PT Money » Investing and Retirement

How to Find the Best Roth IRA Rates

PT — Mon, 08 Mar 2010 20:55:21 +0000

Have you ever wondered what the best Roth IRA rates are? Well, you are not alone. Many people looking to start investing for their retirement think the same thing. The problem is that Roth IRAs don’t really have rates like a savings account or CD. They are just investment vehicles (or accounts).

What is a Roth IRA?

The Roth IRA or Roth Individual Retirement Arrangement (or Account or Agreement) was created as part of the Tax Payer Relief Act of 1997. Yes, this is a US Government created retirement account. But the Government doesn’t control where the account is opened or what investments you put into the Roth IRA. They simply allow for the creation of the account and for the specific tax treatment to be applied to it. Translation: the Government doesn’t tax your retirement earnings in a Roth IRA. This tax treatment makes it essentially the opposite of a Traditional IRA or a 401K. Bottom line: it’s a good thing. Get on board.

It’s worth pointing out that a Roth IRA should be used for investing for retirement. That’s their intended purpose. Not fixed rate chasing. Contributions to a Roth IRA are limited each year ($5,000 in 2009) and certain income thresholds apply.

A Roth IRA is Not an Investment: No Rates

A Roth IRA is simply a place to stash your investments to give them a better tax treatment. However, you can put several types of investments in your Roth IRA, including some fixed-rate type investments. Your Roth IRA can contain the same types of investments that you do outside of your Roth IRA (i.e. taxable investing). Within a Roth IRA you can have money market funds, CDs, individual stocks, bonds, mutual funds, index funds, and in some cases, a savings account (some local credit unions allow this). It’s importance to note that most IRAs only have the option of the money market fund for your cash. These funds, although stable, are not FDIC Insured.

The takeaway here is that when looking into rates, you should look at what’s inside your Roth IRA. It’s what’s inside that counts! (sorry…couldn’t resist)

Check out some of the best rates on Savings Accounts and CDs.

How to Find Low Cost Investments for Your Roth IRA

While you can’t control the interest rates of return for most of your assets in a Roth IRA (see 2009 Recession as an example), you can typically control the amount of fees you’ll incur. As a general rule, the lower the need to have someone else actively manage the funds in the account, the more likely that the investment has low fees. Therefore, an index fund is going to have lower costs than say, a target-date fund or a mutual fund. If you want to avoid management fees, stay away from managed investments. Read anything by Mr. John C. Bogle for more on this. Like I said above, you can also invest in CDs and money market funds within your Roth IRA. But these typically are temporary holding places for your cash when you’re deciding on which stock or bond fund to invest in.

No Fee and Low Minimum Balance Roth IRAs

Not every institution (bank, credit union, brokerage) treats their Roth IRA the same. Some may have high minimum balance requirements. For the beginner this can be discouraging. Here are a list of the places you can open a Roth IRA, starting with some of the low-cost brokerages.

Low Cost Brokerages Offering Roth IRAs

ShareBuilder – No fees and no minimums. $4 automatic trades. $9.95 for all others. Connect it to your ING DIRECT Orange Savings Account.

Zecco – No fees and no minimums. Free Stock Trades! 10 free stock trades every month with $25,000 in assets or 25 trades per month. Otherwise, it’s just $4.50 per trade.

TradeKing – No fees and no minimums. $4.95 stock trades.

ETrade – No minimum balance requirement and no custodial fees if you use their electronic statements. $9.95 stock trades.

Large Brokerage Firms with Roth IRAs

Vanguard – This is where I have my Roth IRA. They have no fees as long as you’re in their funds and use electronic statements. And they have very low cost investment options. The only downside to using them is that their funds have high minimum balance requirements. Therefore if you don’t have at least $1,000 to invest initially, you’ll have to stick your money in their money market fund until you’ve built up enough to invest. See my walk through of the Vanguard Roth IRA account opening process.

Others you might want to check out are Fidelity, Schwab, and T.Rowe Price.

Quick Tax Tip About Roth IRAs

Did you know you can actually contribute to a Roth IRA up until you file your taxes in 2010 and have it count against your maximum contribution limit for 2009? That means you still have time to invest in a Roth IRA for 2009. Already filed you taxes? Just start saving to contribute towards your 2010 Roth IRA.

