IRA and retirement account contribution deadlines: April 15th
The Individual Retirement Account, or IRA is probably the most popular investment account for individual investors. Started in 1974, the IRA allowed workers without a traditional company retirement plan, a much needed way to save tax-deferred for their retirement. The key to building substantial wealth in an IRA account is to contribute to it every year, and let your money grow with the stock market. Here's a table to show you the almost magical effect of compound growth with your IRA.
10 years @ 10% growth, $3,000 per year: ending balance, $52,593
15 years @ 10% growth, $3,000 per year: ending balance, $104,850
20 years @ 10% growth, $3,000 per year: ending balance, $189,007
25 years @ 10% growth, $3,000 per year: ending balance, $324,545
As you see, contributing $3,000 per year, or $58 per week, with the added growth of those deposits, can really add up. Skipping contributions will hinder your performance. Taking money out before age 59 1/2 will also incur tax penalties, and you will pay tax now on the withdrawal. Initially set at $1,500 per year as a maximum contribution, it is $4,000 per person today, and $5,000 if you are over age 50. That can increase those balances above substantially.
You may question my using the 10% figure. That is the average gain in the stock market over 70+ years as measured by the S&P 500 Index, which includes dividends. Take a look at history.
1940's - stock market gained 11% per year
1950's - stock market gained 17% per year
1960's - stock market gained 8% per year
1970's - stock market gained 8% per year
1980's- stock market gained 15% per year
1990's- stock market gained 15% per year
When is the best time to contribute to your IRA account? Anytime. With only a few weeks left to contribute for 2007, you had better get moving. If you are expecting an income tax refund, it would probably pay to even borrow the IRA contribution money now, make your deposit and then pay back the loan with your tax refund or recently approved tax rebate. Give me a call should you require further advice on this topic, or to open your IRA account.
Barry Unterbrink
Retirement Planning Counselor
(954) 719-1151
Saturday, March 29, 2008
IRA Deadline Coming April 15th
Barry Unterbrink is a fee-based Chartered Retirement Planning Counselor and wealth manager since 1982. As a second generation manager after his father Larry (1934-2021), they managed institutional pension funds totaling $100 million.Both are former Investment Advisory Presidents and financial newsletter publishers.
Thursday, February 28, 2008
Retirement Account Transfers - Considerations
Should I Stay or Should I Go (with my retirement account)?
The subject of retirement plan portability and the decision employees / investors must consider have been on my mind recently, having fielded a few questions from prospects and clients so far this year. Let’s examine the benefits and pitfalls of moving retirement money to an I.R.A.
Many defined contribution (DC) retirement plans, including private and public sector employees, can be moved or rolled over upon an employee leaving or terminating their employment relationship. Some plans are even more flexible and allow you to move some or all of you money while still working through in-service arrangements. New contributions, as an example, can be directed to another custodian and keep the amounts deferred from being taxed when earned. The human resource or benefit department should be able to explain all of the options, but you have to ask. Federal legislation and I.R.S. rules dictate the procedures to follow by the custodian of the account in facilitating the transfer of these funds to another financial institution. These retirement plans could include 401(k), 403(b), 457, TSA, TIAA/CREF, etc.
What are the factors to consider in transferring your retirement account to an I.R.A?
On the assumed advantages side of the ledger:
More investment choices.
Better strategies to achieve longer term goals
Option to convert to a ROTH IRA in later years.
Ability to withdraw funds for 1st time home purchase or to cover medical expenses.
More options for beneficiary selection and continued tax deferral.
Advantages of staying put:
Familiarity with existing plan choices
Generally happy with the performance
Lower fees and expenses than outside choices
Favored tax treatment of company stock owned in your plan.
I favor a balanced approach. Keep some money in the employer plan, and rollover some money to an I.R.A. Why? Neither place offers all the best options usually. Unless you have a heads up on real shenanigans going on (the Enron debacle comes to mind in which employee retirement accounts were frozen and not permitted to move their investments until it was too late), most employer DC plans offer a decent mix of choices: say a couple of stock mutual funds, perhaps an index fund, a bond mutual fund, and a money market fund. In recent years, international fund choices have appeared as well. It’s pretty hard to mess up buying and holding these types of typical fund investments. If you want more “action” buying stocks, bonds, mutual funds that your ex-employer does not offer, then you may wish to venture toward an advisor who knows this area and can help educate you along the way.
