IRA tasks to do before the year ends

By Robert Powell, MarketWatch

BOSTON (MarketWatch) — It’s not enough. The average balance in an IRA would fund less than two years of retirement for the average American and represents not much more than 5% of the income a person needs to maintain a decent standard of living.

The average IRA account balance in 2008 was $54,863. The average IRA individual balances — all accounts from the same person combined — was $69,498.

Despite what might seem like paltry balances, IRAs in the aggregate are an incredibly important piece of the retirement puzzle, since they hold the largest single share of the $13 trillion in U.S. retirement assets.

Your IRA, your own piece of the retirement puzzle, whether paltry or not, requires some tender loving care, especially during the last few months of the year. Here’s a list of what you might need to do before 2011.

Who’s your beneficiary?

Here’s some well-worn but can’t-be-repeated-often-enough advice: Review your beneficiary designations. Make sure there is both a primary and a contingent beneficiary named on the beneficiary designation form.

If there is no beneficiary named, the IRA proceeds will go to the estate and lose the tax advantage.

It’s especially worth checking your beneficiary designations if you’re divorced, recently or ever. Make sure your ex-spouse has been deleted as a beneficiary, unless you want them to remain as a beneficiary. The U.S. Supreme Court has recently ruled that the beneficiary named on the beneficiary designation form trumps divorce.

Make sure your custodian (i.e. the Investment Company) has a written copy of your beneficiary designations.

Turn wealth into income

Right about now, the Social Security Administration is sending you a report that tells you how much income you’ll receive in today’s dollars when you retire. Write down that number on a piece of paper.

Now, total up the value of all IRAs and 401(k)s in your household and multiple that number by 0.04. That number is the amount some experts say you could withdraw from your retirement in today’s dollars.

Now, add that number to your Social Security benefit figure, and then subtract that amount from your income. The results are roughly the amount of money you’ll need from other sources — such as work, pensions, reverse mortgages, life insurance or inheritances — to enjoy a lifestyle similar to what you have today.

Let’s use some round numbers as an example. Say you have household income of $100,000. You expect to receive $25,000 per year from Social Security and withdraw $5,000 per year from your retirement accounts. Somehow you’ll need to come up with another $70,000 per year to live the life to which you are accustomed.

For some, the best way to close the gap will be to contribute more to their IRAs and 401(k)s, work longer, and lower their standard of living.

Review your investment plan

Consider updating your investment policy statement or plan. Make sure your asset allocation remains appropriate given your financial goals.

Also, rebalance your IRA if you haven’t done so within the past year. It’s best to rebalance your IRA in a holistic manner. That is, look at all your assets in all your accounts, taxable and tax-deferred.

In many cases, consider putting your fixed-income investments in your tax-deferred accounts and those investments that produce capital gains and dividend income in your taxable accounts. And while you’re at it, check whether you’ve bought or sold any inappropriate investments in your IRA accounts.

Since IRAs are tax-deferred vehicles, it makes no sense for them to hold ‘tax-preferenced’ investments such as municipal bonds and annuities.

Roll old 401(k)s to an IRA

If you have one or more 401(k)s sitting with former employers, consider rolling that money over to an IRA. You’ll generally get better investment choices, lower costs and more control of your investment assets.

http://www.marketwatch.com/story/10-ira-tasks-to-do-before-years-end-2010-09-24?siteid=nwhnwhnr

Just Do It?

Nike has been an interesting stock to watch lately. Despite market saturation and absurd competition in both the North American and European markets, the company continues to make money hand over fist thanks to innovative designers and one of the most popular brands in the world. In the next few years, an increased focus on emerging markets could be the key to sustained growth.

Getty Images

Nike benefits from a premium brand image, a major factor in the company's ability to demand top dollar for its products. As a result, the company's gross margins are enviable, and its balance sheet is excellent.

Because of Nike's sheer size, it is typically the biggest single supplier for its retailer customers; that means that the company holds the majority of the pricing power in its relationships. It also means that retail outlets will continue to focus energy on selling big-ticket Nike items.

While the company's 27 cent dividend is welcomed by Wall Street, the payout is far from game-changing for Nike's shareholders. That said, continual dividend increases and billions of dollars earmarked for share buybacks do have a palpable impact on shareholder value over time.