How Good is Your 401K? Ask BrightScope

PT — Wed, 03 Mar 2010 18:00:26 +0000

The Secret Life of Fees in Your 401K

A few years ago, I mentioned that I used a target-date index fund in my 401K. A reader came out and bashed me pretty hard for that move, saying I was overpaying to save for my retirement. I was frazzled, not because of the comment, but because it was really hard for me to figure out how much I was actually paying in fees and defend my position.

For the next couple of weeks, I went on a mission to discover how much I was actually paying in fees to invest in my 401K. The results were not that bad compared to the other choices in my 401K plan. However, I was disappointed that it was so hard to determine. Thanks to some nice folks in the Get Rich Slowly forums for helping me weed through all the fee details.

If you have a 401K it’s possible that you’ve wondered the same thing: “How much of a cut are these guys taking?” And, “when is it worth stopping my contributions to a 401K to start investing in a Roth IRA with lower fees?”

Now there is a group determined to shed some light on the secret world of 401K fees. They are called BrightScope. I spoke with the co-founder and CEO of BrightScope, Mike Alfred. He shared with me some interesting stats, plus the basics of what BrightScope does.

Is the 401K Match Coming Back?

We first discussed the 401K match, something a lot of companies had done away with temporarily. Mike shared that despite the loss of the match, the savings rate for 401K participant had not dropped. People are still putting money into their 401Ks. We discussed a recent study concerning the return of the 401K, and although Mike agreed with the optimism of the results (the match will be returning for most companies), he found the study to be limited by the small amount of participants.

About BrightScope

One place that doesn’t use a small study group is the BrightScope website. They have over 33,000 401K plans included and rated using the BrightScope rating system. This is around 66% coverage of all the 401Ks in the US. What BrightScope does is gather all the data they can get on your company’s 401K plan. This includes things like fees, match, etc. They then compare this plan to a peer group of similarly sized companies. The result is the BrightScope Rating.

The BrightScope Rating is an industry standard quantitative 401k plan rating developed by BrightScope, Inc. with the help of leading academics and independent 401k fiduciaries. The BrightScope rating algorithm calculates a single numerical score for each 401k plan in the country after considering over 200+ individual data points in broad categories such as total plan cost, company generosity and investment menu quality.

How to Use BrightScope

I asked Mike how readers should go about using BrightScope. He suggested the following: (1) visit BrightScope and determine how well your company plan is performing; (2) determine how much in expenses you are paying; (3) share your rating information with your company’s HR department and ask about improving your rating; (4) leave comments on BrightScope.com for others to read. Here’s a snapshot of the BrightScope Rating (I applied it to BOA’s 401K):

Why Fees are So Hard to Find

I asked Mike why 401K fees are so hard to find. He didn’t have a direct answer but he gave me this nugget. Prior to the 80’s, most employers used a defined-benefit pension plan as the main benefit to provide their employees a secure retirement. With a pension, the company controlled all the investment decisions. There was no need for the employee to be aware of the fees, investment choices, etc. The employees would be taken care of. The risk was on the employer to make the right decisions.

Then along comes the 401K, the employee controlled plan, where a benefit is not defined, but the risk is shifted to the employee. Mike says that although employees are now responsible for their own retirement, they didn’t get full control of investment choices and they didn’t get the necessary information to help them make the decisions they need to make.

BrightScope is now helping to create the shift in choice and disclosure that is long needed in the retirement investing world.

What Others Are Saying About BrightScope

401K Fees: See What You Are Really Paying at Christian PF
How to Uncover the Secrets of Your 401K at Dough Roller

What if Your Company’s 401K is Not Yet Rated by BrightScope?

The company I work for has not been rated by BrightScope just yet. Mike assured me that they are getting to it. But he also pointed out that I can help. You can actually submit data to BrightScope. Click on the “Provide Us with Data” link and you’re taken to a page where you can upload specific plan documents. This will help BrightScope provide a rating for your company faster.

You can still find out your 401K plan fees by completing a Personal 401K Fee Report. It’s free to complete and will shed some light on the expenses of the funds in your 401K.

How to Figure Out Your 401K Expenses

Also, I ran across a nice 401K expense calculator in Money magazine this month that I thought I would share.

Step 1: Tally Administrative Costs

Go to your plan’s summary annual report. Find the “basic financial statement” section.
Subtract “benefits paid” from “total plan expenses.”
Divide that number by the total value of the plan.
This number is your plan’s administrative cost.

Step 2: Calculate Investment Fees

Multiply your fund expense ratio by your balance in the fund.
Divide those total fees by your total balance.
This number is your investment expense.
*If you have only one fund (i.e. target-date fund), your investment expense ration is the ratio on this one fund.

