Finance Blog

Obama proposes to lift penalties for limited IRA, 401k, 403b withdrawals
By Mike Rowan, eRollover.com

I was watching the Presidential debate last night and heard Barack Obama mention that he would implement a plan where individuals would have access to some of their 401k, IRA, 403b, or 457 Plan money, penalty free. This would help them to have access to some funds during this financial crisis. I think that this is actually a pretty good idea, even though I am not an Obama supporter. However, I would like to see him also come up with a plan where they could get this money back in their 401k or other retirement plan as well. It is well known that the tax deferred retirement plans, such as a 401k or 403b, are the best way to accumulate wealth for retirement. Here is an excerpt from an article that I googled this morning that lays out the details of his plan.

Here is the Article

Democrat Barack Obama is proposing lifting penalties for withdrawals of up to $10,000 from retirement accounts, such as 401k, 403b, and 457 plans, and imposing a 90-day moratorium on foreclosures on some homeowners as part of a plan to boost the economy and aid middle-income taxpayers.

The economic crisis is dominating the presidential campaign, and polls show voters are favoring Obama over Republican candidate John McCain to deal with it. The Illinois senator has opened a 10-percentage point lead over McCain, 53 percent to 43 percent, among likely voters nationally in a Washington Post-ABC News poll taken Oct. 8-11. That’s up from a 4-point lead in a Post-ABC poll taken at the end of September.

Foreclosures
The foreclosure moratorium would apply to banks that are getting capital through the $700 billion rescue plan approved by Congress. It would impose a 90-day ban on foreclosures on homeowners who are trying to keep current on their mortgages.
Obama, 47, calls for a lending facility for states and localities that are having trouble borrowing.
Obama, 47, endorsed a proposal by McCain to suspend rules requiring retirees to begin liquidating Individual Retirement Accounts and 401(k)s at age 70 1/2 to avoid selling assets while markets are down. He would expand it to allow withdrawals of up to 15 percent, with a maximum of $10,000, without facing the tax penalties such withdrawals usually carry.

He also endorsed suspending taxes on unemployment insurance benefits.

McCain, an Arizona senator, held a rally in Virginia Beach this morning along with running mate Sarah Palin, the governor of Alaska. He portrayed himself as the underdog in the contest and emphasized his experience.
“The next president won’t have time to get used to the office,” McCain, 72, said. “He will have to act immediately.”
McCain didn’t present any new proposals on the economy. He repeated his plan to buy up troubled home loans as a way to help beleaguered borrowers.

“I’m not going to spend $700 billion of your money just bailing out the Wall Street bankers and brokers who got us into this mess,” McCain said. “I’m going to spend a lot of that money to bring relief to you, and I’m not going to wait 60 days to start doing it.”

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Saturday, September 13, 2008

Watch out for these Retirement Scams!

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Watch out for these Retirement Scams!

By: Joshua Lipton, Forbes Magazine

After reading about it in the local newspaper, you decide to attend a seminar at a neighborhood steakhouse where a broker will offer a lecture on how to retire early, earn high investment returns and enjoy steady annual cash withdrawals, all while you finish off that complimentary, medium-rare T-bone.

The broker is dressed sharp while pitching his difficult-to-resist game plan. The catch of course is that you will have to roll over your 401(k) plan and open an individual retirement account at his firm. There is brief mention of risk associated with stock market volatility and of fees, but you focus on the promise of capital growth and juicy annual withdrawals of 9%. Sounds too good to be true. And it is.

According to securities regulators, these types of luncheon pitches are rampant across America. But they warn that, in most cases, the safe and secure annual withdrawal amounts too often assume stock market returns that aren't realistic. As a result, many investors find that in the end their nest egg has been fried. Instead of pursuing leisurely passions, these "free lunches" wind up leaving would-be retiree's scanning the local newspaper for job listings.

The oldest baby boomers turn 62 this year, and more than 70 million of them will likely enter retirement over the next 20 years, says T. Rowe Price. Retirement assets in the U.S. topped $17.6 trillion in 2007, up 7% from 2006, according to the Investment Company Institute. But the current retiring crop of boomers is faced with the misfortune of ending their income accumulation years during a bear market. Moreover, after a "lost decade", when the S&P 500 barely advanced, many feel like they need to make up for lost capital fast. That fear, coupled with a general lack of financial education, makes them easy targets for hustlers looking to make a quick buck.

