good shape throughout the year. A little planning and budgeting is all it really takes to maintain a healthy retirement account
Here are some essential tips for keeping your 401k in great shape in the New Year:
- Take advantage of employer contributions. Make sure you’re making the most of your employment benefits by participating in a company-sponsored plan right away. The sooner you start contributing to your 401k, the more money you will have available through an employer match. Employers do have limits on how much they can contribute, but they will be able to offer a generous amount as part of your benefits package.
- Don’t touch those funds. While it may be tempting to withdraw from your retirement account when you’re faced with an emergency situation, you’ll miss out on some very significant tax benefits. Remember that all of that money isn’t taxed until you pull your money out, so your investment is much more valuable in this tax-free account than a regular savings account. Avoid tapping into this account at all costs so you can make the most of your investment come retirement time.
- Contribute more this year. If you haven’t been contributing the full amount possible towards your 401k, make this the year that you maximize your contributions. Find out what this year’s contribution limits are and plan to make generous contributions to your account throughout the year. Having the funds directly deposited from your paycheck will make it easier to save this money because you won’t have to make the extra deposit yourself. Just ask your employer to take the money right out of your paycheck so you are only left with take-home pay.
Keeping your 401k account in great shape may take some effort, but your hard work will pay off. Make the most of employee benefits and make sure to leave this account alone for as long as possible to get maximize the rewards.
Tags: 401k, 401k account, 401k tips
Tips for Managing Your 401k in the New Year
If you’re trying to save money for retirement and build your 401k, the New Year is a great time to evaluate your financial plan and make some important decisions about your finances. Many people don’t even take steps to participate in a 401k retirement plan for several years and miss out on saving a significant amount of tax-deferred deposit money. One of the keys to building a 401k is to start as early as possible and to keep contributing no matter what the economic climate may look like.
Use some of these important tips for managing your 401k in the New Year:
Do an Annual Review
If you have been diligent about contributing to your 401k over the past few years, the New Year is a good time to do an annual checkup. Take a good look at how your account is performing and consider the state of the stock market. If you think you may have more money available to contribute to your 401k in the oncoming year, talk to a financial advisor about your options. Your advisor may be able to restructure your account and recommend other investment products that will help you maximize your investments.
Make a Commitment Not to Withdraw Early
401k withdrawal rules and penalties are fairly strict and stay relatively the same from year to year. If you withdraw from your 401k this year, you will probably have to pay a 10% early withdrawal penalty and those funds will be considered income on your tax return. Withdrawing early can take away from the value of your investment that you’ve worked so hard to build, so make a commitment not to touch your 401k this year. Letting your funds grow is still the best personal financial strategy.
Transfer Funds if You Change Jobs
If you end up changing jobs this year, make sure you are able to just transfer the funds from your account instead of rolling over to an IRA. People who leave their jobs and do a rollover usually end up paying fees and taxes that equate to up to 20% of their investment. This can be a high price to pay for your own saving account, so find a way to simply transfer your investments to another account. Transferring your account instead of rolling it over will help you avoid those extra fees, taxes and other charges, leaving you with much more money in your account.
Best Retirement Plans for Small Businesses
Having a 401k account or traditional IRA offers a number of tax advantages and can make it easier to save up for retirement. If you’re running a small business, you will need to decide what types of retirement plan or 401k accounts your employees should have. Some employers choose to match their employee’s contributions up to a certain amount, while others set up a simplified employee pension plan.
In many cases, the employees of a small business can still make contributions to their traditional IRA or Roth IRA on top of employer based plans. Here are some of the best retirement plans for small businesses:
Simplified Employee Pension Plans
Simplified Employee Pension plans (SEPs) only allow the employer to make contributions to the account. The tax-deductible contribution limits are much higher than a simple IRA and typically equate to up to 25% of employee compensation. Employers can set up a SEP-IRA up to the date the tax return is due, including extensions, for the year that they claim the tax-deductible employer contribution.
