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April 9, 2013

Choosing the Right IRA

Setting aside money for your retirement is a smart thing to do - and tax time is a great time to get started. However choosing which Individual Retirement Account (or IRA), can sometimes be a difficult thing to do. The most popular types of retirement accounts are: Traditional, Roth, and SEP IRA. To qualify for an IRA contribution you must have earned income which is defined as: wages, salaries, tips, commissions, and bonuses but does not include income from dividends, pensions, or annuities. For those selecting a SEP IRA (Simplified Employee Pension IRA), earned income includes net income from self-employment. Below are a few thoughts to keep in mind when choosing your IRA:

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December 27, 2010

Do You Have Enough Retirement Funds?

Whether retirement is just around the corner or you are decades away from your final day in the office, knowing how much you will need and how your nest egg measures up is important. That knowledge should help you make necessary adjustments to your investment strategy to ensure a comfortable retirement.

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November 29, 2010

401(k) Plan Mistakes

While it is true that participation is the first step, simply putting money into your 401(k) plan won't guarantee a comfortable retirement. Below are five common 401(k) mistakes and steps you can take to avoid them:

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November 18, 2010

The New Economy and Retirement

It appears in news headlines and in speeches, in policy discussions and in water-cooler talk. It's called the "new economy." The fact is that the recent recession has changed the way that we think about our money, today and into the future. Not only has it changed the way we work, but it has also changed the way we think about not working.

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November 4, 2010

Year End Tax Planning for IRAs

As year-end approaches, now is a good time to make sure you've taken appropriate tax steps for your individual retirement accounts (IRAs). Consider these tips:

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June 8, 2010

Get Your 401(k) Plan On Track

To make sure you have sufficient funds for retirement, you need to get your 401(k) plan on track. To do so, consider these tips:

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May 28, 2010

Keep Saving Even After Retirement

Just because you're retired doesn't mean you should stop saving. Consider these tips:

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May 5, 2010

Should You Convert to a Roth IRA?

Effective in 2010, all taxpayers, regardless of the amount of their adjusted gross income (AGI), can convert a traditional individual retirement account (IRA) to a Roth IRA. Amounts converted must be included in income if taxable when withdrawn (i.e., contributions and earnings in deductible IRAs and earnings in nondeductible IRAs), but they are exempt from the 10% early withdrawal penalty.

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April 5, 2010

Calculate Inflation With Your Retirement Planning

Inflation has been tame for so long that it's easy to forget how much it can affect your purchasing power over a long retirement. Over the past 10 years, inflation, as measured by the consumer price index, has averaged 2.5% (Source: Bureau of Labor Statistics, 2009). At 2.5% inflation, $1 is worth 78¢ after 10 years, 61¢ after 20 years, and 48¢ after 30 years. Thus, you need to look for strategies to lessen inflation's impact during retirement:

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March 17, 2010

Is 10% Enough for Retirement Savings?

A common rule of thumb when planning for retirement is to save 10% of your gross income during your working years. Since this rule of thumb has been around for a long time, it's logical to question whether it's still an appropriate guideline. Several trends suggest that it is probably on the low side:

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February 11, 2010

Estimating Your Retirement Savings

When determining how much to save by retirement age, several variables must be considered, some requiring estimates that will span decades. Err significantly on those estimates, and you can end up with little or no money left during the later years of your life. Three of the most significant estimating mistakes to watch out for are:

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February 3, 2010

Moving Slowly into Retirement

For most of your working life, you've looked forward to the day when you can quit your job and start enjoying retirement. But in recent years, talk of longer life expectancies, uncertain Social Security benefits, declining pension benefits, unknown inflation rates, and low retirement savings made retiring at a relatively young age seem difficult. Then, in the past couple of years, declining investment and home values made it seem even more difficult to retire at any age. More and more people are coming to the conclusion that either retiring later or continuing to work during retirement is necessary.

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December 3, 2009

Should You Pay Off Your Mortgage Before You Retire?

