Jul 09

I was listening to my local news station when a segment came on, a 5 minute bit of money advice with a local author and financial planner, Jonathan Pond.

I like his conservative approach. What’s unfortunate is that a quick few minutes to discuss any financial topic is going to miss some important details. In this case, the host asked what one should do with their 401(k) when they leave a job. Jon’s answer was to not leave it languish in the old account, to move it to an IRA. I hope listeners took that advice as “don’t forget about the 401(k), get more information.” I often say that it’s called personal finance  for a reason. Not all situations are identical. Let’s review 3 situations where leaving the account where it is would be best:

  • You were 55 or older when you left the company. Did you know that if you retire at 55, and try to take an IRA withdrawal before age 59-1/2, you’ll pay a 10% penalty? Yes there are some workarounds, a Sec (72t) withdrawal for instance. The simplest thing, however is to leave the funds in your 401(k) where you can withdraw with a 20% tax withholding, but no penalty, if you separated at 55 or older.
  • Your old 401(k) had great investing options. It’s possible. My old company 401(k) uses a Vanguard S&P fund that has a .02% annual expense. This is a $200 fee for every $million invested. The typical 401(k) expense is 1% or .02% per week.
  • Last, you’ve been doing well, well enough that you can’t make a pre-tax IRA deposit. Still, each year, you can do the back door Roth. Deposit to the IRA and immediately convert to Roth. Easy, right? Yes, but if you transfer your 401(k) to an IRA, and then try this maneuver, you’ll be in for a headache and tax bill. Conversions to Roth are prorated, all your IRA money is considered. So if you had $95K in your IRA and then deposit $5K to convert, 95% of the conversion will be taxable. Keeping the funds inside the 401(k) is the way to keep these funds segregated.

Are you making this decision right now? What factors have been part of your thought process? Have friends or family been giving you advice to go one way or the other?

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Nov 07

As exciting as the new tax table was for me, the retirement limit announcement produced a hollow thud.

You see, for 2014, the 401(k), 403(b), 457, and Government TSP are all unchanged at $17,500 limit, with a $5,500 catch-up provision for those 50 and older.

The IRA limit is also unchanged at $5,500 with a $1,000 catch-up for 50 and older. The phaseout for IRA deductibility for a single filer covered by a workplace retirement plan is between $60,000 and $70,000, and for married filing joint, between $181,000 and $191,000. The AGI phase-out range for taxpayers making contributions to a Roth IRA is $181,000 to $191,000 for married couples filing jointly.

For those in that phaseout range, these numbers are important. Above or below them, and you’re not impacted at all.

This lack of an increase comes thanks to a low CPI inflation rate, which is either good, or if you are a conspiracy theorist, is purposely understated to keep Government programs COLAs from increasing too much. Either way, the numbers are out.

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Sep 29

A busy week, with some great articles to discuss. At Bargaineering, Miranda gave some guidelines on How to choose between a traditional 401(k) and a Roth 401(k). It takes a bit of math and analysis to calculate the better option, and Miranda’s advice helps provide some insight to this process.

At Monevator, Why I’m not paying off my mortgage. The math is simple, his mortgage is currently 1.24% The Accumulator is comfortable his investments will beat this rate long term, so instead of paying off the mortgage, he’s staying fully invested. This issue has people on either side and a whole bunch in the middle. I’m in the group that will be paid off before retiring, but not in a rush to accelerate payments to end it sooner. How about you?

Len Penzo tells it like it is, he doesn’t mince his words. And it seems neither do guest posters at his blog. This week, Joe Saul-Sehy advises, Don’t Be a Moron: How One Man Paid $87,500 in ‘Moronic’ IRA Fees. You read my delightful and informative article A 401(k) is not an investment? This one could be a great follow up to it, alternately titled “An IRA is not an investment.” Against all the good advice Joe S had to offer, a client “cashed out” his IRA, and was left with a huge tax bill and penalty. The title was slightly misleading, to me a fee is something else, but the story brought a tear to my eye as I considered how many hours the story subject must have worked to earn this money, and it was gone with one stroke of a pen.

At I Heart Budgets, Jacob asked a question – What’s Your Percentage? He’s saving 6% of his income and would like to increase this number to help pull in his projected retirement date. A nice goal, Jacob.

Ninja at Punch Debt in The Face tells us, “I hate paying for things that we don’t use.” I don’t blame him. It’s bad enough to spend money on the necessities, but to see it go towards things you don’t use is just awful. No Netflix for me, either, Ninja.