Step 3: Add Administrative and Investment Fees

So what are your thoughts about 401K fees and the rating system provided by BrightScope? Let me hear from you in the comments below…

Build a Biblically Based Retirement Plan: Free Seminar

PT — Mon, 15 Feb 2010 14:31:11 +0000

A quick announcement post about Jay Peroni’s upcoming seminar on value-investing and retirement. Jay has written some solid guest posts for PT Money in the past and is a regular contributor at Christian PF. He’s also a Certified Financial Planner and CEO of Values First Advisors. This looks like a great opportunity to connect with Jay and learn more about value-based investing.

Jay is offering a free seminar this Tuesday, February 16. The call will “arm investors with the knowledge they need to recession proof their assets and retirement from the uncertainties of the financial market.” More about the seminar:

“It is Jay’s firm belief and conviction that by holding fast to our Christian heritage and biblical values, everyone can build a solid financial plan for the present and future. Not only will this seminar give attendees the tools they need to protect their financial future, they will each receive a copy of Jay’s latest ebook, “10 Mistakes That Could Jeopardize Your Financial Future” as well as his Audio Mp3 Download, “Why 401ks, Annuities, and Mutual Funds are a Bad Idea”.

Jay encourages all who have concerns and questions regarding their financial planning for retirement to attend. The teleseminar will be held Tuesday, February 16 at 7:00 – 8:00 pm EST. For more information and to register, please visit http://www.jayperoni.com/seminar/seminar.html. When registering, please type in the Coupon Code: PTMONEY where indicated.”

2010 Roth IRA Conversion: Should You Make the Move?

PT — Thu, 21 Jan 2010 21:42:15 +0000

This article discusses the 2010 Roth IRA Conversion Rules. Anyone with a Traditional IRA or a 401K from an old job might want to get the information below. It could potentially save you more money in taxes during retirement than you’d pay now to make the move. It’s a lot of tax information for me to cover so if you find something that’s amiss or confusing just make a note in the comments below.

Roth IRA Conversion and the New Rules for 2010

I’ve never really discussed the Roth IRA conversion on the blog before, but now I have a good excuse. In 2010 (pronounced “twenty-ten” for all you insistent on holding onto the “two-thousand”) the TIPRA is going into effect and the IRS is permanently removing the income restrictions on who is allowed to convert a traditional IRA to a Roth IRA.

They are also allowing those who convert to a Roth IRA in 2010 to either take in hit in income in 2010 OR spread the income out to 2011 and 2012 (50/50). In short, you could end up paying less in taxes by using this strategy, which might have been unavailable to you before.

What is a Roth IRA?

Let’s quickly recap what a Roth IRA is for those that might want to move into one for the first time. Then we will dig into the new conversion rules.

Like a Traditional IRA, a Roth IRA allows you to contribute savings to retirement with certain tax advantages. This is up to $5,000 or 100% of your pay, which ever is less, annually. The IRS permits additional catch-up contributions of $1,000 if you are 50 or older. See more info on the Roth IRA contribution limits for 2010.

Unlike a Traditional IRA, the Roth IRA has limitations on the amount of income you can make to be able to make contributions. In 2009, the phaseout limit began at $105,000 for single filers.

Also, the Roth IRA can only accept after-tax contributions (for example, money that you get in your check after your employer pulls out your taxes). The Roth allows you to withdraw earnings tax-free, if it’s been five years since you started contributing AND you meet the IRS requirements (reached age 59 1/2). With a Roth IRA you can withdraw contributions at anytime, tax free. At no time are you required to withdraw funds.

Because of the different tax treatment of the Roth IRA, and the fact that it hasn’t been around as long as the Traditional IRA, you can quickly see why some people might want to move their money from one to the other. This process is called a conversion.

Special Conversion Rules for 2010

I’ve split up the next section into 3 periods: pre 2010, 2010, and post 2010. This will be a good way to illustrate how the conversion rules are changing.

Before 2010

Prior to this year, individuals earning more than $100,000 could not convert their Traditional IRA funds to a Roth IRA. This was a little disappointing for some people since they’d spent years contributing to a Traditional IRA before the Roth was available. And when it finally was available, they were restricted from using it.

If you could convert to a Roth IRA in 2009 or before, the amount you converted was taxable when converted (in the same tax year).

In the Year 2010

Thanks to TIPRA, things are changing for 2010. There has been a permanent repeal of the $100,000 income limit on conversions. Anyone can convert, regardless of income.

