401(k) plans http://www.wisebread.com/taxonomy/term/5977/all en-US 4 Ways Your IRA Beats Your Savings Account http://www.wisebread.com/4-ways-your-ira-beats-your-savings-account <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/4-ways-your-ira-beats-your-savings-account" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/piggy-bank-1206604-small.jpg" alt="piggy banks" title="piggy banks" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>You may wonder why you should save money inside a retirement account.</p> <p>The simple answer is that retirement assets are treated differently than regular assets. The federal government, many institutions, and probably even <em>you</em> tend to consider the money set aside to sustain yourself in your old age as sacrosanct. And there are real benefits to having this perception. (See also:&nbsp;<a target="_blank" href="http://www.wisebread.com/3-reasons-not-to-save-for-your-childs-college-fund">3 Reasons Not to Save for Your Child's College Fund</a>)</p> <p>Here are four big reasons to stash funds in a <a target="_blank" href="http://www.wisebread.com/choosing-a-retirement-account-whats-available-and-what-s-best-for-you">retirement account of your choice</a> instead of a regular savings or investment account.</p> <h3>Retirement Assets Are Not Included in Calculations for College Aid</h3> <p>Even if you have hundreds of thousands of dollars combined in your 401(k) and IRA, your child could qualify for federal aid based on <a target="_blank" href="https://fafsa.ed.gov/fotw1314/help/fotw43e.htm">Free Application for Federal Student Aid (FAFSA) calculations</a>. However, if this same amount of money is held in a regular account, then the likelihood of getting aid is greatly diminished.</p> <p>Federal aid calculations are based on a variety of factors. Colleges and universities may have their own formulas, but these typically mirror federal guidelines. <a target="_blank" href="http://www.petersons.com/college-search/financial-aid-impacted-situation.aspx">The Expected Family Contribution (EFC) considers regular assets but not retirement plans</a>. Sure, a base level of assets is protected and a relatively small percentage is considered available to pay college expenses, but substantial holdings can increase this number to the point that your EFC easily exceeds the Cost of Attendance (COA).</p> <p>Such a scenario may <em>seem</em> unlikely. If you have $500,000 or more saved or invested outside of retirement, then you might think that you would have&nbsp;a high income, a&nbsp;fully funded educational accounts; and&nbsp;a well-stocked retirement portfolio.</p> <p>But you could have easily been a steady saver and accumulated significant wealth without the benefit of a high income, or you could have a high income for much of your working life but experience a career setback when your child enters college. So, putting money in an official retirement fund now can help your family qualify for federal aid in the future.</p> <h3>Tax Benefits Are Available With Retirement Accounts</h3> <p>Whether you have a traditional or Roth IRA account, you enjoy several tax benefits over a regular savings or investment account:</p> <ul> <li>Reduction in the present-year tax liability for contributions made to a traditional IRA or 401(k) plan</li> <li>Exemption of income taxes for qualified distributions from Roth accounts</li> <li>Freedom from taxes on capital gains, interest, dividends, and other earnings while funds are held within the retirement account</li> </ul> <p>Note that you&rsquo;ll pay taxes on distributions from traditional accounts (that is, taxes are deferred until retirement rather than eliminated). However, no taxes on earnings are owed on Roth accounts prior to and during retirement.</p> <p>Embedded in the benefit associated with deferring or avoiding capital gains taxes is the bonus of being able to <a target="_blank" href="http://www.getrichslowly.org/blog/2011/04/20/rebalancing-your-investment-portfolio/">diversify and rebalance your portfolio without tax consequences</a>.</p> <p>For example, if you have a large amount of your employer&rsquo;s stock in your 401(k) plan or a concentrated position of one company in your IRA, you can sell these holdings to fund the purchase of index fund shares (or other investments that would diversify your portfolio) without having to pay capital gains tax. All of the proceeds can be plowed back into your retirement fund. However, if you sold a similar amount in a regular account, you would lose a percentage of your earnings to taxes (unless you qualified for 0% capital gains tax) and have less to reinvest.</p> <h3>Retirement Accounts Enjoy More Protection</h3> <p>Retirement funds are safer than non-retirement assets if you ever have to declare bankruptcy or shield yourself from a creditor&rsquo;s claims.</p> <p>Hopefully, you will never have to face these situations. But if such problems arise, money held in most employer-sponsored plans <a target="_blank" href="http://www.nytimes.com/2009/04/02/business/retirementspecial/02CREDIT.html?_r=2&amp;">is protected from creditors in bankruptcy </a>under federal law (with notable exceptions of the IRS and former spouses). Money in an IRA is also exempted to an extent (up to $1 million plus cost-of-living adjustments).</p> <p>For non-bankruptcy situations, employer-sponsored plans compliant with the Employee Retirement Income Security Act (ERISA ), such as <a target="_blank" href="http://online.wsj.com/article/SB124181801239401917.html">401(k) plans</a>, provide the best protection. IRAs may or may not be sheltered from claims based on state laws.</p> <p>As an added precaution, no matter where your money resides, consider <a target="_blank" href="http://www.latimes.com/la-ira-story3,0,6977190.story">increasing liability coverage</a> by getting an umbrella policy and boosting coverage associated with homeowners&rsquo; and auto insurance policies. These steps may help you pay claims in the event of a lawsuit without tapping retirement or non-retirement funds.</p> <h3>Retirement Funds Are Off Limits for Regular Expenses</h3> <p>You might think that if you mentally designate certain funds for retirement, then you won&rsquo;t ever spend these dollars except in an extreme emergency.