Individual 401k Accounts
An individual 401k account requires less administration and management than a traditional 401k and allow for contributions up to 25% of compensation and an additional salary deferral benefit. Employers are allowed to establish these types of accounts before the end of the year and can make contributions by the tax-filing deadline.
SIMPLE IRA Accounts
Small businesses that want to make a small matching contribution of 1% to 3% of their employee’s compensation can set up a SIMPLE IRA account for each employee. With this account, employees are allowed to contribute 100% of their income up to the annual limit. Employees who are 50 years of age or older are entitled to contribute an additional $2,500 as a “catch-up” contribution for any given year.
Most of these retirement accounts are fairly easy to establish and maintain, and small business owners can work with a personal financial advisor or accountant for recommendations on a plan that best fits their needs. Different types of plans and accounts are subject to various types of tax benefits and advantages, and each has its own set of contribution limits. Small business owners who want to set up their own retirement savings account or contribute to a self-employed retirement plan also have several options available.
If you’re running a small business and want to offer a more comprehensive benefits package to your employees, consider any of these attractive retirement plans.
Tags: 401k, ira account, retirement accounts
5 Tips to Manage Your Personal 401k Accounts Better
Whether you’ve just started investing in a 401k or have been contributing to a retirement account for several years, there are several things you can do to manage your personal accounts better.
Use these five tips to manage your personal 401k accounts so that you maximize your return:
#1: Ignore Market Panic
The media is very good at creating a sense of panic and urgency when the stock market tumbles or when investment accounts seem to be taking a nosedive. Don’t fall into the habit of keeping up with news from Wall Street because this will only make you more fearful than you need to be. Ignore the market panic and get yourself ahead by talking to a financial advisor.
#2: Get Help from a Financial Management Company
Some employers have partnered with financial management companies or offer financial planning services to their employees. You may also be able to get some professional help from a financial advisor from your local bank or credit union. Getting help from a financial management company can make it easier to review your options and really gauge the performance of your 401k accounts.
#3: Choose Your Investments Wisely
If you’re a first-time investor, make sure you’re investing your 401k in funds that have a strong return history. It can be tempting to invest in the latest stocks that seem to be doing so well out of the blue, but these can also be more risky. Stick with funds that have shown a good return history for at least three to five years so that you can play it safe while still getting a solid return on your investment.
#4: Focus on Long-Term Goals
Investing in a 401k account is a long-term financial decision, not a get-rich-quick strategy. You will need to focus on contributing the maximum amount possible each year and avoid the temptation of withdrawing some funds or the entire amount from your 401k early. As long as you focus on the long-term returns, you won’t have a need to withdraw early – and pay heavy penalties and taxes on the withdrawal.
#5: Don’t Wait for the “Right Time”
There really is no perfect time to start investing in a 401k account, so don’t wait for the “right time” to open a 401k account and start investing. Get into the habit of contributing to a growing 401k account so that you can build a solid investment for your retirement. The sooner you begin, the easier it will be stick with your long-term financial goals.
Essential Tips for Managing Your 401k in this Economy
Now that the economy is slowly recovering from the recession, it’s time to make some important decisions about your 401k investments and other accounts. Learning how to manage your 401k during both turbulent and “safe” times is an important element of financial success, so it can help to sit down with your financial advisor to discuss your options. 401ks are among the most common investing tools many companies offer their employees as a benefit.
Since it’s your responsibility to manage your 401k account, you’ll need to make timely and informed decisions.
Here are some essential tips for managing your 401k in this economic climate:
1. Set up a meeting with an investment expert. Even though friends and family members may offer you advice on how to manage your money, it makes better sense to speak with a financial advisor. Set up a meeting with an investment advisor to discuss different account options available, and the rates of returns on your investments.