These days, retirement scams range from the out and out fraud, where scammers intentionally separate seniors from their capital, to the more benign cases such as employers misusing or squandering the assets in a 401(k) plan.
"It is a concern", says Fred Joseph, the Colorado Securities Commissioner. "Some investment promoters tell people they can retire and make more money than they did when they were working. So they encourage people to take money out of the company pension plan or the 401(k) and give it to them."

Adds Joseph, "If they are legitimate, they will put it in an annuity, for example, that has high costs, high surrender charges and high up-front fees. That's if they are legitimate. If they are not legitimate, they will just spend your money. Then you're broke."

Although individuals aged 60 or older make up just 15% of the U.S. population, they account for 30% of fraud victims, according to the North American Securities Administration Association. The oldest ripoffs still remain the most popular, regulators say: Ponzi and pyramid schemes, pump and dumps, and high-return or "risk free" investments. Other common cons include "prime bank" fraud.
This is a scheme in which a "prime bank note" is supposedly issued or traded by some of the world's biggest banks. Joseph explains how they work: The transactions involve notes, guarantees, letters of credit, debentures or other seemingly legitimate types of financial instruments being issued by an unidentified "prime" bank. Of course, it's all a fairy tale: Neither the prime bank note nor the secret bank trading program exists.

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Joseph says these schemes have been around since the 1980s, but investors still manage to get taken by the scams, year in and year out.

Last year the U.S. Attorney's office, the FBI, IRS and the Colorado Securities commission convicted a Denver-based high-yield/prime bank investment scheme of mail fraud, wire fraud, securities fraud and money laundering. The too-good-to-be-true investments were sold using names like "Capital Holdings", "Reserve Foundation Trust" and "Fast Track". And, in the end, hundreds of investors were defrauded of more than $50 million. Between 1999 and 2003, Norman Schmidt of Denver, the scheme's leader, his wife Jannice, along with five other co-conspirators promised prospective investors rates of return from 2% to 400% per month.

Impressive-looking monthly statements were sent out like clockwork and investors were encouraged to let their profits ride and invite friends into the deal. Investors were also assured that a prominent insurance company would cover them from losses. In the meantime, the funds held in more than 60 bank accounts, were used in part to support the promoter's lavish lifestyle, including the purchase of eight NASCAR race cars, and Aspen's Redstone Castle, an Italianesque mansion built in 1901 that spans 20,000 square feet and has 42 rooms and 11 bathrooms.

But prime bank scams are yesterday's news. The new game plays off skyrocketing oil prices and $4 per gallon gas. According to Joseph, oil and gas scams have become the "fraud de jour". He is currently dealing with about 24 such fraud cases in Colorado. "It's one of my biggest issues right now", he says.

Last spring, for example, Joseph's office settled an enforcement action against a Wichita, Kan., operation going by the name of Key Resource Companies along with its president, Dale Lucas and vice presidents Russell Kilgariff and Michael McNaul. Oil and gas wells gushing profits was the lure and the investments were peddled between 2003 and 2006.

What the promoters failed to tell the suckers, say regulators, was that they were paying these sales agents up to 50% of the invested amount in commissions and that at least one of their agents was a convicted felon. In the end, the defendants had to pay $300,000 in restitution to 15 Colorado investors, and were barred permanently from the security industry in Colorado. Investors, of course, lost most of their money.

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According to regulators, there are a number of ways investors can protect themselves against retirement scams.
First, remember these four basic red flags, says the U.S. Securities and Exchange Commission: If it sounds too good to be true, it is; guaranteed returns aren't; beauty isn't everything (a fancy looking Web site doesn't mean the party behind the site is credible); pressure to send money right away. If you spot any one of these themes in the sales pitch, the SEC says, be skeptical about the legitimacy of the investment.

Equally important: Know the salesperson. The Financial Industry Regulatory Authority is the largest non-governmental regulator for all securities firms doing business in the United States. You can verify registration and disciplinary information about an individual broker or brokerage firm by using FINRA BrokerCheck or calling them toll-free at 800-289-9999. If that broker is registered, check to see if there is any kind of employment or disciplinary history.

To double-check the background of an investment adviser, contact your state securities regulator or call 202-737-0900.
Another common sense tip: Before committing to any kind of retirement strategy, FINRA recommends consulting with a financial professional of your choosing instead of immediately signing on with someone who "found you".