</p> <p>But in the decades between setting aside money in your 20s and 30s and full retirement in your 60s and 70s, there are likely to be many opportunities to spend money earmarked for retirement but held in a regular account. These might include anticipated events such as your children&rsquo;s college education or wedding; unexpected setbacks from medical expenses or long periods of unemployment; or hoped-for opportunities such as a backpacking trip out west, an extended overseas visit, or a bargain-priced vacation house.</p> <p>Even money put in retirement plans isn't entirely safe. Certainly, many people <a target="_blank" href="http://www.wisebread.com/tax-penalties-for-early-retirement-withdrawals">withdraw funds</a> for hardships, such as the down payment on a purchase of a home or those medical bills I mentioned earlier. And a recent study indicated that about <a target="_blank" href="http://business.time.com/2013/01/23/cash-leaking-out-of-401k-plans-at-alarming-rate/">25% of employees are tapping 401(k)s for regular expenses</a>.</p> <p>Generally, though, money placed in a retirement account should stay there because you consider those dollars off limits. Tax penalties associated with taking retirement distributions early are often so high that forgoing opportunities, <a target="_blank" href="http://www.wisebread.com/7-delayed-spending-tricks-that-help-pay-off-debt">delaying spending</a>, and finding alternative funds are often simpler and preferred solutions.</p> <p>The main point of contributing to a 401(k), IRA, or similar plan is to accumulate assets that generate a stream of passive income, which helps you pay expenses when you are no longer working. You can build wealth in a manner that creates this income without opening an IRA or transferring money from your paycheck to an employer-sponsored retirement plan. But even beyond the basic tax advantages, there are tangible and intrinsic benefits to putting and keeping money in a retirement account instead of a regular one.</p> <p><em>Where is your money? Have you thought about putting more in a retirement account?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/julie-rains">Julie Rains</a> of <a href="http://www.wisebread.com/4-ways-your-ira-beats-your-savings-account">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-roth-iras-are-ideal-for-young-professionals">Why Roth IRAs Are Ideal for Young Professionals</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/choosing-a-retirement-account-whats-available-and-what-s-best-for-you">Choosing a Retirement Account: What&#039;s Available, and What’s Best for You?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-times-you-shouldnt-invest-in-stocks">10 Times You Shouldn&#039;t Invest in Stocks</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/your-401-k-is-not-an-investment">Your 401(k) is not an investment</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/did-your-parents-give-you-a-whole-life-insurance-policy-heres-what-to-do-with-it">Did Your Parents Give You a Whole Life Insurance Policy? Here&#039;s What to Do With It.</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Taxes 401(k) plans IRAs retirement accounts Roth IRAs saving Fri, 26 Apr 2013 10:24:35 +0000 Julie Rains 973546 at http://www.wisebread.com How to Assemble Better 401(k) Plan Options http://www.wisebread.com/small-business/how-to-assemble-better-401k-plan-options <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.openforum.com/articles/how-to-assemble-better-401k-plan-options" target="_blank">http://www.openforum.com/articles/how-to-assemble-better-401k-plan-options</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/how-to-assemble-better-401k-plan-options" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000013602890Small.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>Say sayonara to the carefree days of your parents&rsquo; pension plans, when employers assumed the risk of a tanking stock market. In this sputtering economy, employees are on the hook for making wise investment decisions, but it&rsquo;s the employer&rsquo;s job to exercise fiduciary responsibility and common sense. That means encouraging employees to sock away as much money as possible, and offering them the tools to select the proper asset allocation and manage a diversified portfolio that will post solid long-term returns without incurring significant risk.</p> <p>The average 401(k) balance fell by nearly 30 percent in 2008, according to some studies. That is particularly frightening for many employees whose 401(k) accounts represent their single largest asset outside of their homes, and potentially their only source of retirement income.</p> <p>Even in this volatile climate, many employer-sponsored plans choose funds based on recent performance while dismissing risk, provide limited investment options that overlook many asset classes, and agree to excessive fees that are often hidden from the employee.</p> <p>&ldquo;A 401(k) plan is a means to an end for the employer,&rdquo; says Robert Auditore, founding principal of <a href="http://www.baycolonypartners.com/" target="_blank">Bay Colony Partners</a>, an independent retirement planning firm that manages more than a half-billion dollars in individual and corporate assets. &ldquo;<a href="http://www.openforum.com/idea-hub/topics/money/article/counting-the-cost-of-401k-plans-1" target="_blank">To recruit and retain talented employees</a>, you need a top-notch retirement plan.&rdquo;</p> <p>In ranking the <a href="http://www.brightscope.com/blog/2010/12/14/brightscope-2010-top-30-401k-plans/" target="_blank">top 30 401(k) plans of 2010</a>, financial information firm BrightScope considered such factors as generous company contributions, immediate plan enrollment, company match eligibility and vesting schedules, low fees, high employee participation rates and high salary deferrals. The top five companies were: the Saudi Arabian Oil Company, Kaiser Permanente, Southwest Airlines, Amgen, and United Airlines.</p> <p>Smaller employers may not be able to afford an independent investment advisor, who can charge $5,000 or more a year. Instead, they tend to choose a bundled plan structure, where a single company handles all the investment, recordkeeping, administration, and education services.</p> <p>Often, a T. Rowe Price or Fidelity will have a relationship with a third-party vendor, such as Morningstar. For an added fee, the vendor will help an employer assemble a defensive-minded investment lineup. Ask about these services when selecting an investment house.</p> <p>Follow these other tips to help your employees achieve their retirement goals.