Also, this year only, the IRS will allow you to split taxable income between 2011 and 2012 (either,or).

After 2010

Going forward, after 2010, individuals of all income levels can make Roth IRA conversions. And conversions must be reported as taxable income in the same year they were made (so the 50/50 rule goes away).

Common Questions About the Roth IRA Conversion

Do the income limits for Roth IRA contributions still apply?

Yes. Only the income limits for conversions were removed.

Can you convert a 401K to a Roth IRA?

No. But you could possible roll over a 401k to a Traditional (rollover) IRA, depending on certain rules (no longer with the company, no tax effect, etc.), and then convert the Traditional IRA to a Roth.

Will you have to pay interest to the IRS if you chose to do the 2011 and 2012 recognition on the conversion income?

No. There is no interest you need to pay for delayed income recognition.

Will you need to sell your investments in the Traditional IRA and buy new investments in the Roth IRA?

No. You don’t have to sell assets as long as you are using the same company and they carry both account types, which is very common.

Does the money to pay the taxes have to come from an outside source?

Yes. The money you use to pay taxes on the conversion must come from a new source and not the Traditional IRA.

Key Considerations When Deciding to Convert from a Traditional IRA to a Roth IRA

Who Should Convert?

To help you apply all of this to you and your situation, let’s look at some factors. You should strongly consider converting if you…

Want more control over future withdrawals
Think you’ll be in a higher tax bracket in the future
Won’t need to tap into converted amounts within five years
Want your beneficiaries to inherit your account tax free

You May Not Want to Convert If

It might not be in your best interest to convert if you…

Expect to be in a lower tax bracket in the future
Need to tap into converted amounts within five years
Think the taxable conversion income may bump you into a higher bracket
Won’t readily be able to pay taxes on the amount you convert

So there you have it. Plenty of information to absorb regarding the 2010 conversion changes. I’m sure some will have questions. Fire away and I’ll try my best to track down an answer.

p.s. I’ll likely pass on doing a conversion in 2010. I actually like having some of my money in a 401K and Traditional IRA, and some in my Roth IRA. It keeps me in a more diversified tax position for retirement, I think.

Photo by D?de?ek

Roth and Traditional IRA Contribution Limits for 2010

PT — Thu, 07 Jan 2010 10:00:13 +0000

As a motivator to help you save more for retirement this year, I thought I would post the 2010 contribution limits for Traditional and Roth IRAs. Will you contribute up to the max this year for one of these accounts?

2010 Contribution Limits

For 2010, the most that can be contributed to your Traditional or Roth IRA generally is the smaller of the following amounts:

$5,000 ($6,000 if you are age 50 or older), or
Your taxable compensation for the year.

This contribution limit is the same as the last 2 tax years. It didn’t increase for inflation. Keep in mind, this contribution limit is doubled, of course, if you file your taxes married, filing jointly. It should also be noted that you have until you file your 2010 taxes or April 15, 2011 to meet these maximum contribution limits. While we’re on this topic, I should note that you still have time to meet the 2009 Traditional and Roth IRA Contribution Limits.

My Retirement Accounts

I’ve had a Traditional IRA since 2002. It was a great account to help me avoid hundreds in taxes during my early twenties. The Traditional IRA gave way to the 401(k), which you can’t contribute to at the same time as the Traditional IRA. Then, in 2009, I finally opened my first Roth IRA, which I can contribute to, along with my 401(k), as they are taxed differently.

Need a good reason to start a Roth IRA? Check out 10 Reasons to Get Off Your Butt and Start a Roth IRA.

The Importance of the IRA

The contribution limits aren’t that high for IRAs. Not like a 401(k). That, in my opinion, makes it far more important to take advantage of the annual IRA contributions. Every year you pass this up is another year you can’t contribute a tax-advantaged sum to your retirement. A 401(k) is more forgiving. With the 401(k)’s high contribution limit, you’d be able to catch up quicker with your tax-advantaged retirement savings if you started later in life. Not to say you shouldn’t also contribute to your 401(k) to at least get the match from your employer.

Should Companies Teach Their Employees the Basics of Personal Finance?

Guest — Wed, 06 Jan 2010 10:00:48 +0000

It’s no secret to anyone that Americans have accumulated high personal debt with less than wise spending in the last several years. Savings have been down and debt high by most measures available. The recent economic state certainly has changed consumer behavior and helped surface a real need to pay down debt, save more and spend wisely.