"Make sure that you don't isolate yourself from people that you would usually get advice from, like your attorney or accountant", says John Gannon, FINRA's Senior Vice President for Investor Education. "The person who is going to commit fraud is usually someone you just met, who persuades you to do something that, if you thought logically about it, you probably wouldn't do. It is very important to get a second opinion".

Another smart move: Cut back on unsolicited phone calls. Put your name on the national Do Not Call Registry: 1-888-382-1222. "I consider the phone to be a weapon", says Joseph. "It can be used just like a gun to steal money".
Finally, be cautious about those ever-popular "free lunch" seminars, where finance "experts" arrive, dish out free eats and tout schemes promising early retirement with no deduction in income.

Regulators conducted 110 examinations between April 2006 and June 2007 of these seminars. The result: 57% of the firms used advertising and sales materials that were misleading, exaggerated or included unwarranted claims. Joseph offers this guidance: "My own advice is to be skeptical. The motive for these guys, remember, is to sell you something".

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Thursday, September 4, 2008

What is a “401k ROLLOVER into an IRA”?

by Mike Rowan www.Erollover.com 2008

What is a “401k ROLLOVER into an IRA”?

Generally, after a person leaves the employment of a company, they are given the
option to roll their 401K or other plans into a new company’s plans, if available, or into
a Rollover IRA.

Frequently, the choice is made to roll into an IRA because of the flexibility and vast array
of investment choices available. Once in an IRA, the owner is no longer restricted to the
investment choices offered by their employer plan, nor is the participant subject to any
potential future restrictions imposed by the new employer, if any.

Most retirement plans can be easily rolled into either a variety of mutual funds, stocks,
bonds within a roth IRA, rollover IRA, or existing contributory IRA account, provided that you have separated service with the company where the plan is held.

However, there may be some costs to do this, as well as other ongoing expenses that
should be considered as well. In addition, there may be surrender charges when you want to move
some or part of your money as well. Check with your Financial Advisor and read the
prospectus regarding any investments you might be considering to insure that you aren’t hit with any type of penalty or fee.

What are your OPTIONS when dealing with former 401k plans?

1. You can move/rollover, all or PART, of your 401k into a rollover IRA account.

2. You can move/rollover, all or PART, of your 401k into your next employer’s 401k or retirement plan.

3. You can move/rollover, all or PART, of your 401k into a Roth IRA if you are in an income bracket that will be able to let you do so.

4. You can leave the funds with your past employer’s plan.

5. You can do any of the above while taking a full or partial distribution from your plan. Please keep in mind that this will trigger a taxable event of your income tax bracket, plus a 10% early withdrawal penalty on the amount that is taken.

NOTE: Most 401k plan administrators do NOT allow partial rollovers. It’s all or nothing
in most cases. However, if you want to move your retirement money into more than one
place, please contact a qualified advisor to assist you with this transaction.

There are virtually unlimited numbers of possible combinations. It takes the
experience of a knowledgeable Financial Advisor to know what is best in each particular
scenario. Everyone is different and so are their needs and desires! Please log onto our site at www.erollover.com to find an advisor or service that can cater directly to your needs.

We also go further in depth on our blog and site with regard to the types of investments available, and which ones may suit you best. Please read the following article, Mutual Funds vs. Stocks, EFT’s, and Bonds, to get a better feel for these vehicles, and which may be best for your situation.

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Monday, September 1, 2008

I started contributing to my 401k-Now What?

I started contributing to my 401k-Now What?

By Mike Rowan for www.Erollover.com 2008

“My company matches 50 cents for every dollar I put into my 401(k). I just started this year and have a balance of about $1,200. I know nothing about investing, however. So what should I invest in to increase my account balance?” –Real Client

First, let me congratulate you for taking the single most important step in planning for your retirement: signing up for your 401(k) plan. Unfortunately, many people don’t see their 401k or IRA plans as an urgent priority, choosing instead to live for the moment.
That’s especially true among young workers. A recent survey by Hewitt Associates found that almost 70 percent of Generation Y workers (those 18 to 25 years old) don’t bother to contribute. Retirement for these individuals is 30 or 40 years away, which is extremely hard to fathom in some cases. Many times this potential retirement money is spent on depreciating assets, like nice cars and the like.