</p> <p><strong>Offer Enough Asset Classes</strong></p> <p>Experts recommend offering from 17 to 20 different investment choices, covering the major asset classes that are needed to construct a diversified portfolio. Core asset classes include stocks, bonds, and cash equivalents such as money markets. Further breakdowns within classes include growth stocks, value stocks, small, mid and large cap stocks, emerging market stocks, government bonds, and short-term and long-term bonds. To hedge against inflation, more plan managers are including Treasury Inflation Protected Securities (TIPS). Offer index fund alternatives to more expensive actively managed funds.</p> <p><strong>Screen Effectively</strong></p> <p>To whittle down the list, Auditore of Bay Colony may rely on three to six different screening mechanisms, including upside/downside capture ratios, which evaluate a fund&rsquo;s historical performance during rallies and down markets.</p> <p>Fund performance can be reviewed over a one-, three-, five- and ten-year time horizon. Along with studying quantitative measures, do some qualitative sniffing around by interviewing the portfolio management team, inquiring about extra services (on-site visits typically cost $1,000 each), and determining if the investment house caters mainly to smaller or larger employers. Experts also recommend steering clear of funds with over 1 percent expense ratios. Ongoing monitoring of the fund lineup is essential, either on a quarterly, semi-annual or annual basis.</p> <p>Recently, personal finance columnist John Waggoner suggested assembling a &ldquo;cowardly portfolio,&rdquo; comprised of 50 percent equity income stock funds, 30 percent bond funds and 20 percent money market, to post minimal gains rather than suffer huge losses. Auditore disputes that one-size-fits-all model, explaining that other factors such as an individual&rsquo;s current salary, outside assets, and cost of living should play a role in any investment strategy.</p> <p><strong>Choose Defaults Carefully</strong></p> <p>Default 401(k) plan options are designed to simplify investing, and studies show that individuals with limited financial background tend to choose them 20 percent of the time. Popular options are balanced funds and target-date funds, also known as lifecycle funds, which automatically adjust the weightings of asset classes within a portfolio to become more conservative over time. Yet employees need to understand that these funds are not risk-free. Many experienced steep losses during the 2007-2008 market decline.</p> <p><strong>Educate Employees</strong></p> <p>Studies show that one out of four eligible workers fails to sign up for a 401(k). To counteract this trend, consider implementing automatic enrollment and auto-escalation, which automatically increases 401(k) contributions with salary increases unless an employee opts out. Auditore recommends that HR professionals provide frequent communication emphasizing the value of the company&rsquo;s 401(k) plan, particularly when the market is tumbling. Don&rsquo;t assume that employees have an extensive investment background. Consider offering financial engines that automatically rebalance a portfolio&rsquo;s asset allocation to reduce risk.</p> <p>One bright spot is that plan participants can expect to receive a steady stream of information under new disclosure rules set forth by the U.S. Department of Labor, effective May 2012. Under the new regulations, 401(k) plans must outline all associated fees and expenses each quarter. Additionally, they will provide charts to employees comparing the investment options&rsquo; fees, past performance, benchmark comparisons and risk levels.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/margie-fishman">Margie Fishman</a> of <a href="http://www.wisebread.com/small-business/how-to-assemble-better-401k-plan-options">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/250-tips-for-small-business-owners">250+ Tips for Small Business Owners</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/are-you-on-this-list-of-cushiest-retirement-jobs">Are YOU on This List of Cushiest Retirement Jobs?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-7-most-important-financial-moments-of-your-life">The 7 Most Important Financial Moments of Your Life</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-5-best-credit-cards-for-small-businesses">The 5 Best Credit Cards for Small Businesses</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/best-online-sites-for-building-wealth">Best Online Sites for Building Wealth</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Small Business Resource Center 401(k) adminstration 401(k) plans benefits pensions retirement small business Sat, 19 Nov 2011 21:03:37 +0000 Margie Fishman 789070 at http://www.wisebread.com 5 Things to Know about Cash Balance Plans http://www.wisebread.com/small-business/5-things-to-know-about-cash-balance-plans <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.openforum.com/articles/5-things-to-know-about-cash-balance-plans" target="_blank">http://www.openforum.com/articles/5-things-to-know-about-cash-balance-plans</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/5-things-to-know-about-cash-balance-plans" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000005794823Small.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>You know about IRAs, 401(k)s, and traditional pension plans. You probably aren&rsquo;t familiar with cash balance plans, but you should be. They could well be the solution you&rsquo;re looking for when it comes to maximizing your retirement savings without being wholly dependent on the whims of Wall Street. Statistics in the recently <a target="_blank" href="http://www.cashbalancedesign.com/articles/documents/NationalCashBalanceResearchReport2011.pdf">issued Kravitz National Cash Balance Plan Research Report 2011</a> demonstrate the advantages of these plans. Here's what you need to know about them.</p> <p><b>Not Your Grandfather&rsquo;s Pension Plan</b></p> <p>Pension plans are defined benefit plans that promise to pay participants a fixed sum upon retirement. The promise is based on a participant&rsquo;s earnings and is <b><i>not</i></b> dependent on the investment performance of the plan. Cash balance plans, in contrast, are a type of pension plan that define the promise to pay in terms of a participant&rsquo;s account (they are also called &ldquo;hybrid plans&rdquo;). Essentially, a cash balance plan transforms the retirement payment promise into something more akin to a defined contribution plan, such as a profit-sharing and 401(k) plan.