Continue reading Down to the Wire with Your Taxes?

Down to the Wire with Your Taxes? originally appeared on BloggingStocks on Tue, 13 Apr 2010 14:20:00 EST. Please see our terms for use of feeds.

The (bad) luck of the Irish Republican Army: Guess who invested in subprimes? originally appeared on BloggingStocks on Mon, 20 Oct 2008 16:50:00 EST. Please see our terms for use of feeds.

Q: How should I proceed to withdraw funds I need in retirement?

A: Once you have retired and need to start tapping into your retirement savings, you have a number of options to consider.

You can take a periodic or lump sum check from your 401(k) or similar plan. Or you can rollover your plan into a traditional or a Roth IRA or into an annuity. Each of these options has tax consequences which you should discuss with your tax advisor.

The first place you should look when considering where to start taking withdrawals is the account that will trigger the least taxes.

For example, withdrawals from your Roth IRA will be tax free because you invested with after-tax dollars. While you are still in a higher tax bracket, withdrawing money from your Roth IRA or other non-taxable assets is sound financial planning.

Continue reading Tough Retirement Questions: How should I proceed to withdraw funds I need in retirement?

Tough Retirement Questions: How should I proceed to withdraw funds I need in retirement? originally appeared on BloggingStocks on Thu, 17 Jul 2008 18:18:00 EST. Please see our terms for use of feeds.

Q: How do I choose between a 401(k) plan and an IRA?

A: You don't necessarily have to make a choice, since you are permitted to invest in both an 401(k) and an IRA, subject to limits on the amount of your contributions to each plan.

Most investors should contribute the minimum amount to their 401(k) required to trigger the maximum employer match.

Once you have maxed out your 401(k), consider a Roth IRA.

While contributions to a Roth IRA are not tax deductible, there is no penalty for early withdrawals up to the amount contributed, and no tax on investment earnings once you reach age 59 ½.

Continue reading Tough Retirement Questions: How do I choose between a 401(k) and an IRA?

Tough Retirement Questions: How do I choose between a 401(k) and an IRA? originally appeared on BloggingStocks on Tue, 15 Jul 2008 17:49:00 EST. Please see our terms for use of feeds.

IRA investors go for gold -- sign of a top? originally appeared on BloggingStocks on Fri, 25 Apr 2008 16:15:00 EST. Please see our terms for use of feeds.

Ted Allrich is the founder of The Online Investor and author of Comfort Zone Investing: Build Wealth And Sleep Well At Night. In this weekly column, he offers advice to investors who are just getting started.

A new year always holds great promise. Resolutions are made. Intentions are strong. Still each year, as the days pass, resolve wanes and soon we're back to our old ways. This year be different. Here's a chance to make some investing resolutions, act on them, and have a positive impact on your wealth.

First, pay off credit cards. This is the one of the strongest investments you can make because credit card debt can hit as hard as 18% or higher. Very few stocks make 18% or better. The average return for large stocks is 10% a year, for small stocks 12%. You do the math, and you'll find a focus on paying off credit cards is best.

Second, fund your matching IRA program at work on January 1, if you can. This truly is free money. If your company matches your contributions to your retirement account, the sooner you get that money (and yours) working, the more money you'll make. If you earn 7% interest from January 1st, by the end of the year, you'll have more money than if you start on Feb 1 or April 15 or any other, later date. Get your IRA funded as a priority, even if you don't have a matching program with your employer. You'll earn more on the contribution the sooner it's made.

Continue reading Comfort Zone Investing: The new year: Six simple steps to better returns

Comfort Zone Investing: The new year: Six simple steps to better returns originally appeared on BloggingStocks on Sat, 29 Dec 2007 18:59:00 EST. Please see our terms for use of feeds.

A piece in The New York Times look at the increasing willingness of investors to get creative with their IRAs. Consider this amusing example:

BRIAN HARRIS makes a 30 percent annual return on his Roth individual retirement account, but his money is not invested in a soaring biotechnology stock or a hot currency fund.

