A year ago, when I met with my accountant, we spent some time talking about our retirement, our goals, and how we were going to reach them. In looking at our retirement accounts, I saw that the vast majority of our savings were in tax-deferred accounts like 401(k)s and Rollover IRAs. We only had a very small percentage in tax-free Roth IRA accounts, which I’ve always said was probably the best retirement account in existence. Where else can you invest in the stock market and have your gains be entirely tax free? Nowhere.

Right now, you can convert a traditional IRA to a Roth IRA as long as your adjusted gross income is under $100,000. The $100,000 limit applies whether you are single or married, tax filing classification wise, which makes it one of the few limits that is the same for both. So if your AGI is under $100,000, then you can convert today and you don’t have to wait for 2010.

(click here to continue reading…)

A couple weeks ago I received a letter from my former employer’s 401(k) benefits company notifying me that I had $0.83 in my 401(k) account. Despite my best efforts avoid dividends and distributions on funds, I must have missed one in the process. I was told that since my vested account balance was less than $1,000, I’d have to roll it over or take a distribution, which would be taxed and penalized.

I was in a quandary. At such a small dollar amount, it certainly wasn’t worth the time to roll it over. If it appreciated at an average rate of 7% a year for forty years, it’s would be worth a mere $12.43. That’ll be enough to buy me a pack of bubble gum after taxes in 2049.

(click here to continue reading…)

This Foundation post is dedicated to what I consider the best retirement weapon available – the Roth IRA account. The Roth IRA was championed by Senator William Roth of Delaware and created with the Taxpayer Relief Act of 1997, signed by President Clinton. The primary tax benefit of the Roth IRA, at least the one most lauded, is that your account’s appreciation and earnings are tax free. The tradeoff is in the contributions, which are not tax-deductible.

This is the biggest distinction between it and the Traditional IRA. On a traditional IRA, your contributions are tax-deductible but your earnings and appreciation are taxed as ordinary income when you start making regular disbursements in retirement.

(click here to continue reading…)

I don’t put much stock in most “averages,” whether they’re rules of thumb or average net worth, but every once and a while it’s good to know where you stand.

So where do we find the average retirement savings by age? We are forced to rely on the internet. Unfortunately, with the recent stock market crash, writing about nest eggs and average retirement savings hasn’t been very popular. To get data, we turn to the Employee Benefit Research Institute’s latest report on Individual Account Retirement Plans (August 2009).

(click here to continue reading…)

So, if you are faced with such a decision, I think it's important that we review how you can cash out an IRA and avoid the 10% penalty. It will not be possible for you to avoid paying taxes on the withdrawal, since you never paid taxes when you contributed, but we can at least try to avoid the ugliness of the 10% penalty.

(click here to continue reading…)

My wife has a 401(k) with T. Rowe Price from when she used to work at L’Oreal. She never rolled it over before the economic crisis because it wasn’t a priority and there was never a huge incentive to move. The expense ratios were reasonable, there was no annual fee, and it was more important for her to focus on moving, finding a new job, and devoting her time towards that and not rolling over a 401(k), which she could do anytime.

With the stock market swinging so wildly these days, it’s risky to rollover a 401(k) because you might miss a big jump in the transition time. Since the 401(k) isn’t horrible expense-wise, we can do a little spring cleaning and wait for a better time to rollover.

(click here to continue reading…)

Lending Club, through EntrustCAMA, recently announced that they were going to offer self-directed IRAs. When you open an IRA with a brokerage firm, you can invest in stocks, bonds, and mutual funds. When you open a self-directed IRA, you can invest in pretty much anything as long as you follow a few rules. I won’t go into those rules, you can read about self-directed IRAs at the Motley Fool, but this is a savvy move by Lending Club but I think it’s a mistake for average investors to participate.

(click here to continue reading…)

When you leave your job, one of the decisions you may have to make is whether or not you should rollover your 401(k) into a Rollover IRA. The process of rolling over your 401(k) is easy, so don’t let that be a deterrent, and the benefits of rolling over your 401(k) can be pretty substantial. However, it’s not always correct to rollover your 401(k). It was the subject of my Devil’s Advocate post on why you shouldn’t rollover your 401(k) but I thought of three more excellent reasons why you might want to avoid, or at least put off, rolling it over.

(click here to continue reading…)

One of the most frequent questions I get is “Where should I open an IRA?”

Short answer: Anywhere, just open one! If you want mutual funds, open an account with the company that offers the funds you want, like Vanguard, Fidelity, etc; because they will let you buy and sell the funds for free. If you want stocks, open an account with a company that offers the lowest fees.

(click here to continue reading…)

Reader Jeff is switching jobs and wondering, given the market’s drop the last few months, if he should roll over his 401(k) to a Rollover IRA. His concern is that he’d be “selling low and buying high” in that situation and didn’t know what he should be doing.

I’m not a retirement nor an investing expert but I can say that your biggest concern shouldn’t be the performance of the market, it’s the volatility. With the various indicies gaining and losing large single-digit percentage points on a daily basis, it’s the volatility that is the big concern. A rollover takes time. Depending on how quickly or slowly you, your 401(k) administrator or your Rollover IRA administrator is, you could be left waiting for many days on the sideline as your 401(k) assets as liquidated, transfered to you, then transfered to the Rollover IRA. In that time, the market could go down big, go up big, or go sideways pretty erratically. My point is that the volatility is unpredictable, so on that basis alone, without any other compelling reason, I’d stand pat for now.

(click here to continue reading…)