</p> <p>For example, instead of promising a monthly pension of $5,000 upon retirement as a pension plan does, the cash balance plan instead says the participant&rsquo;s account balance is $90,000 at retirement. The account balance can then be taken as a monthly payment (which may be the same $5,000 per month as in the case of the pension plan). Or the participant can receive a lump-sum payment of $90,000 &ndash; something that usually isn&rsquo;t possible with a pension plan.</p> <p>The lump-sum distribution can be rolled over on a tax-deferred basis into an IRA, allowing the participant more flexibility in tailoring distributions to meet retirement income needs. This &ldquo;portability&rdquo; feature &ndash; being able to make a rollover &ndash; also distinguishes traditional pension plans from cash balance plans.</p> <p>In contrast to traditional pension plans, cash balance plans are easier for participants to understand because benefits are stated as individual account balances rather than as &ldquo;accrued benefits&rdquo; or some other obscure formula.</p> <p><b>Cash Balance Plans aren&rsquo;t Just for Large Corporations</b></p> <p>Just because the first cash balance plan was established by Bank of America (in 1985) doesn&rsquo;t mean that cash balance plans are limited to large corporations. Small and mid-sized companies are now using them in greater numbers. In fact, according to the Kravitz Report, 82% of plans in place are with firms with fewer than 100 employees. Further,</p> <ul type="disc"> <li>Companies in the fields of finance and manufacturing account for a large percentage of plans;</li> <li>Medical and dental groups account for 37% of all plans;</li> <li>A diverse range of other companies (astrologers, auctioneers, animal groomers, bars, bagel shops, religious institutions, museums, and ski reports) account for 11% of all plans.</li> </ul> <p><b>Advantages over 401(k)s</b></p> <p>Cash balance plans can be better for certain business owners and their staff. Here are four advantages to participants:</p> <ol type="1" start="1"> <li>Contributions are made entirely by the company, thus providing more retirement benefits for participants, which isn&rsquo;t dependent in whole or in part on contributions by employees. This may seem burdensome to small businesses, but many of them are family-owned, with few &ldquo;outside&rdquo; participants, so the contributions primarily ensure to the benefit of owners and their families. Also, plan contributions are tax deductible, reducing the profits that will be taxed.</li> <li>The company, rather than the participants, manages the investments in cash balance plans. Increases (and decreases) do not affect the promised benefit to participants. In contrast, with 401(k)s, participants at retirement have only as much as their (and the company's) contributions have earned. Retirement benefits are more stable in cash balance plans because investments usually are tied to a benchmark such as the 30-year Treasury rate and are conservatively invested.</li> <li>At retirement, a guaranteed payment for life must be offered in a cash balance account. In contrast, a 401(k) <i>may </i>offer a similar payout option but this isn&rsquo;t mandatory.</li> <li>Participants in cash balance plans are guaranteed to receive a pension for life because, as a defined benefit plan, cash balance plans are insured by the <a target="_blank" href="http://www.pbgc.gov/">Pension Benefit Guaranty Corporation (PBGC)</a>, a federal agency that protects participants in the event their pension plans don&rsquo;t have enough funds to pay the promised benefits. There is no such protection for 401(k) participants.</li> </ol> <p><b>Cash Balance Plans are No Longer Questionable in the Eyes of the IRS</b></p> <p>In the past, there were uncertainties when it came to cash balance plans, and the IRS turned its nose up. However, some of these questions were answered by the Pension Protection Act of 2006. Last October, <a target="_blank" href="http://www.aaluwr.org/majorrefs/Ref10-102A.pdf">final</a> and <a target="_blank" href="http://www.aaluwr.org/majorrefs/Ref10-102B.pdf">new proposed regulations</a>, clarified more mysteries about these plans to enable benefits experts to craft plans that comply with legal requirements and avoid IRS challenges. The regulations, for example, clarify how plans can transfer from traditional pension plans into cash balance plans.</p> <p>These regulations generally apply to plan years beginning on or after January 1, 2011.</p> <p><b>Cash Balance Plans Can Be Combined with 401(k) Plans</b></p> <p>Instead of a stand-alone pension plan, the cash balance plan can be combined with 401(k) plans to maximize retirement savings without increasing company costs. The Kravitz Report shows that 89% of cash balance plans are combined with a profit-sharing or 401(k) plan. Remember, the participants are the ones funding the 401(k).</p> <p><b>Final Word</b></p> <p>Be sure to discuss your retirement plan options with a knowledgeable benefits advisor to determine whether a cash balance plan is a good fit for your company.</p> <p>To learn more, you&rsquo;ll find general information about cash balance plans from the <a target="_blank" href="http://www.dol.gov/ebsa/FAQs/faq_consumer_cashbalanceplans.html">Department of Labor</a>. You can find tax-related information from the <a target="_blank" href="http://www.irs.gov/retirement/article/0,,id=219530,00.html">IRS</a>.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/barbara-weltman">Barbara Weltman</a> of <a href="http://www.wisebread.com/small-business/5-things-to-know-about-cash-balance-plans">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/250-tips-for-small-business-owners">250+ Tips for Small Business Owners</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/optimize-your-ira-and-401k">Optimize Your IRA and 401(k)</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-signs-you-arent-saving-enough-for-retirement">10 Signs You Aren&#039;t Saving Enough for Retirement</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-5-best-credit-cards-for-small-businesses">The 5 Best Credit Cards for Small Businesses</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/best-business-travel-credit-cards">Best Business Travel Credit Cards</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Small Business Resource Center 401(k) plans Cash Balance Plans employee benefits IRA pension benefits small business Sun, 29 May 2011 19:04:07 +0000 Barbara Weltman 550555 at http://www.wisebread.com 5 Year-End Actions to Improve Your Business http://www.wisebread.com/small-business/5-year-end-actions-to-improve-your-business <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.openforum.com/idea-hub/topics/money/article/5-year-end-actions-to-improve-your-business-barbara-weltman" target="_blank">http://www.openforum.com/idea-hub/topics/money/article/5-year-end-actions-to-imp...