Debt, in my view, is crippling. The loss of a job or the need for extra cash at the time of an emergency are real circumstances for people. Debt clogs us up. It hinders us. It weighs us down. It enslaves us and it simply makes us inflexible to maneuver through these circumstances.

Where do we begin to change the trend? Sure, uncontrollable forces such as the economy that I mentioned will help, but surely there is more. Public schools are making the move to educate children on money management fundamentals and build personal finance curriculum. These children are our future leaders. They are the business owners and the family CFO’s.

It reminds me of years in playing soccer and loving the sport. It gave me the opportunity to see and think about what would change soccer in America forever? How would America become a competing powerhouse in the World Cup? It starts with the youth, right? You give them the best coaching and play them against the toughest competition and the future of soccer in America can change.

But, what do we do about the people like you and me who are in the working force today. Our personal finance education may have been minimal in our youth. Unfortunately, most families don’t train up children in this area. So for me it became a passion to learn more about personal finance when life got serious (marriage, children, etc.). My passion grew more and more and so much that I love to coach people today in money management.

In a recent article from the Harvard Business Review titled, “Teach Workers About the Perils of Debt”, experts found that employees are quite uneducated when it comes to personal finance. Surprise, surprise, you might say. Well, companies might be missing the boat on this one if they aren’t moving to include more educational tools (outside of the 401k/retirement) to help their employees.

“In light of the money consumers are pouring into credit card fees and interest payments, wouldn’t it be wise for companies to put some effort into improving debt literacy, rather than focusing workplace programs exclusively on retirement savings? Piling up credit card debt at rates of 18% or higher while investing a small fraction of weekly pay into a 401k may not be the best way for an employee to achieve financial well-being.”

But doesn’t it go beyond financial well-being? If employees are better at managing their money, perhaps they’ll be better at managing company resources. Perhaps they will carry with them less stress to the workplace which certainly impacts their ability to perform at the highest level. These are just my theories, but I think would be worth trying to measure for companies.

One of the things I’ve always been trained to do is to manage the company’s money like it were mine. But what if I’m drowning in debt and spending recklessly? “But I don’t have much financial responsibility at my company”, you say. Really? The smallest matters count. Are you wasteful with office supplies? Yes? Then you aren’t managing resources wisely and perhaps money management education could help.

This is a great opportunity for companies today. If they care for their employees, or provide them the instruction to better manage their money; I believe people will be able to give them more in return. Basic courses in budgeting and debt reduction in addition to the retirement planning would be a great start.

What do you think about employers investing in such programs for their people?

This is a guest post by Jason Price. Jason is a volunteer financial coach and personal finance blogger at One Money Design. He helps people manage money wisely for everyday life using practical ideas and Biblical financial principles. If you want to get his free money management tips and put your personal finances in order, follow him by Email, Twitter, Facebook, or RSS

SEP IRA: An Entrepreneur’s Best Friend in Retirement

PT — Fri, 11 Dec 2009 23:50:11 +0000

This article contains information on the 2009 SEP IRA contribution limits.

Considering a SEP IRA

As a self-employed business owner, you may be looking for the right kind of plan to save for retirement. But it is easy to become overwhelmed about which is best for your situation or your company. For self-employed individuals, the SEP IRA may be one of the easiest accounts to set up and keep going. It may also be one of the less costly plans available to business owners. It certainly requires much less time spent on paperwork than a traditional 401k account.

A SEP IRA account has many advantages over other kinds of retirement accounts but only after carefully considering the pros and cons against other types of retirement accounts should you make the decision. If you are an employee of a small business or if you yourself are self-employed, you are eligible to be enrolled in this kind of account. Only the employer will make contributions to the account.

What is a SEP IRA?

The SEP in the SEP IRA stands for ‘Simplified Employee Pension’. This account is essentially like a traditional IRA account but it allows for much higher contributions. Each eligible person will have an account opened on their behalf.

The SEP IRA has several benefits in addition to the higher contribution levels, including the ease of set up and account maintenance, and the ability to be 100% vested once the SEP IRA account is established. A SEP IRA account contributions are also tax deductible on income taxes. The investments made are tax-deferred until the funds are withdrawn.

A business owner with or without employees can establish a SEP IRA.

Who Needs a SEP IRA?

A SEP IRA account may be the right option for employers who want to contribute high amounts to their own retirement accounts as well as contribute to partners in company or employees in a small business. You are eligible to make contributions to a SEP IRA if you are a business owner, a part of a partnership, or a sole proprietor. You are also eligible for this type of retirement account if you earn any income from self-employment even when you have a full time job elsewhere and are enrolled in another retirement plan.

