Fri 4 Sep 2009

Transfer of Partial IRA Account Balance Subjects Periodic Payments to 10% Penalty

Posted by Charles L. Stanley CFP® ChFC AIF® under Income Tax Penalties, IRA Rollover, retirement, Working with an Advisor
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IRA accounts are designed for retirement. If a person decides they want to access their account prior to age 59 1/2, they will incur a Federal Income Tax penalty for early withdrawal of 10% of the amount withdrawn. In addition, the amount withdrawn is deemed ordinary income and taxed as such. If that weren’t bad enough of a deterrent from early withdrawals, some states also have an early withdrawal penalty, for example in California it is 2.5%. So, if a person taking an early withdrawal is in the 25% income tax bracket, they would pay 25% income tax, plus 10% Federal penalty, plus 2.5% California penalty for a total tax of 37.5%.

This is intended to discourage people from invading retirement plans early. And, it generally works.

However, there are occasional cases in which a person simply must begin taking funds from their IRA. There is a way to avoid these penalties. It is known as the SEPP or “Substantially Equal Periodic Payments” plan also identified by the tax code as 72(t). These payments must continue until the person is age 59 1/2 or 5 years, whichever is later. If these payments are modified, all of the prior payments become subject to the penalties. You must be very careful about violating the rules if you embark on this plan.

Here is the story about someone who innocently got stung by “modifying” her payments. (more…)

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Tue 11 Aug 2009

What to Expect from a Financial Advisor

Posted by Charles L. Stanley CFP® ChFC AIF® under Working with an Advisor
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advisor_75There are probably as many perceptions of what a financial Advisor is, or should be, as there are people who hire them. Let me take a little time and a few pixels to comment about this.

For those who value an Advisor for their ability to deliver positive investment returns year after year, irrespective of the state of markets, you are probably very disappointed this year.

And for those who look for an Advisor to have expertise as a consistently accurate forecaster, you probably have serious doubts by now.

But I would like to expand the expectations of consumers of financial advice beyond just market dependant performance. The value of a good Advisor is not dependent on the state of markets. Indeed, their value can be even more evident when markets are down and fear is running high.

The best of these Advisors play multiple and nuanced roles with their clients, depending on the stage of the relationship, and these clients are amply rewarded for the manifest skills their Advisors bring to the table. (more…)

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Mon 16 Feb 2009

Flee 401(k)s Fraught with Frightful Funds and Frivolous Fees

Posted by Charles L. Stanley CFP® ChFC AIF® under 401(k), IRA Rollover, Portfolio Review, retirement, Roth IRA, Traditional IRA
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If your 401(k) investment options suck or if they are just plain too expensive and eat up your retirement returns while feathering the bed of the plan’s broker, move your money where you can control your investment options and fees.

Let’s say you now age 60 and don’t plan to retire from your job for another five years, and your 401(k) plan is very expensive and has less poor investment options. You can roll your $1 million 401(k)(or less – don’t we all wish our 401(k)’s were worth at least $1 million?), into an individual retirement account (IRA), using a little-known maneuver known as an “in-service” non-hardship distribution. (more…)

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Wed 28 Jan 2009

FAQs – Rollover Rules

Posted by Charles L. Stanley CFP® ChFC AIF® under 401(k), FAQs, IRA Rollover, retirement
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 Under current law, Qualified Retirement Plan (QRP) Participants are able to roll over taxable distributions from qualified plans and IRAs to 403(b) and government 457 plans, in addition to other qualified plans and IRAs. But be sure you look before you leap, these plans are not be required to accept rollovers. QRP Participants are also be able to rollover distributions of after-tax employee contributions from qualified plans or an IRA to a defined contribution plan or IRA. A rollover of after-tax amounts to a defined contribution plan must be transmitted through a trustee-to-trustee transfer. The accepting plan must separately account for the after-tax amounts.

Spouses who who have been widowed and participate in a 403(b), government 457 or qualified plan may roll over distributions from their deceased spouse’s plan into their own plan, provided the accepting plan includes a rollover provision. And with IRS approval, the 60-day period in which to make a rollover can be extended if not doing so would be against “equity or good conscience,” as stated by the law. Examples of instances when the waiver of the 60-day period will be considered appropriate include matters outside the control of the individual, such as a natural disaster, hospitalization or a failure of a financial institution to process the rollover in a timely manner (and this does happen, just ask me).

Below is a chart indicating what can be rolled over into what. 

(more…)

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Sat 24 Jan 2009

California jobless rate soars

Posted by Charles L. Stanley CFP® ChFC AIF® under Economy, Unemployment
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A weak housing market and decreased consumer spending raised the state’s jobless rate to its highest level in 14 years
By Dean Calbreath (Contact) Union-Tribune Staff Writer
2:00 a.m. January 24, 2009
 

The construction sector (left) accounted for the highest number of job cuts in 2008. Linens ‘n Things was among several retailers to close stores last year. 
 