A recent study found that 41% of homeowners between the ages of 60 and 69 still have a mortgage on their home. Of those, 51% had sufficient assets to repay their mortgage (Source: Center for Retirement Research, July 2009). The study found that most households would be better off paying their mortgage off, since the cost of the mortgage is higher than their investment earnings. But is that good advice for your situation? Before making this decision, be sure to consider these factors:

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November 30, 2009

How to Grow Your 401(k) Plan

Your 401(k) plan's ultimate size is primarily a function of two factors -- how much you contribute and how much you earn on those contributions. Of course, you know you should contribute the maximum amount possible ($16,500 in 2009 plus a $5,500 catch-up contribution for individuals over age 50, if permitted by the plan). But what steps should you take to maximize your returns right now? Consider these five tips:

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November 25, 2009

Why You Should Have an IRA

In some ways, a 401(k) plan or defined-benefit plan from an employer can provide a false sense of security. You may feel, without analyzing the situation, that you're saving enough for retirement. But the reality is that the plan may not be enough to provide the retirement you had in mind. Thus, you may also want to contribute to an individual retirement account (IRA) for some or all of the following reasons:

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October 27, 2009

Stagger Retirement Dates Between Spouses

The Center for Retirement Research indicates that only 20% of couples retire in the same year -- 50% still have one spouse working two years after the other spouse has retired. Often, one spouse retires before the other due to health problems or a layoff, not necessarily because the spouse chooses to retire early. No matter what the reason, keep these points in mind if you are in that situation:

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September 28, 2009

Is Your 40l(k) Plan Enough?

If you work at a company that offers a 401(k) plan, especially if the plan offers matching contributions, that 401(k) plan may be the most important part of your retirement investment plan. But should it be the only part?

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September 24, 2009

Review Your Retirement Plan

When was the last time you looked at your retirement plans? Don't let the recent market declines cause you to just give up and ignore your plans. Sure, you'll probably need to make some changes. So go back to the basics and reconstruct those plans, following these key six steps:

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September 10, 2009

Undoing a Roth Conversion

When converting a traditional individual retirement account (IRA) to a Roth IRA, transferred amounts must be included in income if taxable when withdrawn (i.e., contributions and earnings in traditional IRAs and earnings in nondeductible IRAs), but are exempt from the 10% federal income tax penalty. In 2009, your adjusted gross income (AGI) cannot exceed $100,000 in the conversion year, excluding any converted amounts. Starting in 2010, you can have any amount of AGI and still convert to a Roth IRA.

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September 3, 2009

Benefits of Roth IRAs and Roth 401(k)s

The Roth individual retirement account (IRA) has been an attractive retirement savings option since its inception in 1998. However, income eligibility restrictions have prevented many higher-income individuals from using this savings vehicle. Two recent developments are changing that -- the removal of income limitations for Roth IRA conversions and tax laws making the Roth 401(k) permanent.

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August 21, 2009

No Required Minimum Distributions (RMDs) for 2009

Individuals age 70 1/2 and older do not have to take a required minimum distribution (RMD) from their company retirement plans or traditional individual retirement accounts (IRAs) in 2009. RMDs for 2009 were suspended as part of the Worker, Retiree, and Employer Recovery Act of 2008. The suspension applies only to defined-contribution plans such as IRAs, 401(k)s, 403(b)s, and 457 plans, but not to defined-benefit plans or other traditional pension plans.

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July 27, 2009

How Much Can You Withdraw in Retirement?

How much to withdraw annually from your retirement assets is probably one of the most important decisions you'll make when you retire. Several factors need to be considered when calculating your withdrawal rate, including your life expectancy, expected long-term rate of return, expected inflation rate, and how much principal you want remaining at the end of your life. Unfortunately, life expectancies, rates of return, and inflation are difficult to predict over a retirement period that can span decades. Keep these points in mind:

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May 1, 2009

Rolling Over an IRA to a 401(k) Plan

If your 401(k) plan permits, you can roll over balances from a traditional individual retirement account (IRA), but not a Roth IRA, to a 401(k) plan. To qualify as a tax-free rollover, the balance must be rolled over to a 401(k) plan for the same person who owns the IRA, the balance must be rolled over within 60 days, and the maximum amount rolled over cannot exceed amounts that would be includible in gross income if not rolled over. Thus, contributions to nondeductible IRAs cannot be rolled over, but contributions to deductible IRAs and all earnings in both types of IRAs can be rolled over. Also, any required minimum distributions for the year cannot be rolled over.

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How Long Will You Be Able to Work?

Retiring at age 65 without working for the rest of your life is starting to look like a difficult proposition. It was already challenging due to longer life expectancies, uncertain Social Security benefits, declining pension benefits, unknown inflation rates, and low retirement savings. Then, most people's retirement savings decreased significantly over the past couple of years due to declining investment and home values. The prospect of funding a retirement that could span 30 years is looking very tough. The most common solution to the problem is to work longer than the current average retirement age of 63.

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April 17, 2009

How Much Money Do You Need for Retirement?

