401k

Basic Retirement Plan Simple

by

Retirement planning is actually incredibly simple and straightforward for most people. However, it can quickly sound complex because of all the edge cases, exceptions, and possibilities that really only affect a small number of people. If you eliminate all of that noise, however, there really isn’t much to the average American’s financial plan. Follow the following information and there really is no reason you can’t make your own simple retirement plan. Obviously, every situation is different. If you have unusual circumstances such as a coming inheritance, money in trusts, or other legal situations, this plan won’t work for you. If you have regular income, a family, and just need a plan, this is perfect for you. Do It Yourself Financial Plan One of the things that quickly complicates financial planning is the idea that you have to predict how much income you will need in retirement. This step is a waste of time for 90 percent of people. Why? Because, for most people retirement saving and investing is about how much they can save, not how much they will need. To put it another way, consider this. If I tell you that if you can save $10,000 per month, you …

Read More

401k Fees at Supreme Court

by

Somehow I missed this until today. The Supreme Court is hearing arguments regarding a new(ish) law about 401k plans. Under something called the Employee Retirement Income Security Act (one of the few legislative acts of recent years that doesn’t have a snappy acronym), a company that has a 401k plan has a fiduciary responsibility to employees in the plan. This means that the company must act in the best interest of the employees. As you can imagine, in U.S. courts this gets pretty nebulous, but it does set a standard. Supreme Court 401k Case In this particular case, the company, Edison International, has a 401k plan with six mutual funds that charge higher fees than identical options. In other words, the plan administrator, through incompetence, or for other reasons chose the more expensive options for the plan. Unfortunately, this is very common. Usually, this isn’t the company, or the HR person, deliberately trying to screw over the employees. Instead, what happens is a 401k company comes in and offers up some proposals. It will say something like, you can have a plan with these investments and it will cost this much, or you can have these other mutual fund investments and …

Read More

Your First Basic Financial Plan

by

As a former Certified Financial Planner, or CFP, I tend, like many other financial experts, to think (and write) in terms of the tricky, the convoluted, and the complex. The truth is that money and personal finance can be very intricate and complex. However, it is also true that the biggest bang for the buck financial planning wise comes from doing the most basic things. Too often, we get caught up in things that actually end up being tiny details of your overall financial life. For example, many people shop endlessly for higher savings account interest rates. Whether you have a high-yield savings account, a regular savings account, or even a kids savings account, the interest rate matters far less than how much money  you put in it. If you have $10,000 and you put it in a regular savings account earning 0.5 percent, your interest for the year will be approximately, $50. If you got double that rate, 1.0%, then you’d have $100 in interest. In either case, you would still basically just have $10,000 at the end of the year, $10,050 or $10,100, respectively. Neither has a meaningful impact on your overall financial status. On the other hand, if …

Read More

RMD Rules Required Minimum Distributions Guide

by

Why Are There RMDs or Required Minimum Distributions? Required minimum distributions, or RMD, is the minimum amount you must withdraw from certain retirement accounts each year. To understand why there are RMDs, it helps to look at things from the government’s perspective. The government runs by collecting tax dollars. However the government also encourages certain behaviors in its citizens and companies by permitting certain tax breaks. (One behavior this encourages is big donations to politicians by companies to get and preserve tax breaks, but that is a topic for another day.) One behavior the government tries to encourage is getting people to save for retirement. It does this by providing several tax-advantaged accounts taxpayers can use to save for retirement, including 401k plans, IRA accounts, and Roth IRA accounts. In all three of these accounts, the interest, earnings, and capital gains are exempt from taxes each year so long as the money stays in the account. Not paying taxes is the incentive to save for retirement. If you do take the money out of the account before you turn 59 1/2 years old, then you have to pay a 10 percent tax penalty. That is the incentive to not take …

Read More

How Much You REALLY Need to Retire

by

In all my years as a financial planner, I never met someone who had “enough” money to retire when they were in their 40s or even 50s. Yet, every year, I saw clients who either were already retired, or were retiring. The interesting part was that they didn’t have “enough” money to retire either, no matter how much money they were stuffing into a 401k plan or IRA account. The glitch in this system is the assumption about how much money you’ll need and where it will come from. How Much to Retire Determining how much money you need to retire, which in some circles is getting called, your magic number for retirement, is just two calculations, but the data is filled in with several guesses. The only math comes in the form of a time value of money calculation in order to reach a single number that is calculated form a present value calculation. Simple right, well it would be, if we knew: How much money you’ll spend each year in retirement How long you will live Unfortunately, we don’t know either of those two things, so we guess. Guessing doesn’t sound very like something an advisor or planner …

Read More

Coming to FinanceGourmet – Personal Finance Blog

by

This coming week, we have some interesting new articles for Finance Gourmet to help with frequently asked about and requested personal financial health topics. First up, as May draws to a close, June marks both the end of the second quarter, and the midpoint of the year. What kinds of things should you be aware of at this point for optimal financial health? We’ll discuss quarterly tax payments, how the markets are looking at the half way point, what things you might want to be thinking of for minimizing your taxes, and more. Next, we tackle signing up for a 529 plan, step by step. Not long ago, I wrote about how a financial planner can help keep you from getting stuck on your financial planning actions such as setting up a 529 plan. But, when you can find them, a detailed step-by-step guide to setting up financial accounts such as a 529 plan can be just as valuable. We’ll give you a detailed guide on how to open a Colorado 529 plan, including how to fill out all the Colorado 529 plan forms to set up an account. Then, we’ll look at some of the new IRS numbers that …

Read More

401k Plan Fee Disclosure

by

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 …

Read More

Review IRA Beneficiaries

by

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 …

Read More

Stock Market Records Is It Time to Buy

by

Nothing gets the financial press in tizzy quite like a run of “up days” for the stock market. And, nothing gets the mainstream media interested in the financial media’s excitement like a new RECORD! Dow Jones Record High The Dow Jones Industrial Average has notched some record high closes lately. The S&P 500 Index isn’t far behind, within striking distance of its record high as well. So, what do these new stock market records mean for smart investors? First, the recent stock market records are a lesson to be learned for long-term investors such as retirement investors. When the market looked terrifying in  2008 many people sold off stocks in their 401k plans and other retirement savings, often after much of the damage had already been done. That was a foolish strategy then, but now, five years later, those investors are officially the fools. You were better off to have just stayed put. Harsh? Maybe, but if you are investing for retirement or other long-term horizons, this is a critical lesson to learn. In a recent discussion someone said to me that he was sure he did better by getting out when things were bad and getting back in now …

Read More

2013 401k Limits

by

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 …

Read More