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Retiring or leaving the company–How to Properly do an IRA

Monday, November 22nd, 2010

Retiring or leaving the company–How to Properly do an IRA Rollover

Retiring or leaving the company–How to Properly do an IRA Rollover

Whether you are retiring or changing jobs, you need to know what to do with your employer sponsored retirement plan before your leave. Once you leave a job for whatever reason, you can choose to:
Rollover the money into an IRA (ira rollover)
Take the lump sum and pay the income tax and potential penalties
Leave the money at the company if the company offers that as an option
Rollover the money into your new employer’s plan, if that plan accepts rollovers

Realize that the above are options offered by IRS. However, your employer’s rules may be more restrictive and if so, there’s nothing you can do. For example, if you have a pension plan that offers payout options over your lifetime or jointly over the lifetime’s of you and your spouse, but there is no option to rollover a lump sum to an IRA (ira rollover), than the rollover option isn’t available to you. In other words, the “summary plan document” rules. You may want to get a copy of that now and have your financial advisor review it so that you know what options you have.

So the starting point is to get the information from your employer plan as to the options available to you.
What is an IRA Rollover?

IRA rollover means to move money from a retirement plan such as a 401(k), 403b (tax sheltered annuity) or 457 (municipal deferred compensation) into an IRA or other plan. If you receive a payout from your employer-sponsored retirement plan, a rollover IRA could be to your advantage. You will continue to receive the tax-deferred status of your retirement savings and will avoid penalties and taxes.

There are two reasons that rollovers are favored over other options:
You have virtually unlimited investment selections. Unlike your employer’s plan which may have six investment options or even 50 investment options, in a self-directed IRA, you can choose any stock, any mutual fund and a host of other options listed later.
Company plans often can restrict choices for non-spouse beneficiaries. Specifically, they may not be able to stretch IRA distributions over their lifetime. The benefit of this “stretch” is it defers taxes and allows the funds to potentially grow longer and larger in a tax-deferred environment.
The reason to leave your retirement plan with your company (if they permit this) is because your company plan is covered by ERISA and is protected from creditors. However, under the new Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, the creditor protection will follow the money if it is rolled into an IRA and not commingled with other IRA money (from annual contributions).

Combining with Other Retirement Accounts
The rollover IRA is usually funded by the eligible distributions from a company sponsored retirement plan. These distributions can be combined with your existing IRA(s) or placed into a separate IRA, but see the new creditor protection rule mentioned above. In fact, the IRS permits these funds to be combined with other types of retirement accounts. For example, say you have been self- employed and you have a one-person profit sharing plan (often referred to as Keogh plans), you could rollover the employer-plan assets into your profit sharing plan. Or, if you have a second job and that employer has a 403(b) plan and also accepts IRA rollover contributions, you could rollover your 401(k) balance into that 403(b) plan.

Completing your IRA Rollover
When it’s time to retire, you have a few options on moving the money from your employer’s plan.

Direct IRA Rollover:Your employer can directly rollover your retirement plan payout into a Rollover IRA and you will avoid the 20% IRS withholding tax. This is exactly what you should do by providing your employer the name, address and account number for your new Rollover IRA custodian. For example, you give your employer instructions to send your retirement account to ABC securities, account #8889999. Funds are sent directly to the IRA account and you never touch them. This is the preferred method of moving retirement funds.

Payout by Check: If your employer hands you a check for your retirement funds, the employer must withhold 20% for potential taxes. You can avoid the 20% IRS withholding tax on a payout by check from your employer if you deposit the check plus 20% into a rollover IRA within 60 days. In order to complete the tax free rollover, you now have 80% of your IRA rollover in your hand and you must take the other 20% out of your pocket so that you have a completely tax free rollover (you will get the 20% income tax withheld as a refund after you file your tax return). Don’t allow your employer to give you a check, as this requires you to take money out of your pocket to complete your rollover.

Taking a lump sum distribution: This is typically not a wise option because you will pay income tax on the distribution and a 10% penalty if under age 59 . However, there may be reasons to take a taxable distribution. If you are set on buying a $300,000 boat and spending the rest of your life floating about the globe, then you may need to take your retirement funds now and pay tax. However, if you can avoid using these funds currently, you’ll hopefully have a nest egg when you’re old.