Whatever the reason, missing out on the chance to save through a 401(k) is a big mistake, especially when your employer is kicking in matching bucks. I mean, it’s not often you have someone giving you free money.

So now that you’ve taken that big first step, how do you tend to maximize the benefits of your 401k or retirement plan? Understandably, you’ve probably immediately turned your attention to investing. After all, the higher the return you earn on your contributions (and your employer’s match), the larger your nest egg will be come retirement time.

Contribute first, invest later
But as important as smart investing is in building your 401(k)’s balance over the long term, before you turn your attention to that front there’s something else you want to be sure you’re doing-namely, contributing as much as you possibly can.
That’s right, although we tend to concentrate our efforts to the investing side of the equation, the fact is when it comes to surefire ways of boosting your balance, shoveling in more money has a much bigger (and more certain) effect than savvy investing.

A study done by Putnam Investments last year illustrated this point very well. Basically, Putnam created a hypothetical “Average Joe,” who began participating in his 401(k) at age 28 in 1990, but got off on the wrong foot. He contributed very little, invested too little of his account in stock funds and he also chose funds that didn’t perform very well. The study then compared how Joe would have fared over the next 25 years had he made certain moves, namely: boosting the percentage of pay that he saved, increasing his exposure to stocks and choosing better-performing funds.

The study found that while Joe certainly would have boosted his 401(k) balance by picking better funds and tilting his portfolio mix more toward stocks, the gains from those two moves didn’t come close to the increase Joe would see if he dramatically boosted the amount he saved-even if he remained invested in underperforming funds.
The moral: if you really want to increase your 401(k)’s balance, you should first make sure you’re contributing as much as you possibly can to your account. At the very least, you want to contribute enough to take full advantage of your employer’s match. But beyond that you ought to try to contribute as much as your plan allows.

Picking the right mix
Once you’re saving to the max, you can then concentrate on the investing part. Here your first priority is to make sure you’re divvying up your portfolio properly between stocks and bonds.
A variety of studies show that your asset allocation - the mix between stock and bonds - is what largely determines the performance of your investment portfolio. The more you have in stocks, the higher your returns are likely to be over the long term.
So why not throw the whole shebang in stock funds? Well, for one thing you can never be absolutely sure that future performance will repeat the past, so it pays to hedge your bets. And besides, the more stocks you own in your 401(k), the bigger the hit your account will take during market downturns. If you devote too much to stocks, a big loss might frighten you out of stocks completely, undermining your long-term strategy.
To arrive at a mix that’s appropriate for you, you can check out our Asset Allocator.

As for specific investments in your 401(k), you’re limited to the menu of funds that your employer provides. (This is also a great reason to always roll your 401k into a self directed IRA if you were ever to switch jobs.) Ideally, you want to choose funds that have low costs, decent track records and a history of treating shareholders decently. Index funds are also almost always a good bet. Their costs are typically low and since they’re designed to mirror a particular market index or benchmark, you know exactly what you’re getting.

We have outlined some basic steps and strategies for your 401k, IRA, or retirement plan. While no course of action is absolutely bullet-proof, at least making an aggressive effort to contribute early and often should set you in the most advantageous path.

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Tuesday, August 26, 2008

To People Who Want to Quit Work Someday

To People Who Want to Quit Work Someday

By Mike Rowan for www.Erollover.com 2008

How old are you today? Have you started investing in a 401k, Roth IRA, or Savings Plan? Have you ever thought about when you will retire, and how to afford your life when you reach retirement age? If you really want to quit work someday and enjoy a high standard of living when you retire, please give the following some thought!

What are you waiting for?
Some people do not even want to think about retirement or 401k plans today. It is very easy to live in the now, and to ignore the fact that retirement will be here before they know it. Some people would say, ‘I am still young, why should I think about my future or retirement today?’ Well, it is very true that nobody knows what will happen tomorrow. If you have chance to plan your future earlier with a chance of getting a better retirement, why do not you start from now? Which one do you prefer, an enjoyable retirement, free from worry, or would you rather spend your golden years scrutinizing every penny that you have earned?