An advantage to having a SEP IRA account is that unlike other plans, there are no limits regarding your income level. Part time employees who are 21 years or older and who have worked three out of the previous 5 years and earned $500 or more yearly must be covered by the plan. Employers can choose to provide coverage for employees under the age of 21 at their own discretion.

SEP IRA Rules

A SEP IRA account must be set up and funded by the tax filing deadline of the sole proprietorship or the business if it has been incorporated. In order to get a SEP IRA established, you must have an agreement in writing to make provisions for eligible employees.

The owner of a self-employed business is considered to be an employee when relating to a SEP IRA account, as well as an employer. There is an agreement form, Form 5305-SEP, available from the IRS. Unlike a traditional 401k retirement account, you can not borrow against the funds in a SEP IRA account.

SEP IRA Contribution Limits

The amount of a SEP IRA contribution is capped at 25% of compensation. In 2009, the contribution allowance was up from $46,000 to $49,000 annually. Contributions are not mandatory in every year where there is a net profit. You also do not need to maintain a certain level of contributions. You have the freedom to make the choice, for instance, you can make the full amount contribution one year and then only a smaller percentage the following year.

You can also contribute nothing at all in that following year even if there was a net profit. For employees that have a SEP IRA account, the money is yours once the employer makes an account contribution. Only the employer makes contributions to the account.

Find a Good SEP IRA Calculator

If you are considering a SEP IRA account but are not completely confident that it is the right account for your retirement savings or your business, you can check your actual figures by using a calculator specific to the SEP IRA account.

There are several retirement fund calculators available online such as this SEP IRA-specific calculator or this contribution calculator at Individual401k.com. Enter your information to see if this kind of account is right for your situation and your retirement savings.

Where to Open a SEP IRA?

SEP IRAs can be established at a bank, mutual fund, brokerage house, or any other financial institution. An SEP IRA account can be established for a business typically within a day after the agreement form is completed.

Again, there are many options available for retirement accounts for small business owners and the self-employed. Compare the SEP IRA to other traditional retirement accounts to see which has the most advantages for your situation.

Suggested Asset Allocation for Your 529 Plan

PT — Mon, 07 Dec 2009 10:30:53 +0000

Since we’ve been covering college savings and 529 plans here lately, I thought it made sense to have a quick discussion about how you might consider investing your funds with your 529 savings plan. Let’s discuss how to achieve a proper asset allocation within your 529 plan.

What is Asset Allocation?

Asset allocation is spreading your money over different types of asset classes. The three types of asset classes are stocks, bonds, and cash. If you’re investing for the long-term you can reduce your risk by allocating your funds across these different assets. Each asset responds differently to the various changes to the economy/market. Therefore, you’re less likely to see all your investment money go down because all three asset classes are unlikely to go down at once.

Two things typically affect your asset allocation decision: your own time horizon and your own risk tolerance. This is very personal decision.

Should Asset Allocation Be Different for a 529 Plan vs Retirement Savings?

It may not be. But typically since the time horizon for needing college funds is tied to the age of your child, and because your risk tolerance for those funds may be different, the asset allocation is different. You may not be retiring for 25 years, but your 5 year old child will need his college savings in 13 years.

Likewise, you may be more willing to risk your retirement savings vs risking your child’s education savings. Only you know. But, there are some suggestions out there. I stumbled upon these suggested asset allocations percentages while sorting through my mail from the CollegeAdvantage 529 Savings Plan:

Suggested Asset Allocation for Your 529 Plan

Child's Age	Conservative	Moderate	Aggressive
5 and Under	50% Stocks / 50% Bonds	75% Stocks / 25% Bonds	100% Stocks
6-10	25% Stocks / 75% Bonds	50% Stocks / 50% Bonds	75% Stocks / 25% Bonds
11-15	75% Stocks / 25% Cash	25% Stocks / 75% Bonds	50% Stocks / 50% Bonds
16-18	75% Bonds / 25% Cash	75% Bonds / 25% Cash	25% Stocks / 75% Bonds
19 and Up	100% Cash	75% Bonds / 25% Cash	75% Bonds / 25% Cash

Source: CollegeAdvantage.com

Remember that your own asset allocation decisions could vary greatly from this. These are just suggestion.

Mrs. PT and I just opened our 529 savings plan and we have the contributions going to a Vanguard aggressive age-based fund (0.23% expense fee). We’re along way from needing the funds (17 years) and we are comfortable investing 100% in stocks, so we felt like this was a smart option.