</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/5-year-end-actions-to-improve-your-business" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000007559710XSmall.jpg" alt="Machinists working" title="Machinists working" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>Most small businesses will be closing their books on December 31. That means there&rsquo;s only a short time to take actions that can improve the operations of your company going forward and trim your federal income taxes now.&nbsp;</p> <h3>1. Work with Your CPA or Financial Advisor</h3> <p>Schedule a meeting as soon as possible to review your financial picture for 2010 so you can decide which actions to take now. For example, if you have a C corporation that&rsquo;s been profitable this year, the business may want to<b><i> </i></b>pay out some of its profits to shareholders in the form of dividends. While not deductible by the corporation, shareholder-employees pay taxes at no more than 15% and the corporation saves on payroll taxes that would otherwise be due if these payouts had been compensation instead of dividends.<b><br /> </b></p> <h3>2. Purchase Equipment<b> </b></h3> <p>If you need new computers, furniture, machinery, and other business equipment, buy them now. As long as the item is placed in service by December 31, you can opt to expense the cost (immediately deduct) up to $500,000 instead of depreciating it over five or seven years or even longer periods. This is called the &ldquo;Section 179 deduction&rdquo; and it applies not only to equipment, but also to off-the-shelf software and to qualified leasehold, restaurant, and retail improvements that would otherwise be depreciated over 39 years (although there&rsquo;s a $250,000 limit for improvement).</p> <p>This expensing option applies to both new and pre-owned equipment (as long as it&rsquo;s new to your business). It applies whether you finance the purchase in whole or in part.</p> <p><i>Caution:</i><b><i> </i></b>If you must replace or obtain equipment but aren&rsquo;t profitable, don&rsquo;t make this expensing election. Instead, merely rely on the 50% bonus depreciation allowance for this year to claim a sizable write-off for purchases; only new property qualifies. Bonus depreciation can be used to create or increase a net operating loss that can be carried back for a certain number of years (generally two) to generate a tax refund.</p> <h3>3. Set Up a Retirement Plan</h3> <p>If you&rsquo;ve been profitable and want to share your good fortune with staff, you can set up a qualified retirement plan, such as a 401(k), for 2010. You&rsquo;ll be able to use the plan as a way to attract and retain qualified employees while sheltering your business profits. Even if you work alone, you can use a solo 401(k) or other type of qualified plan for yourself.</p> <p>As long as you sign the paperwork with a financial institution by December 31 to create the plan, you then have until the extended due date of the 2010 income tax return to make tax-deductible contributions.</p> <p>If you miss the December 31 deadline, you will still be able to set up and fund a Simplified Employee Pension (SEP) plan for 2010 up to the extended due date of the 2010 return (e.g., October 15, 2011 for a sole proprietor&rsquo;s plan).</p> <h3>4. Hire New Employees</h3> <p>If your business is growing, you can improve operations by expanding your staff. If you hire certain workers, you&rsquo;ll gain special tax breaks.</p> <ul type="disc"> <li><strong>Unemployed worker. </strong>If you hire someone who has not worked more than 40 hours during the 60-day period preceding the date you put them on your payroll (and is not related to you), you&rsquo;ll enjoy a payroll tax holiday for the rest of the year. This means you won&rsquo;t have to pay the Social Security portion of FICA, a 6.2% employment tax savings. You&rsquo;ll still pay the Medicare portion and withhold the employee&rsquo;s full share of FICA. Make sure the new employee signs an affidavit that he or she meets the unemployment requirement; this can be done using new IRS <u><a href="http://www.irs.gov/pub/irs-pdf/fw11.pdf">Form W-11</a></u> (PDF). Then, if you keep this worker on the payroll for 52 consecutive weeks, you&rsquo;ll be able to claim a tax credit of up to $1,000 on your 2011 tax return.<br /> &nbsp;</li> <li><b>Disadvantaged worker<i>. </i></b>If you hire a worker from one of about a dozen targeted groups of economically disadvantaged workers, you can take a work opportunity tax credit. The credit generally is 40% of first-year wages up to a top credit of $2,400, but it may be higher or lower for certain workers. To claim the credit, the worker must complete IRS <u><a href="http://www.irs.gov/pub/irs-pdf/f8850.pdf">Form 8850</a></u> (PDF) when hired and you must submit it to the state labor department within 28 days of the hire date. If you don&rsquo;t, you can&rsquo;t correct this mistake and will lose out even if the worker is in a targeted group. Note: You cannot claim this credit and the payroll tax holiday with respect to the same worker, so choose the tax break that is better for your business.</li> </ul> <h3>5. Give Year-End Bonuses</h3> <p>If your business has survived and thrived in this economic downturn, you may want to reward your staff by paying year-end bonuses. The business can deduct bonuses (and related payroll taxes).</p> <p>Businesses using the cash method of accounting deduct the bonuses when they are paid. Businesses using the accrual method of accounting have some leeway. They can deduct bonuses declared before the end of the year as long as they are paid by March 15, 2011.</p> <p><em>Exception: </em>Bonus payments to employees who are more than 50% C corporation shareholders and payments to owners of S corporation shareholders, regardless of their ownership percentage, are not deductible until actually paid to the shareholder-employees.