One of the most critical factors in determining how much you need to accumulate by retirement age is how much annual income you'll need in retirement. But if that retirement date is years or decades away, it may be difficult to come up with a reasonable estimate of your income needs. Most people will want a standard of living similar to the one they're living before retirement; so simple rules of thumb, like 70% of preretirement income, may not give you an accurate estimate. Follow these tips to estimate how much money you will need:

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April 13, 2009

Encourage Your Child to Fund an IRA

Once your child starts working, help him/her develop good savings habits by encouraging him/her to fund an individual retirement account (IRA). Even if your child only contributes for a few years, an IRA can provide significant funds for retirement.

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March 16, 2009

Pension Plan Decisions

In the past, a retiree typically received a monthly pension check and Social Security benefits. Now, it's not uncommon for a retiree to have a pension plan, a couple of 401(k) plans, some individual retirement accounts (IRAs), personal savings, possibly some deferred compensation, and maybe an annuity. Deciding how to handle all of those different income sources in the most advantageous manner is a daunting task. In many cases, decisions regarding pension plans are irrevocable, so proper choices are imperative. Before making those decisions, consider the following:

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February 12, 2009

How to Protect Your Retirement Nest Egg

While stock market fluctuations are painful for all investors, they are even more so for those nearing or in retirement. Investors who won't be retiring for many years have plenty of time for their investments to grow. Current and prospective retirees, however, may be concerned about how market fluctuations will affect their retirement plans. If you're looking for ways to help protect your retirement nest egg, consider the following:

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January 9, 2009

Lessons About Saving for Retirement

First, the stock market declines in 2000 and during the past year removed substantial gains from individuals' net worths. Now, the decline in housing values has reduced people's net worths even more. For instance, the Center for Economic and Policy Research estimates that the average net worth of individuals between the ages of 45 and 54 is 25% less than it was in 2004, due to declining home prices. For individuals facing retirement in the near future, it has been a double whammy for their retirement savings. What lessons can be learned from these events?

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December 15, 2008

Consider Inflation When Planning for Retirement

Inflation has been tame for so long that it's easy to ignore when planning for retirement. However, even inflation of 2% or 3% per year, over a period of many years, can seriously erode the purchasing power of your funds. At 2.5% inflation, $1 today will be worth 78 cents in 10 years, 61 cents in 20 years, and 48 cents in 30 years. That can have a major impact on those entering retirement for several reasons:

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October 10, 2008

How to Accelerate Your Retirement Savings

Don't just give up on your retirement goals if you find you've entered middle age with little to no retirement savings. Sure, it may be harder to reach your retirement goals than if you had started in your 20s or 30s, but here are some strategies to consider:

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October 1, 2008

Consider a Roth IRA at Any Age

Even if you're retired, you should consider contributing to a Roth individual retirement account (IRA), provided you have some earned income. In 2008, single taxpayers with modified adjusted gross income (AGI) less than $101,000 and married taxpayers filing jointly with modified AGI less than $159,000 are eligible to make a nondeductible contribution to a Roth IRA. Contributions are phased out for married couples filing jointly with modified AGI between $159,000 and $169,000 and for single taxpayers with modified AGI between $101,000 and $116,000. In 2008, the maximum annual contribution is the lesser of $5,000 or earned income. Individuals age 50 and older can make an additional $1,000 catch-up contribution. Pension, investment, and rental income are not considered earned income.

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September 19, 2008

When Should You Pay Back Your Social Security Benefits

Deciding when to start Social Security benefits is an important decision. While full retirement age for Social Security benefits is gradually increasing from age 65 to age 67, you can still start benefits at age 62. However, your benefit will be permanently reduced by 20.8% to 30%, depending on your year of birth. Wait until age 70, and your benefit will increase by 3.5% to 8% annually, again depending on your year of birth.

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September 12, 2008

Rolling Over Pension Plan Assets to a Roth IRA

Starting January 1, 2008, the Pension Protection Act of 2006 permits proceeds from qualified retirement plans, including 401(k), 403(b), and 457 plans, to be rolled over directly to a Roth individual retirement account (IRA). In the past, the proceeds had to be rolled over to a traditional IRA and then from the traditional IRA to a Roth IRA. Guidance was recently released by the Internal Revenue Service on how to apply this provision.

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September 5, 2008

Social Security Benefits for Married Couples

When should married couples apply for Social Security benefits? Before answering this question, you first need to understand the rules governing Social Security.

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August 12, 2008

How to Maintain Your Retirement Income

Saving enough by age 65 to ensure that you can maintain your standard of living through a long retirement has become increasingly difficult. Consider just this one fact. Current retirees receive close to 70% of their retirement income from Social Security and defined-benefit pension plans, while today's workers will probably only receive one-third of their retirement income from those sources (Source: Ibbotson Associates, 2007).