2. Don’t wait to set up your investment accounts. Some people make the mistake of closing out their 401k investment accounts during an economic downturn and want to wait until the market improves before investing again. Don’t make that mistake! Keep on contributing to your 401k retirement account so that you are still storing away some tax-free dollars. Your hard work will pay off in the long run.
3. Avoid an early distribution. Early withdrawals can completely eliminate the benefit of having a 401k account, so don’t make the mistake of withdrawing early when you’re low on cash. You will end up paying penalties and taxes on the withdrawal, and it can take you several years to rebuild your account. Look for alternative ways to obtain money, and keep your 401k investment safe.
4. Make sensible and informed choices on type of funds. Identify the mutual funds that offer the best returns, and do your homework to find those that have three to five years of good return history. Consider several types of investments for your portfolio, and don’t be afraid to ask your financial advisor for a recommendation.
5. Consider reallocating your investments. It’s usually a good idea to allocate your investments over several different accounts. This strategy can yield a higher return, and may be the best retirement investment strategy for you. Work with a financial advisor or 401k specialist so that you can make the best decisions when selecting between different accounts.
Roth 401k Versus Traditional 401k Plans
The Roth 401k became available to employees interested in a retirement plan in January 2006. Since then, thousands of employers have added the Roth 401k to their list of employee benefits, and many employees are enjoying the value of tax-free withdrawals and the flexibility of this type retirement account.
The Roth 401k plan has many similarities to a traditional 401k, and can help you to increase your savings potential as you work towards retirement. Here’s a close look at the Roth 401k and its similarities and differences to traditional 401k plans:
How Roth 401k Plans Work
As long as you follow IRS rules, having a Roth 401k account allows you to enjoy tax-free income upon retirement. Roth 401k plans are investment accounts and is now offered as a benefit by many employers. The plan allows account holders to defer a certain amount of their after-tax income to build up a solid savings account for retirement. The contribution limits for Roth 401k are the same as those for traditional 401k plans, and this limit changes from year to year.
The Roth 401k is only available for employee deferrals, which means that any employer contributions, such as profit sharing, employer matching are not included.
Anyone who chooses to participate in an employer’s 401k or 403b plan is eligible for a Roth IRA account, and you will not lose eligibility if your income increases to a certain level. Employers simply provide a form where you can designate whether all or some of your contributions should go to a Roth 401k account.
Roth 401k Plans vs. Traditional 401k Plans
The simplest reason to choose a Roth 401k plan is that you will be able to maximize your tax-free income received after retirement. Roth accounts are typically more valuable because distributions from these types of accounts are not taxable. Building up savings in a Roth account can make you much wealthier than traditional savings accounts during retirement. Many financial experts emphasize that the Roth 401k plan will make you wealthier in the long run.
Some of the similarities between the Roth 401k and a traditional 401k plan are:
- Rollovers allowed
- Account holders can begin withdrawing funds after 59 ½ and are required to withdraw funds after 70 ½
- An early withdrawal penalty of 10% plus taxes is imposed
- Account holders can withdraw funds if they experience financial hardship, early retirement or termination of service
Making some sound investment decisions well before retirement can help you grow your savings within a few short years, and ensure that you will be paying less taxes on your income, no matter what your tax bracket ends up being.
Choosing a Roth plan may mean paying more tax in the year of the contribution, but this won’t reduce your taxable income. The main difference will be in the total amount you end up saving, so there is a very positive cumulative effect from this investment approach.
Tags: 401k, 401k advice, retirement plans, roth plans
How to Move 401k Funds to a Roth IRA
If you are enrolled in a traditional 401k plan or employer based 401k plan, you may be able to look forward to a solid retirement fund. However, some people choose to convert a 401k to a Roth IRA to enjoy all the tax benefits. In order to execute this financial maneuver, you will need to first roll over your 401k into a traditional IRA account. Both of these accounts are not taxed as they are built, and a financial advisor can help to transfer the amounts to a traditional IRA.