The unemployment rate in California soared to 9.3 percent last month – its highest point in 15 years – as construction firms, hotels, restaurants, casinos and amusement parks laid off workers in response to the widening recession.

Statewide, 78,200 workers lost their jobs in December, bringing the year-over-year job losses to 257,400, according to data released yesterday by the state Employment Development Department. (more…)

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Fri 26 Dec 2008

How should I invest my IRA Rollover?

Posted by Charles L. Stanley CFP® ChFC AIF® under 401(k), Investment Strategy, IRA Rollover, Portfolio Review, retirement
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I am going to give you some advice that could mean the difference between an “enjoyable” retirement one day and a “just get by” retirement. In this post, I will share with you principles that will really make a difference and keep you out of the kind of trouble even “sophisticated” investors find themselves in. If you heed this advice, you will never have to worry about getting fleeced by some crook like Bernie Madoff, the broker who ran a ponzi scheme that allegedly stole around $50 Billion from both institutions and individuals.

So, here goes: (more…)

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Mon 24 Nov 2008

IRA Rollovers – FAQs

Posted by Charles L. Stanley CFP® ChFC AIF® under 401(k), FAQs, Income Tax Penalties, Income Taxes, IRA Rollover, Traditional IRA
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IRA Rollovers
_______________________________________________________________________________________________________
Frequently Asked Questions


What is an IRA Rollover?
An IRA Rollover is a tax-free transfer of funds from a tax-deferred plan, such as a 401(k) plan, Thrift Savings Plan, Defined Benefit Plan, 403(b) Plan, etc., to a traditional IRA. An IRA Rollover can be done when an employee changes jobs, is laid off or retires and is entitled to a distribution from the old employer’s 401(k) plan or other Qualified Retirement Plan. By doing an IRA Rollover, the funds can be transferred tax-free to the employee’s own IRA. This means the funds can continue to grow on a tax-deferred basis inside the IRA. It also means that the funds are under the complete control of the employee with respect to investment decisions and future distributions.

The term “IRA Rollover” can also be applied to a transfer of funds from one IRA to another IRA. This too can be done on tax-free basis under a different set of rules that apply to IRA-to-IRA rollovers. Those rules are covered separately. (more…)

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Sat 15 Nov 2008

Getting Laid Off from SAIC?

Posted by Charles L. Stanley CFP® ChFC AIF® under 401(k), Income Tax Penalties, Income Taxes, IRA Rollover, Traditional IRA
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The San Diego Union Tribune reported on September 20 that SAIC would be laying off 89 workers on November 1, 2008. If you are among those 89 workers, you have several forward-looking decisions to make, one of which is what to do with your retirement money you accumulated while at SAIC.

In a down economy and with San Diego County’s unemployment rate having gone from 4.8% to 6.5% in the past  year, you might be tempted to do a bad thing – simply cash out your 401(k) plan and bite the bullet on the taxes. Bad idea. First, you probably don’t realize the magnitude of those taxes. You will need to take your income tax bracket for your income this year and apply it to every dollar coming out of your 401(k). Lets say you are in the 28% bracket. Then you will pay a Federal penalty for early withdrawal (this assumes you are younger than 59 1/2) of 10% – now you are at 38% of the funds going to taxes. But wait, you aren’t done yet. There is also a California income tax to consider of at least 6%, taking you to 44%. And then there is the California Penalty for early withdrawal of 2.5%. Now you are at a whopping 46.5% of the funds you take from your retirement plan going to State and Federal taxes.

So, I think you can see that taking these funds without trying every other option available to you just isn’t a good idea. It will take you years to make up for the loss – and the truth is that you will never make up for it since you will have lost the time value of those dollars that are no longer invested on your behalf. For the sake of your long term financial well-being, make it your place of LAST RESORT to go for money to make it on to the next profitable job. Afterall, it may be just around the corner. You just don’t know right now.

It would be much more prudent to do a Direct Rollover of your retirement funds to a Traditional IRA and aviod any income tax consequences. Once this is done, you have complete control of your retirement dollars. If you do eventually find that you have to take some of those funds early and pay the penalties, you can only take what you absolutely have to take. You won’t be restricted by the withdrawal rules of the employer’s plan.

If you don’t know how to get that done efficiently and with little cost, you can contact me at Charles@Oncubic.com.

Charles L. Stanley CFP® ChFC AIF®
Oncubic LLC
3655 Nobel Drive Ste 340
La Jolla CA 92122
Telephone: 888-619-5666 x506
Email: Charles@oncubic.com

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