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July 9, 2008

Spousal IRAs

Perhaps you are a stay-at-home parent, or your spouse is a professor on an unpaid sabbatical. Maybe your spouse decides to take time off to write a book. Even though you are not working, you still need to consider retirement plans. A spousal individual retirement account (IRA) allows a nonworking spouse to contribute to an IRA, even though the spouse has little or no earned income. Here are the basics:

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June 11, 2008

How to Extend the Life of Your IRA

Individual retirement accounts (IRAs) are usually viewed as retirement planning vehicles. But with increased contribution amounts and the ability to roll over 401(k) balances to an IRA, many IRA owners are finding they won't use the entire IRA balance for retirement. Thus, IRAs are increasingly becoming major estate planning tools. When used for estate planning, the goal is to extend the IRA's life as long as possible so that beneficiaries can benefit from the tax-deferred (for traditional IRAs) or tax-free (for Roth IRAs) growth. How can you accomplish that?

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May 14, 2008

Asset Transfers by Nonspouse Beneficiaries

The Pension Protection Act of 2006 contained a provision allowing nonspouse beneficiaries to roll over funds from an employer pension plan to an inherited individual retirement account (IRA), starting in 2007. This was viewed as a significant development for nonspouse beneficiaries, who would be able to extend distributions from employer pension plans over their life expectancies rather than the typical five-year period imposed by most plans.

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May 12, 2008

The Benefits of a Roth 401(k) Plan

Although Roth 401(k) plans became effective on January 1, 2006, they are just now starting to gain momentum. Originally, Roth 401(k)s were scheduled to expire after 2010, so companies were not willing to start a plan that would expire after a few years. However, the Pension Protection Act of 2006 made Roth 401(k)s permanent.

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May 7, 2008

Withdrawals From Your IRA

The tax laws regarding withdrawals from individual retirement accounts (IRAs) are complex. To avoid unnecessary penalties and to ensure you withdraw the funds efficiently, here are the basics:

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March 10, 2008

How Much Retirement Income Will You Need

A general retirement planning rule of thumb indicates that you'll need 70% to 80% of your preretirement income. Many estimates now indicate that may be too little for those who want to live an active retirement lifestyle. But when you realize how much you need to save to ensure your retirement income last for what could be decades, it's tempting to question whether you really need even 70% of your preretirement income.

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February 25, 2008

Comparison of Roth IRAs and Traditional Tax Deferred Plans

When planning for retirement, it's important to understand the difference between Roth IRA accounts and traditional IRA and 401K plans.

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February 11, 2008

How Surviving Spouses Should Handle IRAs

When a surviving spouse is the sole beneficiary of a traditional IRA, he/she has the option of treating the inherited IRA as his/her own (or roll it over into his/her own IRA) or remaining the beneficiary on the account. Which option to choose largely depends on the surviving spouse's age:

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February 8, 2008

Don't Withdraw Funds From Your Retirement Account

Finding a way to live decades in retirement without worrying about running out of money can seem like an overwhelming task. That goal depends on many variables and assumptions, including your life expectancy, your retirement age, your lifetime earnings, your retirement expenses, retirement income sources, your investment rate of return, and future inflation. If you're wrong on even one of those variables, funding your retirement could be in danger.

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January 2, 2008

How Long Should You Expect to Work

Most of us have grown up in an era when the dream is to retire as soon as possible -- age 65 or sooner. In fact, almost half of men retire at age 62 and half of women retire at age 60 (Source: Financial Planning, September 2007). But if you haven't retired yet, a whole host of trends make retiring at age 65 seem difficult:

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December 18, 2007

Factors to Consider in Retirement Planning

To enjoy your retirement without financial worries, make sure you have enough money saved when you retire. However, that calculation can be a daunting task, since a variety of factors affect your answer and inaccurate estimates for any factor can leave you with way too little in savings. Some of the more significant factors include:

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November 5, 2007

Common Mistakes With Retirement Plan Withdrawals

During your working years, your emphasis was to accumulate as much as possible for retirement. But as you near retirement age, you need to start thinking about how to withdraw those funds to maximize your income. To help accomplish that, avoid these mistakes:

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October 10, 2007

The Value of Your Social Security Benefits

For years, we've heard that Social Security benefits are at best modest and should not be counted on as our only source of retirement income. Sometimes, it's even suggested to completely forget about Social Security benefits when planning for retirement, because changes in the system will probably be necessary when the huge number of baby boomers start retiring. But the fact is that Social Security benefits are a very valuable benefit, especially since benefits are adjusted for inflation annually.