With eyes to emerging market countries and a history of doing right by shareholders, Nike should continue to be a favorite among investors (including Warren Buffett) in 2010.

http://www.cnbc.com/id/39386750/page/2/

Disclosure: I own Nike

4 ways the self-employed can save for retirement

By Catey Hill, SmartMoney — 09/17/10

As if saving for retirement wasn’t hard enough already, small business owners have the extra burden of having to set up their own savings funds. Business start-ups reached their highest level in 14 years in 2009 and as more Americans become their own bosses, picking the right savings plan is an important planning decision.

But with different costs, advantages, and tax consequences to sort out – on top of the business you’re trying to run – setting up a self-employed retirement account can be tricky. On top of retirement security, opening the account often results in a significant and sometimes huge tax deduction.

Here are some of the major retirement plans for the self-employed -- and some of the advantages and disadvantages of each.

Individual 401(k)
The individual 401(k), also known as a solo 401(k), works similarly to a 401(k) at a large company — and you can select between a Roth or a traditional plan. But it is only available for individual business owners and their spouses. The annual contribution limit for 2010 is $16,500 — with the option of a profit-sharing add-on that is 25% of your compensation or $49,000, whichever is less. The plan also offers $5,500 annual catch-up contributions for savers 50 and older. These plans are now offered by most mutual fund and investment management companies.

Pros: This plan is flexible. There are no forced contributions, and sole proprietors can put away more money than they can with the SIMPLE IRA and often more than with the SEP IRA. Business owners can take out a loan from this plan.

Cons: The individual 401(k) is more costly – these plans usually range from about $15 to $250 per year, though some can be even more expensive. They’re also more difficult to open and administer than some other options. And because costs vary greatly, savers need to shop around.

Best for: A solo businessperson who wants a higher cap for saving. For most people, this plan will allow them to put more money away than they would be able to with the SEP. Just be sure you’re up for the hassle of opening and operating the plan.

SEP IRA
The Simplified Employee Pension is basically a pension plan funded by the employer using a simple formula for contributions: In 2010, employers can contribute up to 20% of net self-employment income (or up to 25% of employees’ compensation) or $49,000, whichever is less. Employers of any size are eligible for this plan.

Pros: The SEP is easy and inexpensive to start and administer, typically about $15-$35 per year. It also has higher contribution limits than the SIMPLE IRA, and contribution amounts can vary each year, which allows for more flexibility. The SEP can be opened as late as the extended due date for your income taxes – until Oct. 15 for sole proprietors – and requires no annual government reports.

Cons: The sole responsibility of funding the SEP IRA falls on the employer, so if you have employees, you, as the employer, must contribute the same percentage of compensation for them as you do for yourself. Most people can save more with an individual 401(k) than with a SEP IRA. There’s no allowance for catch-up contributions. And you cannot take out a loan from this plan.

Best for: Because the burden of funding the plan falls solely on the employer, this is best for a one-person business or one with very few employees. It works well for people who want to put away a fairly significant amount of money in an inexpensive and easy-to-maintain way -- and have flexibility around their contribution levels.

Simple IRA
The Savings Incentive Match Plan for Employees is a tax-deferred retirement savings plan for small businesses that the employer must contribute to. Employees can if they choose. In 2010, the employer must annually either match employee salary contributions up to 3% (this can be reduced to 1% in any two out of five years) or put in 2% of compensation for all eligible employees -- even those who don’t put in money for themselves. Employees can contribute up to $11,500 and an additional $2,500 if they are age 50 or older.

If you’re a solo businessperson, you act as both the employer and employee in this plan, meaning that each year you can contribute up to $11,500 or 100% of your income, (whichever is less), in addition to 2% or 3% of your income. Only employers with fewer than 100 employees and no other retirement plans are eligible. You may be able to hold both a traditional IRA and a SIMPLE IRA depending on your modified adjusted gross income.

Pros: The plan is inexpensive to open and run, typically about $15-$35 per year, and easy to start – it usually just takes one call to a financial institution and a few forms. It’s also easy to administer and requires no annual government reports.

Cons: Contribution limits are low relative to other options. Employer contribution levels are relatively inflexible. Plus participants cannot borrow against their accounts, like they can with a traditional 401(k).

Best for: It’s a simple plan for very small businesses that don’t want to contribute a lot and don’t want to take out a loan from the plan. Because employer contributions are mandatory and this plan cannot be terminated until the beginning of the next calendar year, the SIMPLE IRA is best for an employer who knows he or she will be able to pay the match.

Defined benefit plans
The defined benefit plan is similar to a traditional pension with benefits calculated using a formula that includes age, income, target benefit and more. Any employer is eligible, and in 2010 employers may contribute up to $195,000, though the actual contribution depends on the formula calculations. Like a SEP IRA, this plan is funded solely by the employer, but contributions to a defined benefit plan are determined by a complicated formula, which often results in much higher contribution limits than with the SEP IRA.