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Retirement Calculator: How Much Will It Cost You to Retire?

Thursday, November 18th, 2010

Retirement Calculator: How Much Will It Cost You to Retire?

Many people have imagined a secured future by the time they have reached their retirement age.

However, only a few have truly worked out the estimated amount of that they need to hit the sack happily. This is because most people are not aware about the importance of using retirement calculators.

With retirement calculators, you can easily foresee the probable amount that you will earn by the time you retire. In this way, you can easily plan the necessary savings that you have to make to achieve your desired amount in the future.

Getting to know how much to save to arrive at your desired amount is easily computed on a yearly investment. From there, you can work towards a more achievable goal.

The computation, however, is greatly dependent on several factors. It does not necessarily mean that using retirement calculators will guarantee your future. Here is the list of the items that you have to consider when using retirement calculator:

1. Your present age and your desired retirement age

This will greatly affect the results in the retirement calculator. The available years from your current age up to your desired retirement age will determine the amount of savings you have to accumulate in order to reach your goal.

For instance, if you have lesser years to save, then your retirement calculator will tell you that to invest more money if you want to retire with considerable amount of disbursements.

2. Life expectancy

Your expected life expectancy will also affect the result in your calculator.

3. Inflation rate

4. Total Social Security Disbursements

5. Rate of ROI (return of investment)

These are just some of the probable factors that you have to consider when using retirement calculators. All of these things will have individual effects on the results. In the end, people tend to mix everything up and errors on computations are expected.

Financial experts recommend some feasible solutions to avoid possible confusions and errors in using the retirement calculator. Heres how:

1. Be careful in choosing factors

Some people tend to choose some factors when using retirement calculator. Any considerable errors in the selection will constitute clear negative effects on the results.

Hence, it is important to be cautious in choosing a particular factor. Try to give some allowances as well.

For instance, if you will be using the rate of return of investment, it would be better if you will use a lower rate than what the current or even the best possible rate available. Things like this will not put your computation in a negative light.

2. Do not stop at a single computation

Experts recommend that you evaluate the factors that you have used during your first computation. Keep in mind that these factors may vary as the time pass by. Hence, it is best that you keep up with the flow.

3. Experiment

Do not stop from where you have started. In order to reach your desired retirement goal, it is best that you experiment on the variable factors that will greatly affect the results.

For example, inflation rate is highly changeable. Hence, experimenting on its different rates will provide you considerable low and high rates.

4. Always seek a professional

Do not depend on the tool alone. It is always important to seek the help of a professional. In this way, you can understand the use of retirement calculator better.

Knowing its pros and cons will help you understand the viability of retirement calculator. In turn, securing your future will be relatively easy.

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Reform Aimed At Personal Finance And UK Savings

Friday, November 12th, 2010

The Pensions Policy Institute (PPI) has issued a report which supports the Pension Commission’s recent demand for reform in the structure of the basic state pension. In fact the report goes further than simply backing the report, it calls for reforms to be implemented more rapidly than the Commission has recommended.

Essentially, the reforms that are proposed are for simplifications to be made to the current variations in available state pensions for those who are eligible. Means testing, currently used in determining eligibility and the extent of the pension available, would be dropped in favour of an across the board pension rate. Additionally, tax breaks for those who try to save for a personal pension would be put in place to encourage saving.

These reforms would serve to make pension availability, and budgeting for retirement, much clearer to understand and buy into, thereby preventing nasty surprises for the individual late in life, or the government as a generation becomes dependant on a state pension. A recent survey by the Financial Services Authority (FSA) concluded that very little provision is being made for the future by those aged 18-40 and that a very large number of UK citizens could well become dependant on state pensions.

Personal finance has become a boom sector amongst that same generation, with online access to personal finance databases such as Moneynet (http://www.moneynet.co.uk ) and Motley Fool (http://www.fool.co.uk ) providing a wealth of options for UK consumers. However despite the fact that many of those options include savings and pension schemes, it appears that they are rarely taken up, with consumers opting for credit card deals, mortgages, insurance, and personal loans instead.