To espouse on the above bulleted list, one apparent drawback to moving is that of increased risk. Once you move from the DC “fund” choices to individual stocks and bonds, risk goes up. I’m sure you’ve heard stories after 9/11 and into 2002 of employees losing 40-50% of more of their retirement balances due to the nasty bear market and poor investments. From my experience, most of the really bad losses were not in company sponsored DC plans, but were in Individual-directed I.R.A. accounts. That’s not an absolute statement because some plans did hold funds with a big technology basis (which fell the most), but employer plans I managed then were careful not to give the workers many risky choices; i.e. not enough rope to hang themselves.
Lastly, you could find yourself mulling non-financial reasons for moving or staying put. Did you like your job, or were you close to co-workers that you’ll miss? Was retirement planning part of your conversations with co-workers? These may be intangible reasons to stay connected to the company by way of your retirement plan.
Enjoy your leap year day and weekend!
Barry Unterbrink
Retirement Planning Counselor
The subject of retirement plan portability and the decision employees / investors must consider have been on my mind recently, having fielded a few questions from prospects and clients so far this year. Let’s examine the benefits and pitfalls of moving retirement money to an I.R.A.
Many defined contribution (DC) retirement plans, including private and public sector employees, can be moved or rolled over upon an employee leaving or terminating their employment relationship. Some plans are even more flexible and allow you to move some or all of you money while still working through in-service arrangements. New contributions, as an example, can be directed to another custodian and keep the amounts deferred from being taxed when earned. The human resource or benefit department should be able to explain all of the options, but you have to ask. Federal legislation and I.R.S. rules dictate the procedures to follow by the custodian of the account in facilitating the transfer of these funds to another financial institution. These retirement plans could include 401(k), 403(b), 457, TSA, TIAA/CREF, etc.
What are the factors to consider in transferring your retirement account to an I.R.A?
On the assumed advantages side of the ledger:
More investment choices.
Better strategies to achieve longer term goals
Option to convert to a ROTH IRA in later years.
Ability to withdraw funds for 1st time home purchase or to cover medical expenses.
More options for beneficiary selection and continued tax deferral.
Advantages of staying put:
Familiarity with existing plan choices
Generally happy with the performance
Lower fees and expenses than outside choices
Favored tax treatment of company stock owned in your plan.
I favor a balanced approach. Keep some money in the employer plan, and rollover some money to an I.R.A. Why? Neither place offers all the best options usually. Unless you have a heads up on real shenanigans going on (the Enron debacle comes to mind in which employee retirement accounts were frozen and not permitted to move their investments until it was too late), most employer DC plans offer a decent mix of choices: say a couple of stock mutual funds, perhaps an index fund, a bond mutual fund, and a money market fund. In recent years, international fund choices have appeared as well. It’s pretty hard to mess up buying and holding these types of typical fund investments. If you want more “action” buying stocks, bonds, mutual funds that your ex-employer does not offer, then you may wish to venture toward an advisor who knows this area and can help educate you along the way.
To espouse on the above bulleted list, one apparent drawback to moving is that of increased risk. Once you move from the DC “fund” choices to individual stocks and bonds, risk goes up. I’m sure you’ve heard stories after 9/11 and into 2002 of employees losing 40-50% of more of their retirement balances due to the nasty bear market and poor investments. From my experience, most of the really bad losses were not in company sponsored DC plans, but were in Individual-directed I.R.A. accounts. That’s not an absolute statement because some plans did hold funds with a big technology basis (which fell the most), but employer plans I managed then were careful not to give the workers many risky choices; i.e. not enough rope to hang themselves.
Lastly, you could find yourself mulling non-financial reasons for moving or staying put. Did you like your job, or were you close to co-workers that you’ll miss? Was retirement planning part of your conversations with co-workers? These may be intangible reasons to stay connected to the company by way of your retirement plan.
Enjoy your leap year day and weekend!
Barry Unterbrink
Retirement Planning Counselor
Barry Unterbrink is a fee-based Chartered Retirement Planning Counselor and wealth manager since 1982. As a second generation manager after his father Larry (1934-2021), they managed institutional pension funds totaling $100 million.Both are former Investment Advisory Presidents and financial newsletter publishers.
Thursday, January 17, 2008
A Rocky Start to 2008
Rocky start to 2008 probably a "normal" correction
The stock market is off to a rather dreary start to 2008, with the popular market averages falling 5% to 10% in just a few weeks, and 14% to 20% from the highs of last October. You can blame it on any of the popular reasons you will hear about in the papers or news channels, or just accept the fact that prices are ruled by humans and their emotions of greed and fear. Also, stock prices over long periods tend to rise in 3 of every 4 years. We may not be in a recession yet, but we are in a bear market for stocks now. How you handle the risks will determine if you have to stomach to be a successful investor.
