Stay or Rollover? What to Do With Your Old Retirement Accounts?
How many retirement accounts do you have? If you’ve changed jobs a few times over the years, you could have several accounts housed in different employers’ plans.
While it is certainly acceptable to leave money in an old plan, in some instances it may be a better idea to consolidate your assets. (If your account value is less than $5,000, your old employer can cash you out of the plan, making it imperative to have a backup destination for those assets.) Having your retirement portfolio in one place can make it easier to track performance, ensure proper asset allocation, and make changes.1
Initiating a rollover isn’t difficult. If you are planning to roll over your assets into an IRA, you simply need to contact the financial institution that will house your account. They will either have you fill out a form or have a representative help you through the process. Your local Certified Financial Planner™ professional can assist you, too.
If you are planning to roll over your assets into your current employer’s plan:
- First check your current plan rules to confirm that rollovers are permissible (the vast majority of workplace retirement plans accommodate rollovers).
- Check with your new plan’s administrator to see if they offer a rollover service. If not, contact the administrator of your old plan(s) (you can find this information on your statements) to start the process.
Comparison Shop
Before you initiate a rollover, be sure to compare the investment options of your old and new plans — and/or any IRA option you are considering — and their associated fees.
- Diversification: Were you able to properly diversify your assets in your old plan?1 If your investment choices were limited, you may want to move your money.
- Fees: Are the investment fees in your old plan higher or lower than in your new plan? If you were paying more for the investments in your old plan, it could help save you money to move your assets.
- Financial Advice: Does your new employer’s benefit package offer any type of personalized financial planning advice? If not, rolling over your “old” plan assets to an IRA with a local financial planner may help you fill this void.
Distributions: A Last Resort
Be sure to understand the difference between a rollover and a distribution. A rollover allows you to transfer your money from one qualified retirement account to another without incurring any tax consequences. A “qualified” account can be either your new employer’s plan or a rollover IRA.
A distribution is essentially a withdrawal from your account. If you request a distribution, the account administrator is required by law to withhold 20% of your account balance to pay federal taxes. State taxes, if applicable, are also due. If you are under age 59½, you could be subject to an additional 10% federal early withdrawal penalty. You can roll over assets from a distribution within 60 days of receipt and reclaim those tax withholdings. If you wait longer than 60 days, a rollover is not permissible.
Let us know if we can answer questions about your retirement plan rollover options.
Best regards,
Mark Dennis Certified Financial Planner™ www.A1Awealthmanagement.com (904) 491-1889
Source/Disclaimer:
1 Asset allocation and diversification do not ensure a profit or protect against a loss in a declining market.
###
November 2011 — This column is provided through the Financial Planning Association, the membership organization for the financial planning community, and is brought to you by A1A Wealth Management, Inc. and Mark Dennis, CFP®, a local member of FPA.
Required Attribution
Because of the possibility of human or mechanical error by McGraw-Hill Financial Communications or its sources, neither McGraw-Hill Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall McGraw-Hill Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.
© 2011 McGraw-Hill Financial Communications. All rights reserved.
3rd Quarter 2011 Market Update & Economic Review
For more information, contact:
Mark Dennis Certified Financial Planner™ A1A Wealth Management, Inc. (904) 491-1889We’re Talking Turkey!
When you picture Thanksgiving, what comes to mind? For many people, Thanksgiving conjures up an image of a perfectly roasted turkey. See what you know about tasty turkeys by taking this brief trivia quiz:
1. Which American statesman thought the turkey would have been a better national symbol than the bald eagle (which he felt was a bird of bad moral character)?
a. Andrew Jackson b. Thomas Jefferson c. Benjamin Franklin d. John Adams
2. Which state produces the most turkeys?
a. Missouri b. Minnesota c. North Carolina d. Arkansas
3. What country consumes the most turkey per person?
a. United States b. China c. Turkey d. Israel
This Thanksgiving, we are grateful for our family, friends, neighbors, and business associates. We are especially thankful for those whou entrust us with their investments and financial planning needs. May we all enjoy a bountiful year!
Best regards,
Mark Dennis Certified Financial Planner™ (904) 491-1889 www.A1Awealthmanagement.com
Answers:
1. C – Ben Franklin
2. B – Minnesota
3. D – Israel
Source:
National Conference of State Legislatures, http://www.ncsl.org/default.aspx?tabid=19203
The Pros and Cons of Health Savings Accounts
HSAs offer investment options that differ from plan to plan, depending upon the provider, and allow users to carry account balances over from year to year.
As health care costs continue to rise, consumers must find ways to ensure that they have the funds to pay for medical expenses not covered through their insurance. One way to save specifically for health care costs is to fund a health savings account, or HSA.
HSAs are tax-advantaged savings accounts set up in conjunction with high-deductible health insurance policies. Enrollees or their employers make tax-free contributions to an HSA and typically use the funds to pay for qualified medical care until they reach their policy’s deductible.