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Jun 02

Let’s start this week with Andy Hough’s My Retirement Blog. Andy wrote why you should Take Advantage of a Stretch IRA, along with excellent examples of the kind of withdrawals required at various ages. The difference between taking the money and running and taking the deposits over the years can be huge. As long as the tax code still permits, consider the stretch if you are fortunate enough to inherit an IRA account.

Still on the IRA topic, at 20 Something Finance, G.E. Miller wrote Roth vs. Traditional Retirement Accounts: Why Roths are Not Always the Clear Winner. You see, there’s a bit of forecasting required, what bracket are you in now, and what might it be in the future? Those who retire with all their money in a Roth IRA have left money on the table, or worse, in Uncle Sam’s pocket.


Barb Friedberg asked (and answered) What Happens When Fed Exits From Stimulus? Yes, that’s the million dollar question. No, I’m not going to give you the punchline, just tell you that Barb offers a great discussion on the topic, tell her I sent you.

The discussion surround Apple and its offshore cash hoard seems to be fading in the news. One last article on the topic from Robert D Flach, the Wandering Tax Pro. Robert says Don’t Blame Apple, and agrees that they are simply following good business practice. If you have a congressman who is your friend, neighbor, or just in your pocket, why not tell them to suggest that the fault isn’t with Apple, but with our tax code, It’s congress’ job to fix this.

Andy Hough also guest posted at Tight Fisted Miser. He was still stretching, but this time he wrote How to Stretch your 5% cash back. A clever strategy to get 5% on more than just the select categories your card offers that quarter.

We’ll close this week’s roundup with William Cowie’s guest post at Five Cent Nickel – What do you do with your windfalls? A great question, as I often observe how people will treat their tax refund as a windfall, yet, it’s money out of their check every pay period. Check out Will’s thoughts on windfalls.

I’ve been tinkering a bit with a PB blogger feed. A page of the last couple posts that bloggers I follow have written. So far My Favorite PF Bloggers  is how I follow the PF bloggers I like best.

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Apr 14

Let’s start this week with an exciting milestone in my life. My first radio interview has now made it to a Podcast. My daughter thinks this makes me famous, but I told her I’m famous only in my own mind. Last September, I attended the annual Financial Bloggers’ Conference, and one day at lunch I happened to be sitting next to Gerri Detweiler, She is an author, speaker, credit expert, and radio host of Talk Credit Radio. She asked me all the right questions, inviting me to tell her about my most recent accomplishment, helping a reader avoid $90K in taxes due to some very bad advice she received regarding an inherited IRA. I wrote about the situation at my Rothmania site in an article “Let’s Kill All the Lawyers” and this story prompted an invitation to her show soon after. The podcast Inherited IRA Tax Tips is available through her web site, and while the subject is, admittedly, a bit dry, the lessons you learn might save you a nice chunk of money down the road.

Michael Kitces brought an older article of his to my attention, Why Saving In A Roth (Or Any) IRA Might Be A Bad Idea For Young People After All. I’m keeping an open mind, and appreciate when some very intelligent bloggers offer a completely differ spin that makes me stop and think a bit.

Five Cent Nickel hosted a guest post from William Cowie, Meet Jim, my millionaire next door. The title is a reference of course to Dr Thomas Stanley’s series of books which included The Millionaire Next Door, and my favorite, Stop Acting Rich. Some of us have neighbors that are just that, millionaires next door, others are simply keeping up with the Joneses.

The Free Financial Advisor took a bit of a shot at others in Bad Advice? Here’s Some From Top Money Gurus. In this article we’re shown five bits of advice that seem to fall a bit short. The classic ‘bad advice’ I’ve disagreed with for years is the David’s debt snowball. Paying off that stack of $1000 card with the 6% rate so you feel better about finally getting to the 24% card that you owe $10K on. Not the advice I’d offer.

Strangely, the One Percenter tells us, “I Don’t Recognize U.S. Coins.” And then I saw the image of the nickel he posted, and I’m not sure I’ve seen one myself. I was aware of the quarters showing scenes from each state. Those seem to have started a decade ago. But I do get the point, I agree, we use less and less cash, favoring a charge card for even small, quick purchases.

On a personal note, I finished our taxes today. They were nearly done a month or so ago, but no rush, there was a chance some form would come to me late, or my wife would find a receipt from a charity tucked away (instead of handing it to me to put in the tax folder!) Are your taxes all done? If not, will you be finished by Monday night? If you need extra time, you can file for a six month extension with the IRS. Remember, this is just an extension to get the final return sent in, not extra time to pay what’s due. Take your best shot at the return with the information you have, and pay at least what you expect the bill will be.

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