Details you need to know about
What’s new? Every year brings changes in tax law, and some of these revisions always seem to affect IRAs. Here is a look at some of the new wrinkles for 2011.
You can’t defer income resulting from a Roth IRA conversion in 2011. If you converted a traditional IRA to a Roth IRA in 2010, you could opt to divide the income resulting from the conversion between your 2011 and 2012 federal tax returns. (If you did go Roth in 2010, you have until October 17, 2011 to choose this income deferral option.) You don’t have this choice in 2011 – the income can’t be deferred to a future tax year.
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Here is a guest post from Jason Holmes:
Big Decisions
It’s indeed a huge decision that you have to make when you think of converting your IRA to Roth IRA. There are certain things you need to consider when you’re converting your traditional IRA to Roth IRA. This year anyone can convert from their traditional IRA to Roth IRA irrespective of their salary. But the only problem is that taxes will be levied at the time of conversion. For many people converting from the traditional IRA to Roth IRA is very advantageous.
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CHOOSING A FINANCIAL PROFESSIONAL
There’s nothing like doing your homework and being selective.
When we buy a car or a house, consider a school for our children, or plan our next vacation, what kind of approach do we take? For one thing, we take our time. We shop around and consider our choices.
Yet when it comes to selecting a financial consultant, not everyone takes such care.
MarketWatch.com senior columnist Chuck Jaffe sometimes speaks to audiences on this topic, and when he does, he likes to conduct an informal poll. First, he asks people to raise their hand if they have ever worked with a financial advisor. Many hands go up.
Next, he asks these people to keep their hands in the air if they hired the first financial advisor they met with in their search. Few if any hands are lowered. Then he asks them to keep their hands up if they did a background check on that person before agreeing to work together. After asking that question, Jaffe writes, “I have never had a single hand stay in the air.”
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Here’s an important development for anyone enrolled in a 401(k) or 403(b) retirement plan.
As a result of the Small Business Jobs Act of 2010, some of these retirement plans are now allowing in-plan Roth conversions. This means you may be able to:
1. “Convert” a portion of the pre-tax dollars you have saved to after-tax dollars without having to arrange a rollover to a Roth IRA.
2. You may even be able to “go Roth” in 2010, with the chance to spread the taxes on the Roth conversion over 2011 and 2012.
To be eligible for this Roth conversion option, you must
- Have assets in a 401(k) or 403(b) account at a previous employer that could potentially be rolled over to your current employer’s plan.
Please note: in order for you to do this, your employer’s retirement plan has to allow after-tax Roth contributions.
Also note: Starting in 2011, Roth accounts will be allowed within governmental 457(b) plans for the first time.
If you would like to learn more about this, call me at 866-594-9919.
Yesterday we examined five of the top ten retirement blunders. Now let’s look at the remaining five. If you have any questions on any of these blunders or would like me to take a look at your personal situation, email me at jay at jayperoni.com. READ PART 1
6. PLACING TOO MUCH STOCK IN YOUR COMPANY
THE BLUNDER: Owning too much of your own company’s stock, which could jeopardize your retirement funds. With the fall of companies like Enron and WorldCom, many employees lost some or all of their retirement income. Could this happen to you?
THE SOLUTION: It’s not possible to predict the future, and that’s why a diversified portfolio is generally a wise move for the cautious investor. If you have too much invested in your own company, then essentially your retirement income could rely on the performance of one stock. That’s high-risk investing. If you’d rather not assume so much risk, consider speaking to a professional who can assist you in diversifying your investments.
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Today we will look at five of the top ten retirement blunders. Tomorrow we will cover the rest! How many of these mistakes are you making?
1. NOT KEEPING UP WITH YOUR PENSION PLAN
THE BLUNDER: Many people know they have a pension plan, but they’re not quite sure how it works, how stable it is, or exactly how their money is invested. Others retire prior to eligibility, which can result in a substantial loss of pension benefits. And still others simply rely on past information, without taking into account how the Pension Protection Act of 2006 could affect their retirement benefits.
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AN OVERVIEW OF SIMPLE 401(k)s
These lower-cost, easily administered plans may be appealing in a sluggish economy.
What do you know about the SIMPLE 401(k)? Most business owners have heard of it, yet don’t know much about this retirement savings vehicle.
When times are tight, it might be an excellent choice. Do you have a business with fewer than 100 employees? Do you want to offer a low-cost retirement savings program without a huge capital outlay? The SIMPLE 401(k) may be worth looking into.
This small-scale 401(k) may prove less expensive for your company. A SIMPLE 401(k) doesn’t have to face the discrimination tests that come with traditional 401(k) plans. That can mean lower annual administrative costs for a business. (It also means that the salary deferral contributions of an owner and key employees are not limited by the amount of other employee deferrals.)
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