See the third column below for how our asset allocation will change over time. Of course, we’re just getting started and so we may adjust and invest directly in funds to have bit more control.

How do you have your assets allocated in your 529 savings plan portfolio? Is it similar to the chart above?

10 Reasons to Get Off Your Butt and Start a Roth IRA

PT — Fri, 04 Dec 2009 18:41:33 +0000

I really love the Roth IRA. There are so many reasons to start one of these bad boys and get going with your retirement savings. Today I thought I’d do a little convincing and list some of the reasons to start a Roth IRA. So check these out and then get started. Seriously. No excuses.

1. You’ll Be More Prepared for Retirement

The Roth IRA was created to provide incentive for you to save for your own retirement. Use it. Retirement will be a big chunk of your life. Do you want to be relying on someone else to fund your trips to see your Grand kids or your golf course green fees (or fill in the blank with what you want to do)??

2. Pay Less in Taxes

The Roth IRA was created as a result of the Taxpayer Relief Act of 1997. This account allows you put in after-tax dollars, and never pay taxes again on those funds, AND never pay taxes on the earnings from those funds. If you used a regular savings account, CD, or taxable investing account for retirement savings, you’d have to pay taxes on your earnings. With a Roth IRA you can avoid all of that.

3. Tax Diversification

Odds are you already have a 401(k) or Traditional IRA. Those accounts use pre-tax dollars and then tax you when you retire. The Roth IRA is just the opposite. It uses after-tax dollars and then you never have to pay taxes on those funds again, or the earning you’ll receive from those funds. So by having both a 401(k) and a Roth IRA you hedge your bets against the future of taxation in the U.S.

4. More Control Over Investment Options

With a Roth IRA you have a broad range of investment options. Unlike your 401(k), you’re not restricted to a limited number of funds you can invest in. This is great because you can go out and find funds with lower expense ratios. Which will allow your retirement savings to grow even faster.

5. Because You’re Young

Young people have two big advantages with a Roth IRA: the power of compounding and a low income. For instance, if you’re in your 20s, you have around 40 years until you’re able retire. That’s 40 years that your money has to grow and compound on itself. Also, since you have a low income now, you’re more likely to fall under the IRS income requirements. High income earners aren’t able to contribute to a Roth IRA. Invest in a Roth IRA while you still can.

6. Because You’re Old (um, I mean not young anymore)

If you’re older than 50, and your income is still below the limits, you get to contribute an extra amount each year in “catch-up” contributions to your Roth IRA. That’s more tax advantaged savings towards your soon-to-be retirement.

7. You Can Withdraw the Contributions Without Penalty

With a Roth IRA you can withdraw all of your funds (both contributions and earnings) tax-free and without penalty at age 59 and a half. But there are circumstances that allow you to withdraw the funds even earlier.

While I don’t recommend this practice, you can withdraw funds from your Roth IRA prior to retirement to be used for whatever you want. As long as you don’t pull out more than your original contribution, you won’t be taxed or penalized. Pulling out earnings is what gets you taxed and a 10% penalty. But there are even loopholes for that.

8. Use Funds to Buy Your First Home

You can withdraw all your Roth IRA funds (contributions and earnings) if and when you decide you want to buy your first home. Again, I don’t recommend this practice, but it’s good to know the Roth IRA is so flexible.

9. Extra College Savings

While I believe you should try and put retirement before paying for their kid’s college, you can use the Roth IRA funds towards a college education. Some people specifically use a Roth IRA to save for college expenses.

10. It’s Easy

Opening a Roth IRA can be done online in less than 30 minutes. If you need more convincing or a helping hand through the process, check out the Roth IRA Rules and how I Opened My First Roth IRA.

Do you have another reason to start a Roth IRA? Leave it in the comments below…

Photo by Jelly Dude

Ten Financial Moves to Consider Before 2009 Ends

Guest — Mon, 23 Nov 2009 22:00:56 +0000

With less than 45 days left in 2009, here are ten strategies you may want to consider before the end of the year:

1. Have you fully funded your 401(k)?

If your finances allow you to do so, why not consider maxing out your 401(k) or other retirement plan for the remaining pay periods? Granted you haven’t already maxed it out. Contributions made to traditional IRAs and 401(k)s are typically made with pre-tax dollars which potentially could reduce your tax bill.