Start Saving!
I emphasize saving for two reasons. One is that it’s essential. No saving, no retirement. It’s that simple. And the sooner you get into the habit of regular saving, the better your chances of being able to retire in comfort.
That being said, I agree that some advisers and financial planners can get too strict. They create the impression that unless you’re salting away most of your salary you’re a spendthrift. Sure, contributing to 401(k)s and other retirement accounts is crucial. But you don’t want to go through life feeling guilty every time you treat yourself to dinner at a decent restaurant.
I mean, you do have a life to live before retirement. And what’s the point of retiring in comfort if you lived a pinched existence during your career? What’ll you do in your dotage? Reminisce about how much fun it was to forego family vacations so you could boost your 401(k) contribution rate yet another percentage point?
Clearly, retirement planning has got to strike a balance. You want to save enough so you’ll be able to enjoy retirement. But not so much that you can’t also live a satisfying life during your career.

Just try to live below your means!
I think the best way to achieve that balance is to adjust your expectations so that you’re content living a little bit below your means. Let’s say your salary is high enough that you can buy a Mercedes, but doing so would require you to spend every cent you make. Well, maybe you decide to go with a moderately priced Toyota instead so you have some dough left over that you can plow into retirement savings.
It’s that sort of reasonable compromise you want to shoot for in retirement planning, whether it’s choosing a car or a home, planning vacations or whatever.

Don’t go to extremes with your financial life!
Try to avoid going to the extreme end of anything in your financial life. If you try to live like a millionaire while making 30k a year, rest assured that this lifestyle will have consequences in the future. Rather, you want to make choices that will allow you to live comfortably, but not extravagantly during your career, which should also allow you retire without having to ratchet down your standard of living.

Mike Rowan is the co-founder of erollover.com, based in Atlanta.

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Five professional tools to see how the funds in your 401(k) measure up

www.Erollover.com 2008

Five professional tools to see how the funds in your 401(k) measure up
By Jonathan Burton, CBSMarketWatch

How good are the mutual funds in your 401(k)?
It would be nice if there were a scorecard. But rating the investments you hope will glitter in your golden years can be confusing. That’s one reason why so many investors have embraced so-called target-date or life-cycle funds, which take care of the guesswork.
Those who still want to pick their own 401(k) investment lineup often don’t know how, or where, to start. So they wind up defaulting to funds with the best track records.

That’s not strategy, it’s performance chasing — buying high and selling low — and it leads investors nowhere, says David B. Armstrong, managing director at Monument Wealth Management in Alexandria, Va.
“They’re picking mutual funds that have been doing very well and not giving proper consideration to the appropriate allocation,” he says.
To tell which stock funds in your retirement account are right for you, look beyond performance. Take a page from the methods investment experts likely used for your own company’s 401(k) plan. Here are five things to keep in mind:

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1. Expenses
In many cases, 401(k) plans offer one actively managed fund and one indexed alternative. Since indexed management is usually cheaper, make sure you’re getting your money’s worth from an actively run choice.
Costs matter. An index fund that charges one-tenth of a percentage point in yearly management fees, for example, has a full percentage point head-start over a fund that takes 1.1%. Accordingly, the manager of the more expensive portfolio has a steep hurdle in order to deliver above-average returns over time. Don’t pay top dollar for mediocre results.

2. Risk-adjusted return
You can’t judge a fund by its advertised performance.
Understand the risks a manager took to generate those returns. Maybe the fund loaded up on a hot stock or market sector, or the manager traded frequently, playing the market’s momentum.
Otherwise, you run a risk too — that you’ll fork over good money to a fund that exposed you to more volatility that you can comfortably handle.
“Big stakes in any one sector is good reason to dig deeper,” says Christine Benz, director of personal finance at investment researcher Morningstar Inc. “How does that fit with the manager’s strategy, and how has that played out for the fund?”
One key measure of a fund’s risk-adjusted return is a technical term called standard deviation. It shows how much a fund’s performance varies, or deviates, from its expected normal return.
You won’t need a slide rule. Web sites such as Morningstar.com do the math for you. Click on “Risk Measures”: The bigger the number, the more risky the fund.
So if Fund A gained 11% with a standard deviation of 18, and Fund B rose 10% with a standard deviation of 12, then Fund B achieved almost the same results with two-thirds of the volatility and would have a better risk-adjusted return.
“Standard deviation can help you see which fund has had higher volatility and has probably been taking more risks,”

3. Results versus peers
You also want to look at a fund’s performance relative to its category. Investors frequently make the mistake of comparing funds to “the market,” which usually means the benchmark Standard & Poor’s 500 Index (SPX:
S&P 500 Index
But the S&P 500 is a large-company U.S. stock index. The only funds to rate against it are large-cap U.S. stock funds; anything else is simply misplaced. A small-cap stock fund may look great compared to the S&P 500, but it may have underperformed the more fitting Russell 2000 Index benchmark. Similarly, an international small-cap stock fund has no business in the same pool as its U.S. small-cap counterpart.
Again, Morningstar.com makes this information readily available. Click on “Total Returns” to see how a fund stacks up in its category.
Be sure that all of your fund choices are related, says Armstrong, the Virginia financial adviser. If they’re not, “you really can’t determine if the portfolio manager is doing a good job” or if you should just buy an index fund.