&nbsp;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/barbara-weltman">Barbara Weltman</a> of <a href="http://www.wisebread.com/small-business/5-year-end-actions-to-improve-your-business">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/101-tax-deductions-for-bloggers-and-freelancers">101 Tax deductions for bloggers and freelancers</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/250-tips-for-small-business-owners">250+ Tips for Small Business Owners</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-5-best-credit-cards-for-small-businesses">The 5 Best Credit Cards for Small Businesses</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-ways-student-loans-impact-your-taxes">4 Ways Student Loans Impact Your Taxes</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-important-tax-changes-for-2016">5 Important Tax Changes for 2016</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Entrepreneurship Small Business Resource Center Taxes 401(k) plans deductions financial advisor hiring small business small business taxes Fri, 10 Dec 2010 14:38:14 +0000 Barbara Weltman 338885 at http://www.wisebread.com 4 Essential Financial Tips For Kicking Off Your Career http://www.wisebread.com/4-essential-financial-tips-for-kicking-off-your-career <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/4-essential-financial-tips-for-kicking-off-your-career" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/graduate.jpg" alt="Happy graduate" title="Happy graduate" class="imagecache imagecache-250w" width="240" height="160" /></a> </div> </div> </div> <p>The time had finally come: I was an adult. Sure, I could vote when I was 18 and buy beer when I turned 21, but this was different &mdash; <em>very </em>different. No more hitting snooze until my 10 a.m. financial management class. It was time to start my career and begin the daily grind.</p> <p>Young adults have a once-in-a-lifetime opportunity to start their careers as well as their financial plans on the right track the first time around. If you have just finished college and are about to embark on your career path, the decisions you make today could have a lasting impact on the rest of your life. Dealing with the many changes taking place at this point in your life may be challenging. However, with a bit of planning, you can begin life's journey on the right foot to achieve all of your career and financial goals.</p> <h2>Establish Your Goals</h2> <p>The first step in achieving financial goals is to actually establish them. Just as you have your sights set for certain achievements in your career, your financial goals should be outlined as well. It is not enough to say you want to have enough money to retire in 30 years; you have to actually develop a plan that will turn your dreams into a reality.</p> <p>I knew that I didn&rsquo;t want to work until I was 65. My goal was to be able to be in the financial position so that if I wanted to retire at the age of 50, I could. But how was I going to do it?</p> <p>First, I knew that I had have a good job that allowed me the chance to increase my income over time.&nbsp; <em>Check.</em></p> <p>Second, I knew that I needed to save...<em>a lot</em>. I made a commitment to get all the free money in my 401(k) that I could and <a href="http://www.goodfinancialcents.com/7-things-to-know-about-roth-ira-rules-for-2010/">max out my Roth IRA</a> each year. <em>Definitely a good start.</em></p> <p>Some of the goals you may be working toward include buying your first home or saving for a special purchase. Whatever your goals, write them down and determine what actions you have to take moving forward to make sure you are heading in the right direction.</p> <h2>Manage Your Debt</h2> <p>Debt is sometimes unavoidable regardless of our best intentions. Following the recent decline in the economy, more people are paying attention to how and where they spend their money. For young adults just starting out, you may feel as if you have a lifetime to <a href="http://www.goodfinancialcents.com/how-to-pay-off-your-credit-cards-debt-fast/">pay off debt</a>, and in some cases, you are correct. If not properly managed, it will take a lifetime to pay off debt, and in the meantime you will have difficulty achieving other financial goals.</p> <p>I easily could have fallen into a feeling of self-entitlement when I got my first job and started making real money. Many of my fellow graduates did by buying new cars and electronics that they had lived without through their college careers. I, on the other hand, continued to live on my college budget and refrained from getting myself deeper into debt.</p> <p>For this reason you should avoid debt whenever possible. If you are starting out in debt as a result of student loans or other debts incurred while in college, make every effort to pay off those debts in the shortest period of time. This will allow you to focus on other short- and long-term goals.</p> <h2>Save and Invest</h2> <p>There are few guarantees in life. However, one thing is certain. Every effort you make to save for future expenses, whether they occur six months down the road or twenty years in the future, will put you one step closer to achieving these goals. It is important to understand savings and investment strategies that will help you reach these goals. When you are just starting out, time is on your side, and this step is not one that should be placed on the back burner. Start saving immediately, and you will discover it becomes a habit that will last a lifetime.</p> <h2>Understand the Importance of Financial Planning</h2> <p>By thinking about the big picture and where you want to be 5, 10, or 30 years down the road, you can develop a financial plan that allows you to work toward those goals. Without a financial plan you are more likely to live in the moment, which undoubtedly results in poor financial choices. The steps you take today will set the pace for the rest of your life, determining your quality of life and long-term financial security.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/jeff-rose">Jeff Rose</a> of <a href="http://www.wisebread.com/4-essential-financial-tips-for-kicking-off-your-career">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-7-most-important-financial-moments-of-your-life">The 7 Most Important Financial Moments of Your Life</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/financial-iq-test-how-healthy-is-your-financial-plan">Financial IQ Test: How Healthy Is Your Financial Plan?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/using-your-roth-ira-as-an-emergency-fund-ever-a-good-idea">Using Your Roth IRA as an Emergency Fund — Ever a Good Idea?