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September 12, 2007

Undoing a Roth Conversion

When converting a traditional individual retirement account (IRA) to a Roth IRA, transferred amounts must be included in income if taxable when withdrawn (e.g., contributions and earnings in traditional IRAs and earnings in nondeductible IRAs), but are exempt from the 10% federal income tax penalty. Your adjusted gross income (AGI) cannot exceed $100,000 in the conversion year, excluding any converted amounts.

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August 3, 2007

Which is More Important - Saving for Retirement or Saving for Your Child's Education

With limited resources for saving, which is the more important financial goal — saving for your retirement or saving for your child’s college education? While many parents want to pay the entire cost of their childrens' college educations, the reality is that there are a variety of ways to pay for that education — personal savings, financial aid, and loans. Unfortunately, there are not similar options for your retirement. No one is likely to loan you money if you have not saved enough for retirement. You may want to maximize your retirement savings, realizing that there are ways to use those savings to help with education costs. How can that strategy help when it comes time to send your child to college?

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July 11, 2007

Take Another Look at Your 401(k) Plan

Originally, 401(k) plans were viewed as a supplement to defined-benefit plans. Since it was presumed that employees would have their basic retirement income needs covered by Social Security benefits and employer-provided pension benefits, they were given significant responsibility in 401(k) plan decisions, such as deciding whether to participate, how much to contribute, which investments to select, and how to take withdrawals.

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July 5, 2007

Rollovers for Nonspouse Beneficiaries

The Pension Protection Act of 2006 contained a provision allowing nonspouse beneficiaries to roll over funds from an employer pension plan to an inherited individual retirement account (IRA), starting in 2007. This was viewed as a significant development for nonspouse beneficiaries, since they would be able to extend distributions from employer pension plans over a longer period. However, recent guidance by the Internal Revenue Service (IRS) indicates that this provision may be difficult for nonspouse beneficiaries to implement.

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July 3, 2007

Planning for 2010 Roth Conversions

Starting in 2010, all taxpayers, regardless of the amount of their adjusted gross income (AGI), can convert a traditional individual retirement account (IRA) to a Roth IRA. Before 2010, your AGI cannot exceed $100,000 to convert, not including any income resulting from the conversion. Amounts converted must be included in income if taxable when withdrawn (i.e., contributions and earnings in deductible IRAs and earnings in nondeductible IRAs), but are exempt from the 10% early withdrawal penalty.

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May 9, 2007

Reassessing Your Retirement at 60

Approximately five years before you want to retire, thoroughly reconsider your retirement plans and make sure all significant financial pieces are in place. Once you retire, you probably won’t have the option of going back to your pre-retirement job. So, before you retire, consider these points:

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March 8, 2007

Make Conservative Assumptions About Retirement

How can you ensure that you will have sufficient funds to last your entire retirement? So many of the variables used to calculate this amount seem uncertain. What is a reasonable rate of return for your investments over the long term? How long will you live, knowing life expectancies are increasing? How much can you count on from Social Security and pension plans? If you are concerned about running out of money during retirement, you need to be very conservative with your assumptions. Some tips you may want to consider include the following:

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March 1, 2007

Benefits of Moving Gently into Retirement

For most of your working life, you have looked forward to the day when you can quit your job and start enjoying retirement. But in the face of longer life expectancies, uncertain Social Security benefits, declining pension benefits, unknown inflation rates, volatile markets, and low retirement savings, can you really afford to retire at a relatively young age and spend decades supporting yourself without a job?

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February 21, 2007

How Much Do You Need for Retirement

One of the most critical factors in determining how much you need to accumulate by retirement age is how much annual income you’ll need in retirement. But if that retirement date is years or decades away, it may be difficult to come up with a reasonable estimate of your income needs. Most people will want a standard of living in retirement similar to the one they’re living before retirement, so simple rules of thumb, like 70% of preretirement income, may not give you an accurate estimate. Follow these tips to estimate how much you’ll need:

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December 11, 2006

An Annual 401(k) Plan Review

At least annually, you should thoroughly review your 401(k) plan. Some of the items you need to review are your goals and objectives, contributions, allocation strategy, and more.

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November 16, 2006

The Dangers of Delaying Retirement Savings

Delaying retirement savings is a common problem. Even though we know it’s best to start saving for retirement at a young age so our savings have long periods to grow and compound, it’s difficult to find money to save when we are getting established and raising families. Thus, it’s easy to postpone saving, waiting until your children are grown to start saving significant sums for retirement. However, if you wait until your 40s or 50s to start saving, it can be very difficult to save a large enough portion of your income to ensure adequate savings for retirement.