4. Portfolio yield
Performance-chasing is bad enough, but investors also reach for yield — the dividend income that can provide a cushion in difficult markets.
“I’ve seen clients get stars in their eyes over a high yield,” Armstrong says. They forget there’s a reason for this excess payout — and not always a good one.
Beware of a fund with a yield that’s out of synch with its peers. Maybe the high yield comes from a heavy dose of financial-services stocks or lower-quality investments. In that case, not only is the yield shaky — some banks have cut or eliminated their dividends, for example — but even the most generous dividend won’t offset major declines.

5. Manager tenure
The big consulting firms that cobble 401(k) plans together grow cautious when a fund switches managers, and you should too.
Fund companies will protest to the contrary, but new managers are game-changers. While the fund’s investment style might not be drastically altered — and if it is you have another problem — you can bet the portfolio itself will get a makeover.
If a fund manager has been on the job for only a year, then the fund’s three- and five-year performance belong mostly to someone else. You can be more charitable when a new manager is a veteran who has experienced bull and bear market cycles. On the other hand, if a longtime manager is retiring soon, find out when the junior managers joined the fund.
Says Lou Stanasolovich, president of Legend Financial Advisors in Pittsburgh.: “If a manager changes, you’re in effect starting a new fund.”

Jonathan Burton is an assistant personal finance editor for MarketWatch, based in San Francisco.

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Monday, August 25, 2008

Immediate Annuities: Don’t outlive your retirement income

By Mike Rowan, www.Erollover.com 2008

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Immediate Annuities: Don’t outlive your retirement income

Individual’s approaching retirement generally have one thing that keeps them up at night. They wonder, “Does my 401k or IRA have enough value to retire” or “What happens if I happen to outlive my retirement by living too long”. These are both very valid concerns for an investor to have running through their head. However, there are many different strategies that can help to appease this particular concern. One such product that prevents this from happening is the immediate annuity or single premium annuity.

A Lesson in Immediate Annuities

Single Premium Immediate Annuities (SPIAs) are purchased with a single deposit amount. As the name implies, the annuity usually start making regular monthly payments to you immediately after you turn over the funds to the insurance company. Typically this means 30 days from the date of deposit; but within certain limits you can also to defer the date that payments begin.

The first thing you need to understand is what actually happens when you buy an immediate annuity. In return for a sum of money, the insurance company promises to make regular payments to the owner or annuitant (if different) for a specific period, such as the remainder of the annuitant’s life. The payments can be set up in any of a variety of different ways (see below); however, whatever form you do select at the time of purchase cannot be changed at a later date. In accepting this guaranteed schedule of payments you also give up the right to demand the return of your original deposit, for example in the form of a lump sum less any payments that have already been received. In short, once the payments of an immediate annuity have begun, the contract generally cannot be revised or cashed in.

Why should I consider buying an Immediate Annuity? What are its advantages to me?

These are a many advantages that immediate annuities can provide to the buyer. Here is a list of just a few:

1. Security- the annuity provides stable lifetime income which can never be outlived or which may be guaranteed for a specified period;
2. Simplicity- the annuitant does not have to manage his investments, watch markets, report interest or dividends;
3. High Returns- the interest rates used by insurance companies to calculate immediate annuity income are generally higher than CD or Treasury rates, and since part of the principal is returned with each payment, greater amounts are received than would be provided by interest alone;
4. Preferred Tax Treatment- it lets you postpone paying taxes on some of the earnings you’ve accrued in a “tax-deferred” annuity when rolled into an immediate annuity (only the portion attributable to interest is taxable income, the bulk of the payments are nontaxable return of principal);
5. Safety of Principal- funds are guaranteed by assets of insurer and not subject to the fluctuations of financial markets; and
6. No sales or administrative charges

Forms of Immediate Annuities:

The most basic life annuity is known by several names, including “Single Life,” “Straight Life,” “Life Only,” or “Non-refund” annuity. In its simplest form, it provides guaranteed payments over the lifetime of one person, with payments ceasing upon the annuitant’s death. By offering a way of insuring that you will not outlive your financial resources, a Single Life annuity can be an important tool in planning for retirement. A Single Life annuity also provides the highest payout of any lifetime annuity, because it carries the smallest risk for the insurer.