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-painless-ways-to-manage-money-with-your-partner">5 Painless Ways to Manage Money With Your Partner</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-private-financial-information-you-must-share">The Private Financial Information You Must Share</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Career Building 401(k) plans financial planning Roth IRA starting your career Thu, 02 Dec 2010 13:00:10 +0000 Jeff Rose 353434 at http://www.wisebread.com Optimize Your IRA and 401(k) http://www.wisebread.com/optimize-your-ira-and-401k <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/optimize-your-ira-and-401k" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/apollo-4-liftoffa.jpg" alt="Apollo 4 Liftoff" title="Apollo 4 Liftoff" class="imagecache imagecache-250w" width="250" height="345" /></a> </div> </div> </div> <p>Your IRA and 401(k) (or 403(b) if you work for a non-profit) are great tools for deferring taxes, and have other advantages as well. But because they're labeled &quot;retirement&quot; accounts, people are much too likely to put the wrong investments in them. Here's how to use them correctly.</p> <p>Because of rules designed to discourage people from taking money out until they approach retirement age, people assume that they ought to put their &quot;long-term&quot; investments in their 401(k). But that's the wrong way to think about it.</p> <p>The key difference in a 401(k) or IRA account is not that it's supposed to be for your retirement. The key difference is that money that goes into the account--and money earned in the account--is tax deferred. If you let the fact that the accounts are called &quot;retirement&quot; accounts influence what assets you hold in them, you're unlikely to make maximum use of their key feature--and that amounts to throwing money away.</p> <h2>Use that tax deferral!</h2> <p>There are two steps to optimizing your various retirement accounts. The first is to get some money into them, and the second is to put the right investments into the right accounts.</p> <p>First of all, you probably want to put as a big chunk of your regular income into your 401(k), as you can.</p> <p>I say &quot;probably&quot; because there are a few reasons why you might want to limit how much money you put in your 401(k):</p> <ul> <li><strong>Your income is very low</strong>. If your income is low enough that you're being taxed at 10% or less, there's a pretty good chance that you'd pay higher taxes when you take the money out of your 401(k) after retirement.</li> <li><strong>Your income is very high</strong>. Both the IRS and your company limit how much money you can tax defer if you have a very high income.</li> <li><strong>Your employer's plan is crappy</strong>. Some plans have high fees or poor choices of investments.</li> <li><strong>You want to save money outside the plan</strong>, such as because you want to use it before you're retirement age.</li> </ul> <p>Of course, if your company still provides a corporate match, that plays into the decision as well.&nbsp; I've got a post on <a href="http://www.wisebread.com/when-not-to-put-money-in-your-401-k">when NOT to put money in your 401(k)</a> that talks about those issues in some detail. To what I'd say there I'd only add that federal income tax rates are currently at generational lows. That, combined with the current level of the deficit, suggests to me that future tax rates are likely to be higher than current tax rates--another reason why you might not want to put all your long-term savings in your 401(k).</p> <h2>Separate asset allocation from account selection</h2> <p>The allocation of assets among your various long-term goals is a completely different step from the selection of which account should hold which asset. <strong>Understanding this can add substantially to your wealth.</strong></p> <p>You probably have several long-term goals. Retirement (including early retirement) is one, but anything that requires years of saving qualifies as a long-term goal. (Examples: college savings for a young child, money to start a business, your dream home, a round-the-world cruise).</p> <p>Investments for all your long-term goals can <strong>and should be</strong> managed together. All your assets support all your goals; you just confuse yourself if you start thinking that <em>these</em> stocks are for retirement while <em>those other ones</em> are to put a new roof on the house someday.</p> <p>So, step one is to figure out your <a href="http://www.wisebread.com/best-asset-allocation-for-your-portfolio">ideal asset allocation</a>. This probably includes putting a large fraction of your investments in a broad-based, low-cost stock index fund, but may include investments in many other asset classes: mutual funds that invest in foreign stocks or dividend-paying stocks (or direct investments in such stocks), bonds, real estate, gold, silver, other commodities, etc.</p> <p>Only after you've figured out how you want to invest your entire portfolio do you want to figure out which accounts should hold which investments.</p> <h2>Choosing compartments</h2> <p>The key to this step is to put income-earning investments in tax-deferred accounts.</p> <p>Your asset allocation may include an investment in non-dividend paying stocks. They'd be part of a long-term investment strategy whose purpose is to produce growth over the next 20 or 30 years--but just because they're long-term does not mean that they should go in your 401(k)! Quite the reverse: a non-dividend paying stock that's a core holding in your portfolio should be in your regular brokerage account. If it does well you can go on holding it for years and years and won't have to pay any taxes until you sell--and when you do sell, you'll owe taxes at the low capital-gains rate.</p> <p>Holding that investment in your retirement account would be crazy. First, since you already don't owe taxes while you're holding it, you'd get no benefit from the tax deferral. Second, when you withdraw money from a retirement account you have to pay taxes on it as regular income--losing the favorable tax treatment for capital gains.</p> <p>(It doesn't work out any better if the investment does poorly--in your regular brokerage account you can use a capital loss to offset other gains before paying taxes, but losses in a retirement account are just losses.)