There are several pros and cons you need to consider with a Roth conversion. You will need to consider your current marginal income tax rate and the tax rate you expect to reach during retirement so that you are making the best financial decision. With a Roth IRA account, there is no requirement to make minimum distributions and you will be able to pass the investment on to your heirs. If you can anticipate your taxable income during retirement, you may be able to make a more solid financial decision.
Another important thing to consider when you are moving 401k funds to a Roth IRA is the number of years you have before retiring. IF you have a long time until retirement, you will spend more time earning back the taxes you paid at the time of conversion. Consider this factor when you are taking the steps to rollover your account.
The IRS has determined that anyone is allowed to convert their IRA funds to a Roth IRA account without penalty. You will be required to pay income tax on these assets, and will need to work directly with a financial advisor to begin the conversion process. The tax will be based on your marginal tax rate, and you need to make sure all of these transfers are made from one account to the next. It’s best to avoid taking control of these assets personally, or you risk taxation.
If you want to optimize the IRA and Roth IRA conversion process, keep in mind that you don’t have to convert your entire account in a single year. It can be better to spread out the conversion over three to five years. To make the most of your conversion process, check your current year’s taxable income and compare it with next year’s rates, based on your estimated income.
Moving 401k funds to a Roth IRA isn’t the best financial strategy for everyone, but there are some benefits to performing the conversion. Check with your financial advisor to find out if you may be a good candidate for this type of financial strategy.
Tags: 401k, 401k rollover, roth ira
Benefits of Investing in a 401k versus an IRA
Many people open an IRA account in their early twenties in hopes of saving a significant amount of money for their retirement and cashing in on the tax-free benefits. IRA accounts do offer several benefits, but so do 401k plans. Company 401k plans are very similar in scope to traditional IRA accounts because the contributions are invested before any taxes are taken out.
This lowers the account holder’s adjusted gross income, which means the account holder pays less taxes each year without any penalties. However, there are a number of benefits of shifting contributions to a 401k plan. Here’s a close look at the benefits of investing in a 401k when compared to an IRA:
Understanding Types of IRA Accounts
Individual Retirement Accounts (IRAs) are a popular investment strategy for many people. These are individual investment accounts, so there are no company matches involved. The two types of IRA accounts available are Traditional IRA and Roth IRA accounts. The biggest benefit of having a traditional IRA account is that the funds can be deductible and any money invested before taxes will give you an immediate tax break.
Roth IRAs are non-deductible, but the distributions made during retirement are exempt from taxes. This is one of the key reasons why people choose a Roth IRA instead of a traditional IRA. If you are interested in becoming an IRA account holder, you need to meet certain tax and income requirements, and eligibility is based on your overall income, marital status and filing status.
Choosing Between 401k and IRA Accounts
One of the key reasons why people choose a 401k plan is because many employers will be able to match contributions throughout the individual’s career. However, some company 401k plans have several limitations and may end up costing you more in the long run. IRAs are attractive investment accounts for others, because they are individually-owned and controlled. The account holder gets to choose how much they want to invest each month, and where their investments are going. For example, IRA account holders decide whether they want to invest their money in ETFs, stocks, bonds, or other types of funds. Roth IRA plans have the added benefit of allowing for tax-free withdrawals.
If the company you are working for doesn’t offer a company 401k plan or contribution match, your best option may be to open a Roth IRA account. Roth IRA accounts give you a lot of flexibility and allow you to withdraw your money without paying taxes during retirement.
There are a number of benefits of investing in a 401k, instead of a traditional IRA or Roth IRA. However, 401k plans may have some limitations. Talk to your financial advisor or human resources department at your company to discuss the benefits and drawbacks of these accounts, and make the most informed financial decisions for your future.