Pension experts have showed their backing for the proposed Pension Commission reforms with their overwhelming response in the PPI report, and it is to be hoped that the simplifying of the state pension will bring the importance of the issue to the attention of the age range identified by the FSA.

Disclaimer

All information contained in this article is for general information purpose only and should not be construed as advice under the financial Services act 1986. You are strongly advised to take appropriate professional and legal advice before entering into any binding contracts.

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Profiting From A Personal Finance Checkup

Monday, November 8th, 2010

Making sure that you’re on the road to financial security can start with a personal finance checkup. A financial checkup allows you to periodically review how you’re doing in light of your finance goals.

Taking the following steps can help put you on the course to financial wellness:

• Evaluate your goals. How are you measuring up to the goals you set for yourself? Are you successfully putting money toward saving and investing? Are you saving enough in your 401(k) to get your company match contribution? Where are you falling short and why? Are there changes taking place in your life that will affect these goals, such as a healthy bump in your salary or the birth of a baby? For better or worse, it may be time to adjust your goals.

• Assess your investments. Look at the return on each of your investments and make sure they are rebalanced. Are you satisfied with the performance compared to what the market is doing? Consider getting some advice.

You can also find free investment advice tools online, such as ShareBuilder’s PortfolioBuilder (www.sharebuilder.com). The service provides a customized portfolio based on your budget, investing goals and risk tolerance.

• Set your investments on autopilot. Regular investing is a key to reaching your goals. If you’re serious about a saving and investing strategy, but find it is the last thing on your mind every month, start an automatic investing plan. You don’t need a big lump sum to get the ball rolling. Services such as ShareBuilder have no account minimum and allow you to set up a program and contribute a set amount of money, such as $100 per month, on a regular basis. The money will be automatically transferred from your checking or savings account so it can be invested.

• Just do it. People often hesitate or postpone their investments because they don’t think they have enough to start or it’s just not the right time to invest. In reality, it’s always a good time to start investing. The first step is to develop a long-term saving and investing habit as early as possible. The value of compounding over time is irreplaceable.

Once you get started, it’s a good idea to review your investments at least every six months.

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Performance Contracting Helps Save on Energy Costs

Tuesday, November 2nd, 2010

To improve energy efficiency, some companies are doing more than just turning out the lights at the end of the day.

As soaring energy costs increasingly affect the bottom line of U.S. businesses, the “energy performance contract” has become an attractive solution for commercial building owners. This contract is a financing or operating lease offered by an energy service company, also known as an ESCO, to help businesses improve the energy efficiency of their buildings or facilities.

The key to energy performance contracting is to use long-term utility savings to fund the improvements. The ESCO often guarantees energy savings that will meet or exceed annual payments to cover all project costs, usually over a contract term of seven to 20 years.

“A building owner either pays a utility for an inefficient building, or they can pay an ESCO to improve their building,” says Jeff Stokes, a vice president at World Energy Solutions, a publicly traded ESCO (symbol: WEGY) based in St. Petersburg, Fla.

World Energy Solutions strives to reduce kilowatt usage by up to 30 percent. The company offers a variety of services, including utility billing and rate analysis, energy auditing, installation of building improvements, building systems maintenance and ongoing monitoring and verification of the energy savings.

ESCOs can provide flexible and unique ways to finance their services. For example, World Energy Solutions offers to pay the

total up-front cost of installation as well as equipment maintenance in return for an 80 percent share of the actual savings realized over a minimum 10-year period.

“In some cases, our company will fund the entire installation, at no charge to our customer, and live off the savings we generate over a certain amount of time,” says Ben Croxton, chief executive officer of World Energy Solutions.

ESCOs not only identify energy-saving opportunities, but also develop engineering designs and specifications and manage the entire process. They also can provide staff training and ongoing maintenance services.

Even the federal government has gotten into the act, and for good reason: Executive orders that require federal agencies to use 35 percent less energy by 2010 in comparison to 1985 levels will require $5 billion in energy projects. Much of that will go to “Super Energy Savings Performance Contracts,” offered by the Department of Energy.

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Little Steps Can Add Up To Big Savings At The

Wednesday, October 20th, 2010

Little Steps Can Add Up To Big Savings At The Pump

Everyone is looking for ways to reduce “gas pains” from high fuel costs. There are some easy things you can do to put yourself on the road to gas economy.