The average of the 10 worst bear markets since 1901 lasted about 20 months, and caused about a 40% decline in stock prices. That may seem like a long time, but some were shorter: 2 @ 13 months; some longer (the Great Depression) @ 31 months, and the recent 2000-2002 bear market that lasted 33 months. So from a historical standpoint, we are about half-way through the pain at this point in price terms if this is a "top 10" event.
What are your options at this point? One option is to sell your lagging (losing) stocks, and deploy that money into better prospects. Another is to sell and to park the money is cash. If you are a long-term investor and chose this option, then you need another decision to buy again...and that is a difficult assignment. No one rings a bell when it's time to buy again. A third way is to keep most of your stocks and hedge your risk using mutual funds or ETF's that move opposite the direction of stock prices. I won't get into the details, but check the following symbols on your charts: The ETF's are: SH, SDS, DOG, DXD, RWM,TWM, PSQ. In mutual funds, try the no-load Pro Funds: UCPIX and USPIX. These investments trade like regular stocks or mutual funds, and they hold securities sold "short". Today, the above mentioned gained between 1.5% and 5.5%. So therefore, their gains would offset a portion of your loses day by day.
Political Implications for Stocks
I don't want to mix political musings in this column, but wanted to share this verbiage from David Kotok of Cumberland Advisors in his year-end report in this election year. To quote, "we acknowledge that stock markets like clearer outcomes during election years. Uncertainty breeds volatility. Ned Davis database starting in 1888 shows Election year gains averaging 14% when the incumbent party wins and 18% if that incumbent party is Republican. When incumbent Republicans have lost, the average Election year gain is under 2%. Since WW2, there have been three Republican Party turnovers. Kennedy’s election year of 1960 had a 3% declining stock market. Carter’s 1976 victory over a post-Nixon disgraced Republican Party was celebrated by a booming 19% up market. Bill Clinton’s 1992 win over incumbent Daddy Bush saw a 5% upward market move."
For a review of your portfolio, give me a call.
~Barry Unterbrink
(954) 719-1151
The stock market is off to a rather dreary start to 2008, with the popular market averages falling 5% to 10% in just a few weeks, and 14% to 20% from the highs of last October. You can blame it on any of the popular reasons you will hear about in the papers or news channels, or just accept the fact that prices are ruled by humans and their emotions of greed and fear. Also, stock prices over long periods tend to rise in 3 of every 4 years. We may not be in a recession yet, but we are in a bear market for stocks now. How you handle the risks will determine if you have to stomach to be a successful investor.
The average of the 10 worst bear markets since 1901 lasted about 20 months, and caused about a 40% decline in stock prices. That may seem like a long time, but some were shorter: 2 @ 13 months; some longer (the Great Depression) @ 31 months, and the recent 2000-2002 bear market that lasted 33 months. So from a historical standpoint, we are about half-way through the pain at this point in price terms if this is a "top 10" event.
What are your options at this point? One option is to sell your lagging (losing) stocks, and deploy that money into better prospects. Another is to sell and to park the money is cash. If you are a long-term investor and chose this option, then you need another decision to buy again...and that is a difficult assignment. No one rings a bell when it's time to buy again. A third way is to keep most of your stocks and hedge your risk using mutual funds or ETF's that move opposite the direction of stock prices. I won't get into the details, but check the following symbols on your charts: The ETF's are: SH, SDS, DOG, DXD, RWM,TWM, PSQ. In mutual funds, try the no-load Pro Funds: UCPIX and USPIX. These investments trade like regular stocks or mutual funds, and they hold securities sold "short". Today, the above mentioned gained between 1.5% and 5.5%. So therefore, their gains would offset a portion of your loses day by day.
Political Implications for Stocks
I don't want to mix political musings in this column, but wanted to share this verbiage from David Kotok of Cumberland Advisors in his year-end report in this election year. To quote, "we acknowledge that stock markets like clearer outcomes during election years. Uncertainty breeds volatility. Ned Davis database starting in 1888 shows Election year gains averaging 14% when the incumbent party wins and 18% if that incumbent party is Republican. When incumbent Republicans have lost, the average Election year gain is under 2%. Since WW2, there have been three Republican Party turnovers. Kennedy’s election year of 1960 had a 3% declining stock market. Carter’s 1976 victory over a post-Nixon disgraced Republican Party was celebrated by a booming 19% up market. Bill Clinton’s 1992 win over incumbent Daddy Bush saw a 5% upward market move."
For a review of your portfolio, give me a call.
~Barry Unterbrink
(954) 719-1151
Barry Unterbrink is a fee-based Chartered Retirement Planning Counselor and wealth manager since 1982. As a second generation manager after his father Larry (1934-2021), they managed institutional pension funds totaling $100 million.Both are former Investment Advisory Presidents and financial newsletter publishers.
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