Tags: 401k advice, 401k plans, retirement plans, roth ira
Tips for Protecting Your 401K During a Recession
If you’re one of the millions of people with a 401k account during tough economic times, you may have considered withdrawing funds or reducing your monthly contributions just to stay ahead of the financial game. Unfortunately, both of these strategies can work against you when you trying to maximize your funds.
Even when the Dow Jones Industrial Average drops and the economic climate is looking bleak, it is in your best interest to continue making the largest contributions possible to your 401k account and do whatever it takes to protect your investment. Here are some important tips for protecting your 401k during a recession:
1. Keep on contributing. The people who remain invested will generate the biggest returns in the long-term, according to the financial experts. Even when money is tight, make a habit of contributing as much as possible towards your 401k so that you can keep building your account. Even when the economy is experiencing a financial meltdown, you can secure your tax-free contributions and look forward to a high return on investment during your retirement.
2. Consider diversifying your portfolio. Even though you want to keep things steady during the rough economy, you also want to take the time to assess your risk tolerance and consider diversifying your portfolio for a better return. If you are comfortable with changing your lineup of accounts and investing in funds that will generate a higher return, don’t be afraid to do so. Sit down with a financial advisor and revisit your accounts to see what your options are.
3. Keep buying even when the market’s going down. One of the key principals of investing is to buy when prices are low, and during an economic recession, you can find record-low prices. If you are in a position to do so, consider investing more than usual to reap greater rewards when the market recovers. This can put you in a position to look forward to a healthier savings account that can reach up to 15% savings rates on your income.
4. Don’t cash out your entire account. One of the worst things you can do during a recession is to cash out your account entirely. If you do this before your retirement age, you will be paying high penalties and will also be paying taxes on the total value of the account. Do whatever you can to keep your account in good standing so that you don’t have to pay high penalties and fees.
5. Ask your employer for assistance. Some employers provide investment advice free of charge to their employees. Get some professional advice for managing your account so that you can earn the highest possible annual returns.
Tags: 401k, 401k tips, retirement planning
Understanding 401k Asset Allocation
When you have a company-sponsored 401k plan, you have several options for asset allocation, a process that divides your money between different asset classes to help you get the highest return. The most conservative approach to managing your 401k plan is to invest in a Treasury bill or bond, or any other type of investment that is guaranteed by the United States government.
A less conservative approach is to invest in international stock funds or by investing in companies that are headquartered outside of the United States, because these types of investments typically carry more risk. Here’s a close look at the risks and rewards associated with various types of asset allocation classes and categories:
International Stock Funds
This is considered to be the highest risk of all asset class categories, but also has the highest rewards. These types of investments usually experience more volatility but do have a higher potential for high return than other investment options, especially those that are based in the United States.
Small or Mid-Cap Stock Funds
These types of fund are invested in U.S.-based companies and have market caps between $300 million and $10 billion. These types of investments also typically carry a higher degree of risk and return, and may be an attractive addition to your portfolio.
Large-Cap Stock Funds
If you are investing in U.S. based companies that have market caps above $10 billion, you may be positioning yourself to receive a high rate of return on your investment. However, these types of investments also carry a higher degree or risk.
Bond Funds
If you are investing in loans made to companies or government entities, you may be investing in accounts where values fluctuate over time, but generally provide a steady rate on your return. These types of investments typically do carry more risk than their cash equivalents, but usually less than equity accounts.
Short-Term Fixed Income
This type of asset class includes Certificates of Deposits (CDs), Treasury Bills and Money Market instruments. These are the least risky of all investments, and generally provide a very low yield on investment. Most people with limited funds or little experience in investing will focus on these types of investments.
If you are looking for a more aggressive asset allocation, you may consider investing over half of your 401k in large cap stock funds, and approximately a quarter in small or mid cap stock funds. Over ten years, you could potentially generate a very high return on your investments. A more conservative asset allocation would be a 40 percent investment of cash and short-term fixed income, and investing about 25 percent of your 401k in bonds.
Tags: 401k advice, 401k tips, retirement plans