• Light on the Pedal-Ease on the accelerator when you start from a red light. Your car will run leaner and won’t use as much gas. On the highway, run about five miles under the posted speed limit to save.

• Crank the A/C-It used to be true that not using the air-conditioning (A/C) in warmer months would save on fuel economy. That’s not true anymore. With the aerodynamics of today’s vehicles, by turning off the A/C the resistance created by the wind causes more drag on the vehicle when the windows are rolled down.

• Use the Right Fuel-Never use a higher octane gasoline than your engine needs. It’s like trying to put 16 ounces of fluid into a 12 ounce glass. Use the right octane and you can save about a dime or more per gallon at each fill-up.

• Keep Up the Pressure-Make sure you have the correct pressure in each of your tires. With too little air in the tires, the friction that it takes to roll the car is much greater, thus reducing fuel economy.

• Keep It Clean-Keep your engine clean of debris by changing its oil and fuel filter.

• Get It In Gear-Most modern transmissions are electronically operated by controllers. Transmission fluid that’s broken down may keep your car from going into its highest gear. Have the transmission fluid changed in the 36,000 to 50,000 mile range.

• Stir It Up-There are lots of different gadgets on the market that claim to increase fuel economy. In all of our testing, we have virtually found no improvement in anything, with one exception. It is a device called Tornado that’s put into the air intake, closest to the throttle plate, and stimulates the air to get it really turbulent. That causes a good fuel atomization within the engine itself that caused an increase in fuel economy in the applications we tested by an average of one to two miles per gallon.

With gas prices over $2 and approaching the $3 mark, if you can save one or two miles per gallon every time you fill up, that can translate to about $300 or $400 of savings per year under normal driving conditions. I think everybody’s interested in that.

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Is It Really Necessary To Create A Family Budget?

Thursday, October 14th, 2010

The thought of budgeting may seem simple to do, right? However, if we really get into it and try to balance our income and expenses, we realize that its not that easy to do. Still, having a budget or spending plan can help us manage our finances better.

Money issues, especially within the family, can be a source of relationship conflicts. Dealing with money problems always gives stress. Thus, it is important that we create a budget for the family. And it should not only be you who are going to do it but all of the members of the family should get involved. Each, even young children, should have a say on the familys finances.

Step-by-Step Guide

Heres a guide to help you start making your familys budget.

1. Assess your current financial situation. Before starting to write down a budget plan, try to check first your spending patterns for the past year. You may want to take a look at all your utility and other bills for the past year. You would also need a copy of your salary records and income tax return for the past year. In case you do not have copies of your bills anymore, utility companies and other service companies like credit card can give you a record of your transactions or provide an estimate.

2. Design budget outline. There are sample budget outlines found in the Internet that you can download and make use of. You can also find some in magazines and books. Utilize these things to create an organized and well-written family budget.

3. Write them down. Once you have all past references to your income and wages, as well as a budget design, you can now start writing down your income from wages, pensions to tax credits for the current month. Then write down your expenses for the month utility bills, credit card bills, and other purchases. Receipts and your checkbook may be good references to find the information.

4. Lifestyle check. You need to check your familys lifestyle and spending patterns. This is where every member of the family should get involved. Think about the important things that each member spends on. Think also of the things that you can probably do without.

5. Plan for next year. Estimate the income and expenses that your family may have for the next year. Your income may remain the same or you can also adjust it if you expect it to change within the year. You also need to take into consideration special occasions where you usually spend on like Christmas, birthdays, Thanksgiving and other holidays.

6. Know your credit standing. You also need to find out your current credit standing. You may request for you Credit Report from a credit bureau near your area. You can find them listed in the yellow pages.

Writing down a family budget will definitely help you realize how wisely you and your family spend money. If you feel that you are spending too much more than what you are getting, then its high time to start fixing your finances and sticking with your family budget.

Saving is also one way to improve your finances. For a family, there should be a substantial amount of savings that you can use in case of emergency. As head of the family, you should impress on your spouse and children the importance of savings. If you can commit your whole family into saving, then most likely, you will not have a problem in sticking with your family budget.