</p> <p>You don't want the compartment decision to drive your asset allocation--you already decided what investments you wanted to hold. But those assets should end up in compartments based on tax considerations. Interest-earning investments like bonds go in tax-deferred accounts. So do investments with frequent turnover--if you make trades in your regular brokerage account you have to pay taxes on your profits every year.</p> <p>Dividends are a special case. Currently dividends are receiving favorable tax treatment, so you're probably better off keeping most dividend-paying stocks outside of your 401(k) at the moment. This is likely to change, though, so you'll have to monitor the situation.</p> <p>If you have a good 401(k) plan with lots of low-cost fund choices, it should be easy to hit your target allocation with most of your interest-earning investments (and investments that you might trade actively) inside the plan.</p> <h2>Limitations</h2> <p>In an ideal world it would be straightforward to allocate things to the different categories: You'd put the things that earned interest into your 401(k) and IRA while keeping things that produced capital gains (and currently dividends as well) in regular accounts.</p> <p>In the real world there are a bunch of constraints on that, the biggest being that many people, especially younger folks, have practically their whole wealth concentrated in their 401(k).</p> <p>This happens almost automatically: You get a job, you direct enough money into your 401(k) to get the full corporate match (back when companies actually paid a corporate match), and then you spent most of your take-home pay. You can't hold your stock portfolio in your brokerage account (where you'd get the maximum tax advantage of the capital gains and dividend tax breaks) because you just don't have enough money outside the 401(k).</p> <p>This and similar real-world considerations are going to limit your ability to get this exactly right--and that's to be expected. The important thing is to base your asset-allocation decisions on your best analysis of your goals and your expectations for the future. Below I've got a few tips for dealing with specific situations.</p> <p>The main limitation on your ability to optimize your 401(k) plan has to do with the choices your employer offers within the plan. Happily, you can work around even a pretty mediocre plan's limitations, as long as you at least some of your long-term savings outside your 401(k).</p> <p>First, take a close look at the investment choices you've got and compare them to your desired asset allocation. Maybe there's no bond fund, but there is a balanced investment fund that's half-and-half stocks and bonds. If you wanted 20% in bonds you could get that by putting 40% of your money into the balanced fund. (That would also put 20% of your money into stocks--which is fine, as long as your stock allocation is at least 20%, which it probably is.)</p> <p>Second, where you really can't find the investments you need within the plan (no international fund, perhaps, or no gold fund) you have to cover that fraction of your asset allocation elsewhere--which is also fine, as long as you have some of your long-term investments outside the plan. If the investment is one that ought to be tax-deferred, see if you can't buy the appropriate asset within an IRA.</p> <p>Generally, make hitting your asset allocation your number one priority. Maximum tax efficiency is a secondary consideration--but to the extent that you can keep your bond investments (and any investments where you make frequent trades) inside a tax-deferred plan, you'll come out ahead.</p> <p>As a secondary matter, start saving some money outside your 401(k). As the sum grows, use it to invest for capital gains (and, for however long they remain tax-advantaged, dividends)--and simultaneously shift your 401(k) toward interest-earning investments that make maximum use of the 401(k)'s tax advantages.</p> <p>For most people this will probably be a long-term problem: Unless you become quite wealthy, your 401(k) will always be larger than the amount of money you want to hold in bonds. But that's not a big problem. Just stick with your asset allocation and emphasize capital gains and dividends outside the 401(k).</p> <h2>Using a Roth</h2> <p>A Roth IRA is a special case. If you follow the rules (wait until your Roth is 5 years old and until you're 59-and-a-half), you can avoid paying any taxes on money earned in a Roth.</p> <p>The upshot is that most of these issues don't really apply to a Roth. Just invest according to your asset allocation and don't worry about it.</p> <p>Remember that tax rates always change (and everyone's individual tax situation is different), so be sure to check and understand how the rules will actually apply in your case.</p> <p>Whatever mix of retirement accounts you end up using, don't let the fact that they're called &quot;retirement&quot; accounts distract you from the essential features that distinguish those accounts: the tax advantages. Taking maximum advantage of those features can add significantly to your wealth over the next few decades.</p> <p><em>&nbsp;[Update 6 August 2009:&nbsp; This post was included in the </em><a href="http://www.christianpf.com/famous-money-quotes-copf/"><em>Carnival of Personal Finance</em></a><em>.]</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/optimize-your-ira-and-401k">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-13"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/retirement-accounts-and-money-to-spend">Retirement accounts and money to spend</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-financial-moves-you-will-always-regret">9 Financial Moves You Will Always Regret</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-important-things-to-know-about-your-401k-and-ira-in-2016">5 Important Things to Know About Your 401K and IRA in 2016</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/dont-despair-over-small-retirement-savings">Don&#039;t Despair Over Small Retirement Savings</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/this-is-why-you-cant-postpone-planning-for-your-retirement-and-how-to-start">This Is Why You Can&#039;t Postpone Planning for Your Retirement (And How to Start)</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance 401(k) 401(k) plans 401k 401k plans investing investments IRA long-term Roth savings tax tax-advantaged tax-deferred taxes Wed, 29 Jul 2009 20:00:11 +0000 Philip Brewer 3442 at http://www.wisebread.com