Retirement

401k Plan Fee Disclosure

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More fraud happens in this country every year than you can possibly imagine. Technically, of course, it isn’t actually fraud because of the cheater’s loophole: disclosure. Disclosure is what makes every scam legitimate in the eyes of the law. As long as the company cheating you tells you they are cheating you, somewhere, anywhere, then they aren’t really cheating you, because you “know” about it. That these disclosures take place inside of 40-page documents filled with jargon and legalese makes no difference. After all, you signed a piece of paper saying that your read and understood the document that you never read, or understood. 401k Fees and Employer Understanding Make no mistake, the guy, or rather the team, of people that manage IBM’s 401k plan know exactly what they are doing. There is probably one or more finance people, legal people, and business people working on IBM’s 401k. As a result, the IBM 401k plan is certainly as well priced and delivered as the company requires. Subsequently, the 401k plan works well and is priced well for its employees as well. This is likely the case at most companies big enough to have both an actual HR Department and a Legal …

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Review IRA Beneficiaries

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When I was a financial planner, there were a lot of little things that came up over the years that I realized went unnoticed by the vast majority of people, no matter how well educated they were in finance and investing. Understanding, setting and updating the beneficiaries on accounts like IRAs was one of those things that slips through the cracks for many people. Of course, IRA plans aren’t the only accounts with beneficiaries on them. Be sure to check your life insurance accounts, annuities, 401k accounts, and other retirement plans to keep them up to date. Without this important part of estate planning, all your other efforts might be for nothing. Will Versus Beneficiaries One of the most important things to understand about accounts with beneficiaries, is that that accounts only become a part of your estate after your die, IF AND ONLY IF, there are no living beneficiaries assigned to the account. What that comes down to is that updating your will and changing who you are leaving what, does NOTHING to affect how your insurance or IRA account balances are distributed upon your death. Even if you specifically disinherit someone in your will, they will still get …

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2013 401k Limits

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The IRS published the new 401k contribution limits for 2013. By law, these limits are adjusted annually for inflation according to the governments cost of living statistics. For the last few years, there have been several small adjustments upward because inflation has been relatively tame during the slow recovery from the U.S. recession. The IRS also published increases for current 401k contribution limits. 2013 401k Contribution Limits The 401k contributions limits in 2013 increased by $500 over the 2012 401k contribution limits. The maximum 401k contribution in 2012 was $17,000. The 2013 maximum 401k contribution amount is $17,500. For 401k participants age 50 and older, there is a catch-up contribution available. The 2013 401k catch-up contribution is unchanged from the 2012 catch-up contribution. Using this provision, older 401k plan members can contribute an additional $5,500 per year into a 401k plan. With the catch-up contribution, the maximum 401k contribution limit for someone age 50 or higher in 2013 is $23,000. Remember that 401k contributions must be made via salary deferral according the individual plan rules established by each employer. Many plans have rules that allow only a certain maximum percentage of salary to be contributed. In years past, the IRS …

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Should I Convert My IRA to a Roth IRA In 2010?

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As the end of the 2010 tax year comes to a close, an interesting question is coming up more often. Should I convert my IRA to a Roth in 2010? There is a special 2010 tax trick that allows you to convert your traditional IRA to a Roth IRA and spread the taxes from the IRA conversion out over the next two tax years. That little tax secret expires at the end of 2010, which means that unless you convert your IRA to a Roth before year-end, you can’t lower your taxes with that tax loophole. Roth IRA conversions are open to everyone regardless of income from now on. However, there are still Roth IRA income limits for contributions. Is It A Good Idea To Convert IRAs in 2010? Normally, making a big tax move like a Roth conversion late in the year is not a good tax strategy for most people because it doesn’t give you any time to compensate for it. For example, if you were to convert an IRA to a Roth IRA in 2011, you will owe income taxes on the amount of money converted, minus any non-deductible IRA contributions you made to the traditional IRA …

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Financial Planners and Financial Advisors an Introduction

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Listen to the book authors, newspaper and magazine columnists and many web sites, and you will hear that financial advisors or financial planners are nothing more than glorified snake oil salesmen out to separate you from your hard earned money. To listen to some in the finance industry and their champions, financial advisors and financial planners are bastions of righteousness steeped in knowledge about financial concepts so complex that no mere mortal could possibly hope to navigate the waters alone. The truth of course lies in between. In real life, many financial decisions are frighteningly complex and, unlike other decisions you may face in life, many of them are irreversible once a mistake has been made. More importantly, some of the biggest financial issues, like retirement, take years to accomplish, and you get one chance. If you try the latest fad diet for a couple of months only to find out it doesn’t work for you, you start over a little wiser and with a little more experience. You could try different diets hundreds of times in your life while figuring out what works for you. You could also talk to friends and family, each of whom has dozens of …

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401(k) Loans – The Great Gotcha

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Over on the Finance Gourmet information site, there is an article on the downside that most people forget when they take out a 401(k) loan. Most 401k plans require you to repay the full amount of any loan from your 401k within 90 days if you leave the company. If you don’t pay it back, it counts as an early withdrawal for people under 59 1/2 — OUCH!

Avoiding Bad Financial Products

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As a professional financial planner, I often come across finanical products that are such bad ideas that I don’t even know how (or why?) someone got them to market. Usually the answer is flat out greed. A company willing to make a buck at the expense of its customers is always out there.

A posting over at Wise Bread talks about some of these bad ideas. The one at the top of the list is the new 401(k) credit card / debit card. No doubt, this idea orgininated with the goal of allowing retirees to access their 401(k)s in an easier manner so that they could consider leaving the balance in the 401(k) plan instead of rolling it out into an IRA. (Rolling it out is almost always better – keep an eye out for the coming article on Finance Gourmet.) Now, however, some companies are offering these cards to everyone!

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