Editor’s note: Take a moment today to review your 2009 contributions. Have you maxed out? Will you get there? The maximum you can contribute to a 401(k) in 2009 is $16,500. See more 2009 contributions limits.

2. What about Making a Traditional IRA or Roth IRA contribution?

If you haven’t contributed to an IRA or Roth IRA in 2009, time is running out. Once April 15, 2010 comes and goes, you are out of luck! You are allowed up to $5,000 toward an IRA, Roth, or combination of both (granted total contribution doesn’t exceed $5,000). If you are over age 50 you can contribute an extra $1,000 for 2009 as a catch-up contribution.

Please note if your modified adjusted gross income (MAGI) is above $150,000, you may not be allowed to make a full or partial Roth IRA contribution, depending on your tax filing status.

3. How about harvesting some losses?

With the Crash of 2008, you may still have some losers in your taxable portfolio. You may want to sell some of these losers to offset some of your winners. This can counterbalance your capital gains. Also take advantage of tax breaks. If you are in a low tax bracket (10% or 15% federal income) for 2009, you won’t have to pay any capital gains tax. This extends to 2010 as well.

Keep in mind that you shouldn’t just sell something to generate a loss. You also don’t want to creep into a higher tax bracket. Also pay attention to the 30 day wash rule. If you sell a certain security you cannot take a loss if you repurchase the same security within 30 days. Click here for more about wash sales.

4. Are you considering buying your first home or upgrading your current home?

Are you in the market for a new home? The up-to-$8,000 first-time homebuyer (haven’t owned a home in past three years) credit has been extended until the end of April 2010. There is also now the up-to-$6,500 credit for buyers looking to upgrade their current homes (must have been in current residence for at least five years). Keep in mind, the phase-out limits on that credit have increased to $125,000 for single filers and $225,000 for joint filers. The only caveats are:

The home has to have a price tag of $800,000 or less
The home must be your primary residence

5. How about some energy credits?

If you make your principal residence more energy-efficient or purchase solar hot water heaters, geothermal heat pumps, wind turbines or other qualifying alternative energy equipment to heat or cool your home, you can qualify for a tax credit for up to 30% of the cost of the improvements. There is a maximum tax credit limit to $1,500 for improvements put in service in 2009.

6. Got kids in college?

The Hope Credit has now become known as the “American Opportunity Tax Credit”. This allows a credit of up to $2,500 toward qualifying college expenses. Keep in mind the credit gets phased out as single filers reach $80,000 Modified Adjusted Gross Income (MAGI) and $160,000 MAGI for joint filers. You also can take advantage of a Coverdell Educational IRA or 529 plans before the year ends.

7. Have you considered prepaying some deductible expenses now?

If you are confident you should be in the same tax bracket or lower in 2010, consider making an extra payment or two on your home loan in 2009. This will boost your mortgage interest deduction. Also consider prepaying your property taxes to gain additional tax write-offs. These strategies assume your financial situation allows you to do so.

8. Have you spent all that FSA money?

Do you have a Flexible Savings Account for your healthcare expenses? If so, think of some ways to spend your money before the year runs out. Maybe some new glasses or braces for the young ones? Many plans are “use it or lose it”. This means the money is gone after December 31st, unless your employer allows you an extended-access option for your 2009 FSA funds. Even if this is the case, you’ll still have to use the funds by March 15th of 2010.

9. Have you changed jobs this past year?

Now is the time to consider a rollover. Any old 401(k)s and other retirement plans can be consolidated into one IRA to simply and potential reduce your management costs. You may even consider converting to a Roth IRA in 2009 or waiting until 2010 when the Adjusted Gross Income (AGI) limit goes away.

10. Is it time for a portfolio review?

Want to see how you’ve progressed toward your goals this year? What about planning for next year? To evaluate strategies as the economic recovery progresses, now may be one of the best times to seek a Certified Financial Planner™ professional otherwise known as a CFP®. This will allow you to get some different points of view on your financial situation.

Those who create financial plans tend to sleep much better at night! If you want a better understanding of where you are on your financial journey, often meeting with a CFP® allows you to access, prepare, and organize your financial life. Get started today!

This article was written by Jay Peroni. Jay Peroni, renownedfinancial advisor and author of The Faith-Based Millionaire and TheFaith-Based Investor, is an expert authority on the subject of”Faith-Based Investing.” He is the editor of Faith-BasedInvestor, a stock newsletter, and is President & CEO of Values FirstAdvisors, Inc – a firm dedicated to values-based investment management and financial planning.

Photo by tranchis