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November 11, 2006

Leave Your 401(k) Funds Alone

If you leave your employer, one of your major decisions is deciding what to do with your 401(k) funds. Your worst option is to take a distribution, pay taxes and a penalty on it, and then spend the money on something other than retirement. By taking a distribution, you use your retirement funds and forego any further tax-deferred growth on those assets. In addition, you may incur a large tax bill, since withdrawals are subject to ordinary income taxes and a 10% federal income tax penalty if you are under age 59 ½ (55 if you are retiring). Do not make the mistake of thinking it is just a small amount and will not make much difference for your retirement. Over the long term, even a modest sum can grow to be a significant amount.

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November 8, 2006

Retirement Planning Throughout Your Life

After working 40 or 50 years, you could find yourself retired for another 20 or 30 years. To support yourself without a job for 20 or 30 years, you should probably be planning for retirement during your entire working life. However, your concerns and strategies for retirement will change as you age. Consider the following tips from your 20s through your 60s and beyond:

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August 22, 2006

Retirement Planning: Are You Scared or Prepared?

If you are planning on winning the lottery, don't bother reading this. For the rest of you, however, it is never too early to begin planning for a comfortable retirement. Given the new economic realities of retirement planning, building up a nest egg is a top priority. No longer can you rely on the government or employer-provided pensions to carry you through your retirement years. The long-term viability of the Social Security system is uncertain, given the crush of aging baby boomers who will begin retiring after 2010.

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July 18, 2006

How Much Will Social Security Replace?

When determining how much income you will need after retirement, it is typically expressed as a percentage of your preretirement income. Thus, if you earn $75,000 per year and estimate you’ll need $70,000 after retirement, you need 93% of your preretirement income. Rules of thumb estimating how much is needed range from 70% to over 100% of preretirement income. Since the amount needed is dependent on your lifestyle after retirement, you should thoroughly analyze your situation to decide how much you will need.

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June 5, 2006

Countdown to Retirement

When your retirement date is only a couple of years away, you should start taking steps to ensure a smooth transition from a working life to retirement.

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April 15, 2006

Keep an Eye on Inflation

Inflation has been tame for so long that it’s easy to ignore it when planning for retirement. However, even inflation of 2% or 3% a year, over a period of many years, can seriously erode the purchasing power of your funds. At 2.5% inflation, $1 today will be worth 78 cents in 10 years, 61 cents in 20 years, and 48 cents in 30 years. To combat the effects of inflation on your retirement income, consider these tips:

Continue reading "Keep an Eye on Inflation" »

February 14, 2006

Should You Elect Early Social Security Benefits?

One of the most critical decisions regarding Social Security benefits is deciding when to start those benefits. The age for full Social Security benefits is increasing from 65 to 67 for individuals born after 1937. You can still elect benefits at age 62, but the permanent reduction in benefits is higher.

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February 13, 2006

Estate Planning for Retirement Accounts

For many people, retirement accounts, including 401(k) plans and Individual Retirement Accounts (IRAs), are their most significant assets. While you may think you’ll need every bit of money in those accounts for your retirement, what would happen if you die at an early age? You should include them in your estate plan so heirs inherit them with minimum estate and income tax effects. Some strategies to consider include:

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January 25, 2006

What Are Roth 401(k) Plans?

Effective January 1, 2006, 401(k) plans now have the option to offer Roth 401(k)s. The Roth 401(k) is patterned after the Roth Individual Retirement Account (IRA) — contributions are made from after-tax earnings that grow tax free and qualified distributions are withdrawn tax free. However, there are also some significant differences between Roth 401(k)s and Roth IRAs:

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So What Will You Do in Retirement?

How much will you need to live a comfortable retirement? It's a question that can't be answered without giving serious thought to how you really want to spend your retirement.

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December 14, 2005

Consider Splitting Your Individual Retirement Account (IRA)

The distribution rules for inherited Individual Retirement Accounts (IRAs) generally make it advantageous to separate accounts for each beneficiary, which can be done during your life or by December 31 of the year following your death. If you plan to leave an IRA balance to several beneficiaries, consider splitting each beneficiary’s share into a separate account during your life. Why is it important to have separate accounts?

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October 12, 2005

Get a Plan for Your Retirement

Have you given much thought to retirement lately? Don’t make the mistake of thinking about what you would like to do when you retire, and ignoring how you’re going to finance that retirement. Start planning now, following these key steps:

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July 12, 2005

Consider an IRA Conversion

With tax planning, the goal typically is to delay the payment of income taxes. Thus, it can be difficult to understand why it might make sense to convert a traditional Individual Retirement Account (IRA) to a Roth IRA, which results in the current payment of income taxes.

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Are Defined-Benefit Plans Extinct?