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In Debt Over Your Head? These 5 Simple Steps Will

Saturday, October 9th, 2010

In Debt Over Your Head? These 5 Simple Steps Will Help

The next 5 steps are not difficult. They only take commitment. You can do it. The feeling of freedom and success when the bills are not hanging over your head will make this all worthwhile.

Ready to get stated? Let’s go.

Step #1. Work out where you are now

You may not have looked at your financial position for a while. Maybe that’s why you are suffering under a load of debt presently. But you need to take stock of your financial position now. Unless you know where you are now, it’s hard to work out how to fix things.

Just get a pen and paper and all your credit card bills and look at the situation honestly. List out all your debts and their interest rates and the minimum monthly repayments.

Don’t get worried about how much you owe. It’s been said that anyone can get rid of all their debt within 5-7 years, including their mortgage. That means you too.

Step #2 Stop spending more than you earn NOW

This is the first thing that must be done to start the ball rolling for your financial success. This is most probably the reason you need to take action now. Look at your living expenses and cut out those things you can’t afford.

Also cut up all the credit cards except one for emergencies and commit yourself to only spending what you can afford from your own income.

Step #3. Find some cash to pay down those debts

Once you have come to grips with Step #2, the next step is to work out ways to put some money aside every week or month to start paying down those debts, preferably faster than the minimum monthly requirement. Pay as much as you can. It’s better to pay down these debts than to put the money in the bank. This is because the credit card interest is a lot more than you can receive from the bank for funds on deposit. The aim is pay down the highest interest debt first.

If you have 2 credit cards with the same interest rate, pay off the one with the smallest balance first. That will give you a boost and the resolve to keep on going.

Step #4. Build a Savings Fund

Once you have those credit cards under control it’s time to think about putting some funds aside to start building some savings. You’ll be surprised how fast your money grows if you religiously keep adding to the balance and don’t touch it. If you really need to purchase an expensive item like furniture or car it is better to save for it than to borrow, if at all possible.

Step #5. Pay Down That Mortgage.

Since the interest rate on your mortgage is usually a lot less than credit card and store debt you can leave this item till last. Also it is increasing in value over time – unlike your car, TV, Video, furniture and boat. You will be surprised how many years you can cut off your mortgage repayments by just adding a few extra dollars each month to the payment.

These a just a few basic rules to help you get back on your feet financially. The main principle here is to work on reducing your credit card debt. Once that is done use those freed up funds to build your nest egg and pay off the mortgage. That’s the plan that works.

Now get those documents out, do the sums and start on your road to financial freedom.

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Im Too Young, Im Too Old, Im Almost Old Enough,

Saturday, October 2nd, 2010

Im Too Young, Im Too Old, Im Almost Old Enough, Should I Have A Retirement Plan?

Yes retirement planning is important for all of us. This is not an easy subject for any of us to talk about, but, we must discuss it sooner rather later!

We want to be able to enjoy our golden years comfortably without having to worry about our finances. Planning your retirement is a crucial key to making this happen.

So, what do I need to do to plan for my retirement? You can start by asking and answering some or all of these questions: How long will it be before I retire? Do I have money already saved for retirement and if so, will it be enough for me to retire on? How much money should I put away for my retirement? How should I invest my money in order to achieve the amount of money I want to retire on? How much money will I need to live on to maintain my present and future lifestyle?

All of these retirement planning questions are important for you to think about in order to have solid retirement planning. Once you have answers to these questions, then proceed to start your retirement savings now!

What are some of the areas I can invest my money in for retirement? Stocks, bonds, certificate of deposits, mutual funds, 401K, IRA, Roth IRA, annuities and many other miscellaneous investment vehicles.

Where can I expect to withdraw money for my retirement? Social Security, savings, pension plans, and your investments from 401K plans, certificate of deposits and other investments.

How much money will I need for retirement? It is estimated that you will need approximately 60-80% of your current income at the time of your retirement. This will allow you to live the lifestyle you are accustomed to having by the time you retire.

When should I start saving for retirement? Now! It’s never too early or late to start saving for your retirement. The sooner you start the more money you will have for your golden years to live on.

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