HSAs are not for everyone, and it is important to understand how they work before considering them to help fund health care costs.
Understanding HSAs
You are eligible for an HSA if you meet all four of the following qualifying criteria:
- You are enrolled in a qualified high-deductible health insurance plan (known as a “HDHP”).
- You are not covered by another health plan (whether insurance or an uninsured health plan).
- You are not eligible for Medicare benefits.
- You are not a dependent of another person for tax purposes.
HSAs are generally available through insurance companies that offer HDHPs. Many employer-sponsored health care plans also offer HSA options. Although most major insurance companies and large employers now offer an HSA option under their health plan, it’s important to remember that most health insurance policies are not considered HSA-qualified HDHPs, so you should check with your insurance company or employer to see how an HSA plan might differ from your current plan.
The maximum contribution to an HSA for 2011 is $3,050 for single coverage or $6,150 for family coverage. If you are over age 55 then you can contribute an additional $1,000 regardless of whether you have single or family coverage. Contributions are made on a before-tax basis, meaning they reduce your taxable income. Note that unlike IRAs and certain other tax-deferred investment vehicles, no income limits apply to HSAs.
HSAs offer investment options that differ from plan to plan, depending upon the provider, and allow users to carry account balances over from year to year. Earnings on HSAs are not subject to income taxes.
Any medical, dental, or ordinary health care expense that would qualify as a tax-deductible item under IRS rules can be covered by an HSA. A doctor’s bill, dental procedure, and most prescriptions are examples of covered items. See IRS Publication 502 for a definitive guide of covered costs. If funds are withdrawn for any purposes other than qualifying health care expenses, you will be required to pay taxes on amounts withdrawn plus a 10% penalty.
Here are some pros and cons of this product.
Pros
- HSAs offer a significant annual tax deduction (up to $7,150 in 2011 for an individual over 55 who opts for family coverage), making them particularly appealing to individuals in higher tax brackets.
- Withdrawals for qualifying health care costs (including long-term care insurance) are tax free.
- Investment income in HSAs is also tax free.
Cons
- Since HSAs must be tied to HDHPs, their ultimate savings must be weighed against how such plans stack up against more traditional plans, which may offer significantly better coverage.
- HSAs may not offer the flexibility and transportability that today’s mobile American family requires, especially given that health plan offerings differ significantly from employer to employer and many smaller institutions have yet to offer an HSA option. However, you may be able to purchase an HSA as a private policy, outside of (not in addition to) an employer’s group health plan.
For more information on HSAs, see the U.S. Treasury’s website at www.treas.gov (click on “Health Savings Accounts”).
Best regards,
Mark Dennis Certified Financial Planner™ www.A1Awealthmanagement.com (904) 491-1889
###
Because of the possibility of human or mechanical error by McGraw-Hill Financial Communications or its sources, neither McGraw-Hill Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall McGraw-Hill Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.
© 2011 McGraw-Hill Financial Communications. All rights reserved.
October 2011 — This column is provided through the Financial Planning Association, the membership organization for the financial planning community, and is brought to you by A1A Wealth Management, Inc. and Mark Dennis, CFP®, a local member of FPA.
2011 Last Chance Financial Planning Checklist
A brand new year will soon be upon us. While you are out calendar shopping for 2012, this can be an ideal time to examine your financial health and update your financial plans.
A1A Wealth Management, Inc. offers a free checklist of important things to review that might make a difference in your year-end review and plans for next year.
Simply check all items on the list that apply to your situation to make sure you don’t miss any important details or decisions before the year ends. You may also want to share your list with your financial advisor, accountant, estate planning attorney, family members, or other advisors as well. Download your free 2011 Last Chance Financial Planning Checklist by clicking the link.
Better still, give your financial advisor a call and ask to review your list with him or her in person.
Best regards,
Mark Dennis Certified Financial Planner™ www.A1Awealthmanagement.com (904) 491-1889Understanding Employee Stock Option Plans
- Stock options are still a valuable employee benefit.
The boom days of the 1990s may be over, but stock option programs continue to be popular with public and private companies. Employees certainly can benefit from them, if they take some time to learn the basics.
In the dot-com boom years of the 1990s and early 2000s, many companies made liberal use of employee stock option plans to both reward and retain valued staff, from executives to temporary administrative help. While the current economic climate has produced fewer “company stock millionaires” these days, stock option programs continue to be popular with public and private companies.
What Is a Stock Option?
If you’ve been granted stock options, you’ve been given the right to purchase shares of your company’s stock at a certain price under certain conditions set by company management.
- If you have immediate options, you can purchase your allotted shares at any time.
- If your options are vested, you can only purchase a set number of shares after you’ve worked at the company a certain period of time.
