Posts Tagged ‘Planning’

Weigh Options Before Rolling Over Your Retirement Plan

Sunday, December 12th, 2010

To roll over or not to roll over?  That’s the question facing retirees who need to decide whether to keep their savings in a company retirement plan, move the cash into an IRA, or take the money and run.  Each choice has significant implications for taxes, estate planning and investment growth.

The assets at stake are enormous.  This year, $296 billion will be distributed by company-sponsored defined-contribution plans, including 401(k)s, public employee 403(b)s and small-business Keoghs, according to Cerulli Associates, a Boston-based consulting firm. By 2010, as baby-boomers move into retirement en mass, distributions will reach $446 billion, the firm predicts.  (The totals include distributions to both retirees and job-changers.)

Of those who retired in 2004, Cerulli found that 47% rolled their money into an IRA, 31% kept their funds in their company-sponsored retirement plan, and 21% took a lump-sum distribution.  Many of the retirees who cashed out eventually invested in an IRA.

The Argument of Moving

In most cases, retirees and job-switchers are best off rolling their money over into an IRA.  The typical company plan offers employees and former employees only a handful of investment choices.  But by holding an IRA in a  Rollover IRA with Robert Richter, you can put money in just about any investment you want.  As an independent Financial Advisor I have access to over 4000 mutual funds in which to allocate your retirement to match your risk and return financial needs. My returns have exceeded over 10% for many years.

If you intend to leave your money to your spouse and children, you could lose a big estate-planning break: the chance for your heirs to stretch out payments over their lifetimes.

If you bequeath an IRA, your beneficiaries can take out their required minimum distributions and allow the rest to grow tax-deferred.  Most 401(k) and other company plans force heirs to take the assets soon after the account holder dies.  Employers don’t want to be married to the employee’s family forever.  Only spouses can roll an inherited 401(k) into an IRA.

Another estate-planning advantage of the IRA is the ability to establish separate IRAs with different investment strategies for each beneficiary. For instance, you could choose conservative investments for the IRA that you leave to your spouse, while opting for investments with longer time horizons for your children.

When to Stay Put

Still, there are times when keeping the money in your 401(k) is the way to go.  If you’re between 55 and 59 1/2 when you retire, decide whether you need the money for living expenses before you make a move.  If you’re 55, you can withdraw the money from the company plan without having to pay an early-withdrawal penalty.  If you move the money to an IRA, the 10% penalty lingers until you’re 59 1/2.

A different strategy is to move some money into an IRA for investment and estate-planning purposes while keeping enough money in the 401(k) to meet immediate cash needs. Sometimes people want to put money in an IRA because they want the flexibility, but they are leery because they may need the money.

Also, while you can’t borrow from your IRA, many company-sponsored plans will allow you to take a loan.  You can borrow the lesser of $50,000 or 50% of the vested account balance.

If you’re 70 1/2and still working, there’s an advantage to the staying-put strategy: You don’t have to take minimum distributions from your employer’s 401(k), unless you own more than 5% of the company.  (With an IRA, you must start taking distributions after you reach the age of 70 1/2).  Staying put is a good option if you already have an IRA and you’re now working in a late-career job.

Assuming you’re not desperate for the money, the worse thing you can do is cash out.  You’ll lose the benefit of tax-deferred growth as well as a big portion of your nest egg.  And if you’re younger than 55 when you take out the money, you’ll pay a 10% early-withdrawal penalty on the total amount.  One exception: If you have appreciated company stock in your plan, you may want to sell it or move it to a taxable account.

If you decide to do a rollover, set up an IRA and instruct your company-plan administrator to directly transfer your balance to the account.  If you take the distribution yourself, your company is required to withhold 20% of the total for the IRS-even if you plan to roll over the entire amount.  That means you’d have to come up with the other 20% from another source to roll 100% of the distribution into the IRA.  (You get back the 20% but not until you file a tax return for the year in question.)  When you shepherd the money yourself from your 401(k) to an IRA, you also face a 60-day deadline to get the job done.  After that, the IRS will tax the entire amount, and you will lose any chance for tax-deferred growth.  You avoid those worries with a direct transfer.

Does your retirement plan include company stock?


There are important tax planning strategies when your retirement distributions include company stock. If there are any questions, please do not hesitate to call us 949-724-8506.

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Tax Preparers and Tax Planning

Sunday, December 12th, 2010

If there is one constant in the world of tax preparation, it is tax law changes.  For many years, CPA’s  and other tax preparers have learned to accept, anticipate, and even embrace change. All these changes and complications will force practitioners to emphasize tax planning in order to save their client’s money. Over the years technology in tax software industry and lack of regulation on the tax preparation industry has led to a lot of competition from many non qualified tax preparers. A CPA is required to pass strict testing, ethics and continuing education requirements in order to keep informed and licensed. A CPA is highly qualified to find tax planning strategies that enable a client to eliminate, minimize, or defer a tax liability.

Tax preparation and tax planning by a qualified CPA will enable a client to eliminate, minimize, or defer a tax liability. Traditional tax planning has been event-driven, undertaken upon the occurrence of certain events in a client’s life such as starting a new business, making an investment decision, selling property, or taking a retirement plan distribution. While event-driven tax planning will certainly continue to be a value-added service, the tax preparer CPA has the educational background to do comprehensive tax planning, year-after-year to save his clients money. While tax considerations may be significant, and are often the reason the tax preparer is involved in the first place, the economics should drive the decision-making process. Allowing tax considerations to override economic considerations can lead to adverse results for the client.  As a CPA with over twenty years experience we are experts in business, tax and financial matters. You can be assured that the assistance you receive comes from years of specialized training in money matters and in helping clients like yourself with taxes, business planning, retirement, investments and, accounting. CPA’s are more than just individuals who do your yearly taxes. They can advise you on a long list of other services.

Income tax preparation is an important part of reducing a client’s tax burden by making sure all tax credits and deductions are not missed.

Small Business owners

Businesses operated as a sole proprietorship’s have many opportunities for tax savings. With proper tax planning, opportunities exist to maximize deductions of expenses combining business and personal elements. Business deductions for self-employed taxpayers are doubly important since they generally reduce both federal income and self-employment taxes.

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