Pros: The defined benefit plan allows employers to save much more money than any of the three other plans.

Cons: This plan is very complicated to open and operate, requiring an actuary, who will likely charge fees of more than $1,000, to determine contributions. The contributions to the plan are mandatory.

Plan best for: High-income business owners with the time and resources to set up and administer this complicated plan—and who want to put away a very significant amount of money.

https://news.fidelity.com/news/article.jhtml?guid=/FidelityNewsPage/pages/self-employed-save-for-retirement&topic=saving-for-retirement

Your Retirement - Your Money

If you had a 401(k) with a previous employer and did not take that retirement account money with you, then you lost control of your money. Why should your old employer keep and manage your retirement investments?

The best solution is to "roll over" that 401(k) into a retirement account that you own and manage.

For no out-of-pocket expense to you, can establish an individual retirement account. Put that money back to work in investments that make sense to your current situation.

Where do you go for 401(k) Advice?

For overworked, under-saved Americans, free, personalized investing advice at work may sound like a great opportunity. But when representatives from the retirement plan come to Mark Patterson’s office, the 59-year-old Nashville lawyer usually skips the sessions. “Those representatives, they’re not financial planners,” Patterson says, adding that the advice they give is often “fairly basic.”

In corporate conference rooms across the country, companies that are trying to help employees plan their future are facing an odd problem: They don’t seem to want the help. Faced with mounting concern that a generation of retirees simply won’t have enough saved, firms big and small have started offering financial advice to employees through their retirement plans. But by nearly everyone’s admission, few workers ever attend a seminar or log in to a retirement help site, even though a majority say they would use advice like that if they could.

What’s the disconnect? Company-sponsored investing advice isn’t all it’s cracked up to be, and it’s often not delivered in a very appealing or accessible way. PowerPoint presentations, scripts and investment jargon are the norms at workplace seminars, and online sites often ignore outside investments and may feel impersonal. And while it’s clear that providing any kind of advice increases participation, savings rates and diversification, it’s not clear what type of advice is most effective.

Some plans offer online tools that calculate retirement income or tell participants whether their portfolios need more diversification. Some offer personal, face-to-face sessions with a plan representative who can talk generally about the importance of diversification and show examples of model well-balanced portfolios. In some cases, that representative will use a computer model to come up with specific recommendations for which funds an individual should buy. Others make vague recommendations and talk more generally about asset allocation.

Schwab’s survey found that 51% of investors say they prefer one-on-one meetings to online tools.

For the 10% who use the advice, it does help, experts say. Almost half of investors who’ve designed their own portfolios have less than 10%, or more than 90%, of their money in stock. Schwab’s survey found that getting advice made workers save more, diversify their investments, and stay the course through the market crash – and rally.

http://www.smartmoney.com/personal-finance/retirement/is-free-401-k-advice-worth-the-money/?cid=sm_pfspend_rss&mod=smartmoney##ixzz10SdCJ7TP

Pay for Massages With a Flexible Spending Account

There are a lot of massage therapists in Jacksonville including my buddy Tony Hanneken. What many of them may not know, however, is that potential customers could be getting treatments at a significant discount by using the health care flexible spending accounts that they may have through their employer.

Here’s how this works.

First, you need to sign up for a Flexible Spending Account with your employer. Your employer will pull money from your paycheck before they take out income taxes. You decide how much to deduct each year for health care expenses that insurance doesn’t cover, keeping in mind that if you don’t use the money within a year or so, you lose it.

Then, ask the administrator of your account whether massages are expenses eligible for reimbursement. If they are, you will probably need a prescription from your doctor for massage therapy for a particular ailment to use your account to pay for the massage. Most doctors are happy to oblige once you explain the reasoning to them.

Finally, make your massage appointment. You’ll probably need to pay upfront and then apply for reimbursement (don’t forget to submit your doctor’s note or prescription).

[This item courtesy of the New York Times]

Thrift Savings Program

Any Thrift Savings Program (TSP) participant, on leaving Federal or military service, may rollover their TSP account into a qualifying retirement account. Upon separation the participant then has 60 days to complete the rollover of the funds to a qualifying account to preserve their tax-deferred status. No other option is available under these circumstances.

Rolling over your TSP into an Individual Retirement Account allows you to maintain tax-deferred investments. And by taking charge of your own money you can increase the value of your retirement funds.