- If your options are performance-based, they will vest once certain goals are met.
The two most common types of stock ownership plans are incentive stock option (ISO) and nonqualified stock option (NSO) plans. Usually, key executives are granted ISOs, while less senior employees are given NSOs. The chief difference between the two is tax treatment.
- An ISO can be taxed under long-term capital gains, assuming the employee holds the stock for at least two years from the option grant date and one year from the exercise date. They are also taxed only when the stock is sold, making them tax-deferred plans. Note that ISOs can trigger the alternative minimum tax (AMT).
- NSOs are taxed as both income and capital gains — and the tax is owed once the options are exercised. This is an important consideration to anyone who is thinking of exercising options. If you don’t have enough cash on hand to cover the tax bill, you may need to sell shares you’ve just purchased to cover the costs.
Exercising Options
Most stock options have an exercise period of 10 years; that is, you have 10 years from the time you receive the options to actually purchase the stock. You are not obligated to buy any shares, particularly if your company’s stock price is trading below your set exercise price. If you don’t make a purchase during the exercise period, your options will expire worthless.
Companies have the flexibility to exchange option grants if its stock has been negatively affected by market activity. For example, if your stock options are priced at $25 a share and your company stock has been trading at only $20 a share for a prolonged period, the company may exchange your $25 strike price options for a new set that gives you a lower strike price.
If you are participating in an employee stock ownership plan, be sure to consult with a financial and/or tax professional who can help you decide when to exercise your shares and how to deal with the tax consequences.
Best regards,
Mark Dennis Certified Financial Planner™ www.A1Awealthmanagement.com 904-491-1889
Because of the possibility of human or mechanical error by McGraw-Hill Financial Communications or its sources, neither McGraw-Hill Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall McGraw-Hill Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.
###
© 2011 McGraw-Hill Financial Communications. All rights reserved.
September 2011 — This column is provided through the Financial Planning Association, the membership organization for the financial planning community, and is brought to you by A1A Wealth Management, Inc. and Mark Dennis, CFP®, a local member of FPA.
Squeeze Every Dime You Can From Social Security
Since President Roosevelt signed the Social Security Act into law in 1935, millions of Americans have depended upon it as a major source of retirement income. Today, retirees are living longer lives and withdrawing more from the system, yet fewer people are contributing to it. That means retirees must find ways to maximize their Social Security income. You’ve paid into this system for years; it’s time to fully enjoy what is rightfully yours.
Author Andy Landis’ book, Social Security – The Inside Story, describes strategies for doing that.
The Reset
The first strategy, “The Reset,” offers a way to draw Social Security without a permanent reduction. Here’s how:
At age 66, George will be entitled to a 100 percent benefit, which for him is $1,000 per month, based on his personal earnings record. However, he starts drawing Social Security early at age 62, getting $750 monthly payments.
Then at age 63, after receiving $9,000, George withdraws his application. He takes $9,000 from his retirement savings and repays it to the Social Security Administration, without interest. Then he re-files for Social Security and gets the payment due a 63-year old, or $800, for the rest of his life.
George calculates that his $9,000 “investment” in Social Security results in a raise of $50 a month, or $600 per year. He sees this as a government-guaranteed 6.7 percent return on investment, with a pay-back period of only 15 years. He also discovers that he gets a tax credit for the year since he received “negative” Social Security. In addition, he has secured a higher payment for his wife, if he dies before her.
This can be a powerful strategy for those who want the early payments from Social Security, but also want the higher payments of a later filing – a way to have your cake and eat it, too. The only catch: under a new rule you can exercise the “Reset” only once in your life, and it has to be in the first 12 months of your Social Security eligibility.
File and Suspend
Another strategy offered by Landis is called “File and Suspend.” According to Landis, the general idea is that, “We are going to get some money now, but we have to go for the bigger bucks later.” It works like this:
At full retirement age (66 or 67, depending on what year you were born), you file for your benefits, but suspend the payments. Since you filed, your spouse may draw up to 50 percent of your full retirement benefit. Meanwhile behind the scenes, your own checks are getting larger, because of delayed retirement credits. If your spouse is eligible to file for benefits on his or her own record, and this amount is greater than the 50% spousal benefit, then you may want to purse that option instead.
Then when you reach age 70, “un-suspend” your payments and your checks will have grown substantially. As long as you have some income for the age 66-70 lower income period, this strategy could be very beneficial to you.
This is just the briefest of glimpses into the possible strategies and combinations available when you are ready to apply for Social Security retirement benefits. As always, fully understanding the different strategies and all their implications before acting is important. The right choices will significantly help in maximizing your retirement income and in your overall retirement planning.
For more specific information on how to maximize YOUR retirement income, contact our office.
Best regards,
Mark Dennis, CFP® www.A1Awealthmanagement.com 904-491-1889