Defined-benefit pension plans have been on a steady decline for the last couple of decades, while defined-contribution plans, such as 401(k) plans, have increased dramatically. In fact, defined-benefit plans have declined from 148,096 plans in 1980 to 56,045 in 1998 (the last year data is available), while participation in defined-contribution plans has tripled during the same period. (Source: Federal Reserve Bank of Dallas, October 2004.) In 2003, 44 million individuals were covered by defined-benefit plans, but 27 million were retirees — only 17 million were active workers (Source: Knight-Ridder/Tribune News Services, January 31, 2005.)

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Is Your 401(k) Plan Enough?

For the vast majority of workers, a 401(k) plan may be the only retirement plan offered by employers. If you won’t receive a traditional pension benefit from your employer, will a 401(k) plan be enough to fund your retirement?

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Boosting Your 401(k) Plan’s Returns

Your 401(k) plan’s ultimate size is primarily a function of two factors: how much you contribute, and how much you earn. Of course, you know you should contribute the maximum amount possible ($14,000 in 2005 plus a $4,000 catch-up contribution for individuals over age 50, if permitted by the plan). But what steps should you take to maximize your returns? Consider these tips:

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May 14, 2005

Reevaluate Your Life Insurance at Retirement

As retirement age approaches, it’s usually a good time to reassess your life insurance policies, since your needs may change then. With your children on their own and no earned income to replace, you may no longer need a large life insurance policy. Especially if your insurance premiums are high, you may be tempted to cancel the policy, take the cash surrender value, and enjoy retirement. Before you do so, make sure there aren’t other uses for your life insurance policy. Some possibilities include:

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February 13, 2005

Deciding On A Retirement Account Withdrawal Rate

It’s probably one of the most important decisions you’ll make when you retire — how much to withdraw annually from your retirement assets. Take out too much every year and you may have to seriously reduce your standard of living late in life or even deplete your assets. Take out too little and you may unnecessarily reduce your standard of living so you won’t enjoy your retirement.

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Review Your Social Security Statement

The Social Security Administration automatically mails Social Security statements to all workers age 25 and older who do not yet receive benefits. The statements arrive annually, approximately three months before your birthday, and contain the following information:

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January 30, 2005

Cutting Expenses After Your Retirement

Accumulating the funds necessary to support yourself during retirement, a period that could easily span 20 to 30 years, is no easy task. But how much you need to accumulate is directly tied to your expected expenses during retirement. Go through your expected retirement expenses on an item-by-item basis. The key is to look for ways to reduce your expenses without reducing your standard of living. Consider these items:

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Withdrawing Retirement Account Funds

After retirement, you’re likely to find that your retirement savings include several different vehicles, which might include: 401(k) plans, Individual Retirement Accounts (IRAs), profit-sharing plans, and taxable investments designated for retirement. When withdrawing funds, you need to decide the order in which to tap those accounts. Withdrawing your funds in the most tax-efficient manner can add years to their life, thus increasing your lifetime withdrawals. Typically, you’ll want to consider this strategy:

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December 11, 2004

How Secure is Your Social Security?

Unless you're close to retirement age, whether you can count on your Social Security benefits to help fund your retirement is a concern.

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October 12, 2004

Should You Even Think About Early Retirement?

Not so long ago, most working people wanted to retire early. Then came the sharp declines in the stock market. All those assumptions about how much you could earn on your investments and how long your money would last no longer seemed assured. The prospect of retiring at a young age and depending on your investments for income for decades was suddenly a scarier thought. With many retirement portfolios significantly lower than at the market peak, should you even think about retiring early?

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September 12, 2004

Selecting Beneficiaries for Life Insurance & Retirement Accounts

Many assets, including individual retirement accounts (IRAs), life insurance policies, and annuities, can have
beneficiaries designated to receive the asset after your death. Make these selections carefully, since they typically override any provisions in your will. Consider the following points:

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June 1, 2004

Extending Your IRA's Life

Individual Retirement Accounts (IRAs) are typically viewed as retirement planning vehicles. But with increased contribution amounts and the ability to roll over 401(k) balances to a traditional IRA, many IRA owners are finding they won't use their entire balance for retirement. Thus, IRAs are quickly becoming major estate planning tools. When used for estate planning, the goal is to extend the IRA's life as long as possible so beneficiaries can benefit from the tax-deferred (for traditional IRAs) or tax-free (for Roth IRAs) growth.

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What's So Unique About a Roth IRA?

Even though Roth Individual Retirement Accounts (IRAs) have been around since 1998, many investors aren't aware of all the differences between traditional and Roth IRAs. Thus, they aren't sure which IRA is the better alternative for them. As a summary, the unique features of a Roth IRA include:

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Withdrawing Your IRA Funds

The tax laws regarding withdrawals from individual retirement accounts (IRAs) are complex. To avoid unnecessary penalties and to ensure you withdraw the funds efficiently, let's review the basics:

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May 1, 2004

Can You Count On Your Company's Defined-Benefit Plan?