One of the key factors in pricing a life annuity is the average life expectancy of the person that will be receiving the payments. In a sense, purchasing a life annuity is like making a bet with an insurance company about how long you will live. Since the insurer will stop making payments when you die, it is betting that you won’t live beyond your life expectancy. On the other hand, you come out the winner if you do live longer than the average person, because the insurance company will have to continue making payments beyond the period it had assumed.

The coverage of a life annuity can be increased by including a second person (”Joint and Survivor” annuity), by adding a guaranteed period of time (”Period Certain” annuity), or by guaranteeing that payments will continue at least until the original purchase amount has been paid out (”Installment Refund” annuity). The added risk to the insurer is likely to reduce monthly payments by about 5% to 15%, depending on the age of the annuitants and the length of the guarantee period. Annuities with this kind of added coverage are particularly suitable: (1) when there is a need to guarantee income over the lifetimes of a husband and wife (”Joint and Survivor” annuity); (2) when payments must continue for a specified period (e.g. 5 or 10 years or more) to a designated beneficiary (”Certain and Continuous” annuity); or (3) when the annuitant wants to make sure that, if he should die before his initial investment has been fully distributed in monthly payments, an amount equal to the balance of the deposit continues to a named beneficiary (”Installment Refund” annuity).

Funds That Purchase an Immediate Annuity
Source of Funds - Qualified vs. Non-Qualified

Qualified Immediate Annuities

The term Qualified (when applied to Immediate Annuities) refers to the tax status of the source of funds used for purchasing the annuity. These are premium dollars which until now have “qualified” for IRS exemption from income taxes. The whole payment received each month from a qualified annuity is taxable as income (since income taxes have not yet been paid on these funds). Qualified annuities may either come from corporate-sponsored retirement plans (such as Defined Benefit or Defined Contribution Plans), Lump Sum distributions from such retirement plans, or from such individual retirement arrangements as IRAs, SEPs, and Section 403(b) tax-sheltered annuities, or Section 1035 annuity or life insurance exchanges. Generally speaking, insurance companies use male/female (sex-distinct) rates to price qualified annuities in situations where the purchaser and/or owner is a corporation. When the annuity is being purchased by an individual, annuity rates are generally unisex. Some states, however, require that unisex rates be used for all qualified annuities.

Non-qualified Immediate Annuities

Non-qualified immediate annuities are purchased with monies which have not enjoyed any tax-sheltered status and for which taxes have already been paid. A part of each monthly payment is considered a return of previously taxed principal and therefore excluded from taxation. The amount excluded from taxes is calculated by an Exclusion Ratio, which appears on most annuity quotation sheets. Non-qualified annuities may be purchased by employers for situations such as deferred compensation or supplemental income programs, or by individuals investing their after-tax savings accounts or money market accounts, CD’s, proceeds from the sale of a house, business, mutual funds, other investments, or from an inheritance or proceeds from a life insurance settlement. While most insurance companies apply their male/female (sex-distinct) tables to non-qualified annuities, some states require the use of unisex rates for both males and females.

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10 Free Tools to Help You Get a Handle on Your Personal Finances

By Mike Rowan, www.Erollover.com 2008

Gone are the days when all that we had to do was balance our checkbook once a month to keep track of our money. It seems like our financial affairs have grown more complicated in lock step with the rest of our modern lives. In the world of personal finance, we’ve seen new tools emerge to help us with our money management, while we do away with older habits. For instance, who still writes checks? [Okay, I still do, but not as often as I used to!]

However, your situation may have complicated itself (hopefully in a good way) to the point that some external assistance is necessary to keep things in order. If you haven’t quite reached the point that you can hire someone else to organize and analyze everything for you, then these simple tools will help you do it yourself. They are easy to access, easy to use, and best of all, easy on the budget.

Net Worth

Figuring out what you have is as good a place to start as any. This net worth calculator will not only help you determine your current net value but it can help you determine how it can change over time.

