May 06 2008
tax credit mutual funds
» Escrito en Business Tips por writer3 a las 13:59
tax credit mutual funds
When we’re approached by people whose job status is in transition either due to layoff, retirement or career change, the first question we’re often asked is “What do I do with my old company’s retirement plan?”
The answer we give to this question, and most other questions for that matter, is “That depends.” As we’ve said before, each person’s situation is different and we would be irresponsible if we gave a blanket answer to that question. In this article, we’re going to discuss some of the reason why you should seriously consider your retirement plan into a Rollover IRA.
401(k)’s and other retirement plans are one of the best tools for saving for retirement. Typically, by participating, your gross income is reduced by the amount you contribute in the plan. In addition, many plans offer a 50% or 100% match of your contribution, up to a state maximum. I don’t know about you but, as good as we are at money management, we can’t GUARANTEE that type of return.
Once you are no longer participating in your employer’s plan, however, there are five (5) distinct advantages to moving your money out and into an IRA:
1. Flexibility
a. An IRA can have many more investment options than a typical retirement plan. Where a 401(k) is often limited to company stock and a list of approved funds, an IRA can include individual stocks and bonds, a broader array of mutual fund choices and availability of other, alternative investments such as real estate.
b. No withdrawal restrictions. Some plans limit your ability to withdraw if you are under 591/2 years old. An IRA has no such restrictions, but you may have to pay penalties and taxes.
c. Better control of your money. You don’t have to deal with a plan administrator to get your money.
d. You can control your tax rate by taking larger distributions in years of lower income. Many plans force to you take a lump-sum distribution, incurring much higher taxes.
2. Stretching
a. Heirs can keep the money growing over THEIR life lifetimes. IRA rules allow beneficiaries to spread their inherited distribution over their life expectancies, spreading payments over much longer time frames, while the balance continues to growtax deferred. Most qualified plans do not allow non-spouse beneficiaries this option, increasing the tax burden.
3. Roth Conversion Ability
a. If you qualify and you expect to be in a higher tax bracket in the future than you are today, you can elect to convert your IRA to a Roth IRA. By paying at taxes at your lower tax bracket of today, you convert your income in the future from taxable to tax-free, reducing your tax load. This conversion option is not currently available on qualified plans like a 401(k).
4. Consolidation
a. You can consolidate all your old retirement plans under a single umbrella. By doing this you only need to worry about tracking one account versus 3 or 4 accounts.
b. Reduced paperwork. When you take distributions, you only have to work with one account, not multiple ones.
c. You kill a lot less trees!!!
5. Professional Advice
a. IRA’s are handled by trained professionals, while company plans, like 401(k)s are typically handled by Human Resources Reps (no offense, particularly to my wife, who works in HR!!) who may or may not be well versed in the process.
b. No more “one-size-fits-all” plan management. You can hire an advisor who works specifically for YOU, not the company you work for. This allows you to develop a plan tailored to your unique circumstances.
c. You’ll improve your ability to create a long-term retirement and estate plan for you and your family.
Rob Jupille, President of RTJ Financial Management, has been assisting individuals and small businesses with their insurance and financial planning needs for the past 16 years. After working in senior management positions at Fortune 500 companies, Mr. Jupille formed RTJ Financial Management in 2000, focused on helping successful individuals achieve their financial dreams. Mr. Jupille graduated in 1989 from the University of California, Santa Barbara with a Bachelor’s Degree in Business/Economics.
tax credit mutual funds