A company defined-benefit plan is a pension plan where the company promises to pay participants a certain benefit, with the entire cost typically funded by the company. Those plans are now under considerable pressure.

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December 1, 2003

Don't Let Heirs Make These Mistakes

While annual contributions to IRAs are still relatively modest, the ability to roll over 401(k) balances to an IRA can result in significant IRA balances for many investors. Thus, in addition to retirement planning vehicles, IRAs are becoming estate planning tools for investors who don't use the entire balance during their lifetimes. If you are in that situation, make sure your heirs know how to avoid some common IRA mistakes:

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November 1, 2003

Getting a Late Start on Retirement

Suddenly realize you're getting older and still haven't saved much for retirement? Don't just avoid the entire topic, knowing you won't like the answers. If you're getting a late start on saving, you need to take some drastic steps:

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August 1, 2003

What Kind of Retirement Do You Want?

We all know the process. Estimate how much is needed in retirement (which can range anywhere from 70% to over 100% of pre-retirement income), determine available income sources, and then calculate how much to save annually to reach those goals. As you go through this largely mathematical exercise, however, don't forget the most important part. You need to give serious thought to the type of retirement you want -- visualize what retirement will be like.

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July 1, 2003

Recharacterizing Your Roth Conversion

The steep market declines of the past three years have made converting from a traditional Individual Retirement Account (IRA) to a Roth IRA more attractive. When you convert, transferred amounts must be included in income if taxable when withdrawn (e.g., contributions and earnings in traditional IRAs and earnings in nondeductible IRAs), but are exempt from the 10% federal income tax penalty. Once the IRA is converted to a Roth IRA, qualified distributions may be taken on a tax-free basis. Thus, converting while values are low allows you to pay a lower tax bill and then withdraw the funds tax free in the future, hopefully after the values have recovered.

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Keep Contributing to a Roth IRA

Even if you're retired, consider contributing to a Roth Individual Retirement Account (IRA), provided you have some earned income. Single taxpayers with adjusted gross income (AGI) less than $95,000 and married taxpayers filing jointly with AGI less than $150,000 are eligible to make a nondeductible contribution to a Roth IRA. Contributions are phased out for married taxpayers filing jointly with AGI between $150,000 and $160,000 and for single taxpayers with AGI between $95,000 and $110,000. In 2003, the maximum annual contribution is the lesser of $3,000 ($6,000 for married couples) or earned income. Individuals age 50 and older can make an additional $500 catch-up contribution in 2003. Pension, investment, and rental income are not considered earned income.

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Another Look at IRA Accounts

You have three choices for Individual Retirement Accounts (IRAs), each with different eligibility requirements and tax laws. In addition, the maximum annual contribution is changing. All this complexity makes it difficult to decide which IRA to select. To help you with that decision, first review the rules for each.

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June 1, 2003

Avoid Borrowing From Your 40l(k) Plan

Your 401(k) plan is such a tempting place to borrow money from. There are no credit checks or lengthy applications to fill out. You typically receive the loan proceeds in a couple of weeks. Loan proceeds can equal up to the lesser of 50% of your vested interest in the plan or $50,000. The loan can be repaid over five years, longer if it is used to purchase a primary residence. The interest rate is reasonable, typically one or two percentage points over the prime rate.

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When Should You Start Your Social Security Benefits?

When should you elect to receive Social Security benefits -- at age 62, full retirement age (which is gradually increasing from age 65 to age 67), or age 70? The decision will permanently affect your Social Security benefits. Start at age 62 and your benefits will be permanently reduced by 20.8% to 30%, depending on your year of birth. Wait until age 70 and your benefits will increase by 3.5% to 8% annually, depending on your year of birth.

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Retiring Without Worry

If you're like most people, the recent market decline has done more than cause your investments to decline substantially. It's probably also caused you to rethink your retirement plans. After all, the only thing worse than retiring later than you planned is to retire and quickly run out of money.

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May 1, 2003

Evaluate Your Company 40l(k) Plan

Don't leave your 401(k) account on autopilot. As with all investments, you should review your 401(k) account at least annually. If you haven't done so in a while, use the arrival of your 401(k) statement as a trigger for a review. Be sure to consider the following items:

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February 1, 2003

Evaluating an Early Retirement Offer

Even if you aren't thinking about early retirement, you may be tempted by an early retirement offer. Before taking that offer, however, consider several items:

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