Life Expectancy

Now that you know how your finances will change over time, it might be useful to determine just how much time you’ve got. This calculator will estimate your life expectancy based on aspects of your current health and the lifestyle that you enjoy. Is this a bit morbid? Well, sure it is; but it’s also dead useful.

Earning Potential

Now that you know how long you’ll live, try this utility to determine how much money you’ll earn over the course of that lifetime.

Cost of Living Calculator

If you’re considering a career move that might also result in a move across the country, use this calculator to figure out the actual financial benefits. It will help you compare the overall cost of living between various cities so that you can take this important information into account when finalizing your decision.

Home Budget Analysis

This budget analysis tool will ascertain the reality of your spending habits. Once you are able to track how your money is coming in and where it is going, you’ll be able to get your expenses under control.

Human Life Calculator

What is your economic value? Another way of looking at it is to ask: what is your life worth? This calculator uses a variety of criteria to assist you in determining the amount of life insurance that you should be carrying as part of your portfolio.

Retirement Planner

This simple calculator will help you keep your overall retirement plan right on track.

Social Security Benefits

You’ve been paying into it for years, so why not find out how much you can expect to get out of it when your time comes? Use this tool to estimate how much you’ll be getting back from Uncle Sam.

Roth IRA Calculator

Here’s a calculator to see how your Roth IRA investment grows with time. It compares your Roth IRA amounts against its taxable investment counterpart during the same time period.

457 Savings Calculator

457 plans are like 401K plans, except for government workers. For those who are eligible, using this calculator will help you determine if investing in a 457 savings plan could result in a more secure and more enjoyable retirement. With generous employment matches all the way to age 65, it looks like a pretty sweet retirement for those who go this route!

Please visit our site for more retirement and 401k details:
www.erollover.com

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Sunday, August 24, 2008

New Job? The 401k Options that you must know!

By Mike Rowan, www.Erollover.com 2008

Congratulations! You have taken the plunge and have taken that new job that you have sought over for so long! Then, all of the sudden, you think of your 401k and may wonder, “What on Earth am I supposed to do?”.

There are many options for your existing 401k or retirement plan when you change jobs. For the most part, it opens up many options with regards to moving your plan and customizing it according to your individual retirement goals and needs. However, there are several 401k stipulations with which an investor must be very aware. If not followed exactly, it could possibly result in some major penalties for your 401k or retirement plan.

401k Rollover Options :

1. Rollover your 401k over into a personal retirement account (IRA)
2. Leave your 401k with your current employer
3. Rollover all or a portion of your 401k to your new employer
4. Take a full or partial withdrawal

Roll your 401k over into a personal retirement account (IRA).

Advantages :
Gain full control of your retirement plan
Gain full control of your investment options
Access to fully customizable asset allocation models
Easy and inexpensive access to professional investment advice
Flexibility in executing your decisions

Disadvantages :
None

Leave your 401k with your current employer: Rules and limitations apply depending on your employers specific retirement savings plan rules.

Advantages :
Convenience

Disadvantages :
Current employer retains control over your investment options.
You may not have access to the investment vehicles appropriate for you.
Limited access to professional investment advice.

Roll over all or a portion of your 401k to your new employer. Rules and limitations apply depending on your new employers specific retirement savings plan rules.

Advantages :
None

Disadvantages
New employer gains control over your investment options.
You may not have access to the investment vehicles appropriate for you.
Limited access to professional investment advice.
Continues circle of having to roll over accounts as you change jobs.

Take a full or partial withdrawal with the check payable to you. Beware of withdrawing money from your retirement savings plan account because you will owe current income taxes on the eligible portion of your withdrawal. In addition, if you take the withdrawal before age 59 1/2, you may also owe an additional 10 percent early withdrawal penalty.

Advantages
Instant access to a small portion of your funds.

Disadvantages
Taxes are payable, either 20 % instantly through withholding or Income taxes.
10 % penalty tax will apply to most withdrawals before age 59 ½
Your financial independence might be in jeopardy.

As you can tell, rolling over your 401k, 403b, or retirement plan, can be either the best or worst thing that you did for your retirement planning. Generally, moving your 401k to an IRA tends to be the most favorable action. However, as previously stated, you must know the 401k guidelines, or you may face severe penalties!

Please visit our site for more retirement and 401k details:
www.erollover.com

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