Instead, Mr. Harris, a music teacher from Tucson, owns about 25 marimbas, xylophones and timpani. Using the money in his retirement account, Mr. Harris buys the instruments for less than $1,000 each. He then rents them to his students for up to $60 a month. The rental income flows straight back into the I.R.A.

Hmm .... While that sounds tempting, there are ample reasons for most investors to avoid these self-directed IRAs. For starters, you're unlikely to be able to achieve much diversification owning traditional real estate or similar assets in an IRA -- If you want real estate exposure, go with a portfolio of REITs. The idea of investing in racehorses through an IRA seems insane. This is supposed to be your retirement money!

The best bet for an IRA remains low-cost index mutual funds. There are plenty of places for more speculative and creative investments -- the IRA isn't one of them. In addition, unless you have a ton of money in your IRA, the transaction costs of alternative investment will probably be prohibitively high.

Should you get creative with your IRA? originally appeared on BloggingStocks on Sun, 21 Oct 2007 08:40:00 EST. Please see our terms for use of feeds.

A piece in Saturday's New York Times look at the question: When is it OK to tap into retirement money early? The article sums it up eloquently: "Most Americans have enough difficulty building up a nest egg, and cracking it prematurely could mean living on cat food (slang for Social Security) later."

One of main problems with taking out retirement money early is that the IRS typically charges a 10% penalty, depending on the type of account. In a ROTH IRA for example, you can take out your principal any time you like because the money has already been taxed as income. But with a traditional IRA or 401(k), you'll be hit with a hefty penalty.

Continue reading Is it OK to tap retirement money early?

Is it OK to tap retirement money early? originally appeared on BloggingStocks on Wed, 20 Jun 2007 15:45:00 EST. Please see our terms for use of feeds.

As you may know, I'm not a big proponent of active trading. The commissions costs aside, you will need to beat the market by an extremely wide margin pre-tax in order to outperform an index fund after-tax. Remember, short-term capital gains are taxed as ordinary income.

But, investments you hold in a ROTH IRA accumulate tax free. So if you're going to trade, it is absolutely essential that you do so in your ROTH IRA. This may seem contradictory -- aren't you supposed to be conservative with your retirement money? Well yes, you are. But if you trade actively, you may be better keeping your retirement money in safe investments in taxable accounts (The taxes will likely be fairly minimal anyway) and do your active trading in the IRA. In other words, just because it's called an IRA account doesn't mean you should be conservative there.

TheStreet's Richard Moore has a nice piece about how he trades his IRA. Remember, the best strategy is probably not to do any trading at all, taxes or no. But if you do, a tax-free account is probably the place to do it.

If you must trade actively use an IRA originally appeared on BloggingStocks on Mon, 30 Apr 2007 18:26:00 EST. Please see our terms for use of feeds.

To quote Balzac, "Laws are spider webs through which the big flies pass and the little ones get caught." For evidence that this is still true, one need look no further than today's New York Times, which reported on a growing and disturbing trend among hedge fund managers evading taxes on their giant paydays. Here's how it works, according to the article:

A lot of the hedge fund managers earning the astronomical paychecks making headlines these days are able to postpone paying taxes on much of that income for 10 years or more.

The key to the hedge fund tax boon is that many managers of these lightly regulated private pools of capital have the ability to earn the bulk of their compensation offshore and invest it in their funds, where it grows tax-free.

Meanwhile, working Americans can only put up to around $20,000 per year into 401(k)s and IRA's. John Bogle, as always, sums it up best: "We pile advantage on advantage for these managers and there doesn't seem to be any economically logical basis for it. It's a very well-gilded lily to allow these tax deferrals."

Congress is looking to tackle this problem, and I hope that they will do something. How can the government possibly tell a middle-aged couple that they can only put a few thousand dollars a year in an IRA to save for retirement when hedge fund managers are squirreling away millions?

For hedge managers only: the multimillion dollar IRA originally appeared on BloggingStocks on Tue, 17 Apr 2007 17:23:00 EST. Please see our terms for use of feeds.