INVESTING BEYOND THE 401(K)

Individuals who have a 401(k) with an employer who matches maximum contributions will likely have a retirement that is financially comfortable. Such individuals definitely face a retirement that would be hard to duplicate financially without the benefits of a 401(k) plan. No other investment yields a return as high as 50% during the first day. However, there is a problem with 401(k) plans. Employees can max out and fill up their plan. If individuals intending to save money after maxing out a 401(k) plan, there are several options available. It's important to consider the pros and cons of these options.

Roth IRAs. After maxing out a 401(k) plan, look into a Roth IRA. Not everyone qualifies for these, so be sure there are no qualification issues before investing too much time in researching this option. In order to qualify, individuals must not exceed an adjusted gross income (AGI) of $122,000. This figure is for single individuals. However, the AGI for married individuals must be below $179,000. Although there are limits on these contributions after $107,000 and $169,000, this option is much more beneficial than pouring more money into a full 401(k) plan. To determine qualification, speak with one of our agents.

(...continued)

(...continued from previous page)

Taxable Investments. For individuals who plan to invest in equities, contacting a brokerage firm about a taxable investment account is a beneficial choice. The percentage rate for qualified dividends and long-term capital gains is generous. The key to building a good retirement off these investments is to keep expenses low by getting the most of the percentage rate. To do this, it's best to hold stocks for a time period exceeding 12 months. Choose mutual funds featuring an annual turnover rate that is low. If the turnover rate is high, there will also be a higher amount each year that is subject to taxation. In addition to this, there will likely be a higher tax rate for that amount. This process is due to the law stating that mutual fund investors must receive the gains from stocks that are sold.

Unmatched 401(k). It's best to continue placing excess savings into a Roth IRA until the limit is reached. After that point, individuals who want to save more must make unmatched contributions to the 401(k). It's important to make the maximum contribution allowed by the plan. Keep in mind that the government caps tax-advantaged salary reduction contributions.

Variable Annuities. It's best for most individuals to avoid considering these annuities as an option. The tax-deferred aspects of variable annuities is often counteracted by their high expenses. They're beneficial when used for cash or bonds by individuals who plan on saving for several years. If this is the case, gains from tax-free interest may exceed the disadvantage formed by higher fees. The number of years required to succeed in variable annuities depends on investment yield amounts and individual tax bracket placement. To learn more about when and how variable annuities are harmful, speak with a qualified agent.

Nondeductible IRA. Nondeductible IRAs are accounts that grow with tax deferment. Since this is the case, tax savings can be significant for individuals with long investment horizons. This IRA is different from a deductible IRA because anyone who earns income from a job or self-employment may obtain one. Ordinary income taxation methods are used to tax withdrawals. These methods are used instead of the long-term capital gains rate, which is normally used for taxable accounts. Since the maximum federal percentage rate isn't very high, these accounts are not popular for individuals who have shorter investment horizons.

It's clear that some of these options are far more beneficial than others. However, some options may be better for individuals in specific financial situations. Before making any decisions, it's important to speak with an agent to discuss the possibilities. Although these decisions shouldn't be made hastily, it's important to avoid procrastinating when planning for retirement.

EIGHT TIPS TO HELP YOU SET AND REACH YOUR FINANCIAL OBJECTIVES

Whether in the context of earning it, saving it, investing and growing it, or just managing and holding on to it, money is a complicated subject that everyone seems to miraculously be an expert on these days. As such, there are a lot of unscrupulous individuals that would like to tell you about money just to advise you down a path that benefits them, not you. So what do you really need to know?

1. Concentrate your efforts. In reality, most people aren't able to achieve the vast financial objectives and goals they've set for themselves. By narrowing your objectives and identifying and prioritizing your goals based on what matters to you most, you can concentrate your efforts and have a much better chance of success.
2. Choose prudently. As you determine and set your goals, look at what will not only make you happy and fulfilled, but also help you have a feeling of financial security. Goals commonly at the top are an emergency fund, covering a child's college tuition, and getting out from under debt.
3. Focus on the primary goals first. As with No. 1 on our list, you might find it hard to put desirable, but less important goals, on the back burner. However, this will be a necessary evil to ensure you achieve your primary goals.
4. Prepare yourself for conflicting feelings. Goals will often come into conflict with each other, especially as your financial and personal life continues to evolve. Ask yourself what the deferring of each goal would mean for you and your family and which goal would have a vaster or more substantial benefit?
5. Time can be your enemy. Time will be one of the most important allies in reaching your goals; the more time you have, the greater chance you have to reach loftier financial goals. For example, money in stocks and bonds or interest-earning accounts will only grow and compound with time. Younger individuals will have longer to build their nest eggs and can take greater investment risks than older individuals with shorter investment horizons and less time to recover from a risky investment gone wrong. The longer you wait to set your goals and implement your plan, the more difficult success will be.
6. Don't go it alone. Make sure to include your significant other as you set your goals. You should even give older children a voice in the goals that involve or affect them.
7. Don't ignore spending. You don't need to worry if you make the occasional extra trip to the coffee shop. It's fine to include some degree of fun or comfort into your daily expenses, but you do need to remember your long-term goals in your spending habits. You certainly need to sweat the big stuff and keep your major purchases inline with your goals. You need to ask yourself if each and every big purchase is taking you further from or closer to your primary goals. Try to avoid, or at least reduce, any purchase that doesn't contribute to achieving your goals. You might deserve a cruise, but if it steals from your child's college tuition fund, then it might be better to take a weekend road trip instead.
8. Don't ignore change. Every one to five years, you should reexamine your goals and priorities. If for no other reason than elapsed time, your needs, desires, and personal and professional circumstances may have changed.

MONEY 101: WHAT YOU MUST KNOW

There are several things that everyone should know about money and planning for the future. Many people fail to plan for their future because they feel their assets aren't extensive enough. Even those who have few or no assets should know a few important aspects of managing them.

• An estate plan is essential for everyone. Many people feel they don't need to do this. However, it's the best way to ensure that survivors are taken care of and financial goals are completed after death.
• Take inventory of assets. It's important to review all retirement accounts, investments, insurance policies and real estate investments. Consider who should inherit the assets, who should make medical decisions and who should handle financial arrangements after death.
• There are several factors in an estate plan. Every estate plan includes a living will, a will and a power of attorney assignment. Some people also choose to create a trust as part of their estate plan. It's important to consider state and federal laws for estates when building a plan.
• Trusts are not only for wealthy people. There is a common misconception that only the wealthy use trusts. However, they're beneficial for anyone who wants to dictate how and when asset distribution will take place after death. They're also useful in reducing gift and estate taxes. Heirs receive the assets without delay, cost and publicity. Assets are also protected from lawsuits and creditors in most cases.
• Every person should create a will. Wills tell survivors how and to who assets should be distributed after death. Wills are also useful for naming guardians for children. Heirs will have to pick up the cost for any family member who dies without a will. Whether a trust is in place or not, it's still imperative to have a will. This document is the most important base of any estate plan.
• Changes are continuously made to the federal estate tax exemption. This exemption is the amount individuals who die often leave to heirs. Although it isn't subject to federal tax rules right now, it may not be in the future. The tax could be reinstated or removed from one year to the next. It's important not to make decisions that rely too heavily on this exemption.
• Discuss estate plans with family members or heirs for clarity. It's important to discuss personal wishes, reasons and concerns with heirs or family members. Verbally clearing the air about their concerns helps prevent possible conflicts after death. Inheritance can often turn family members against one another, so it's important to take steps to avoid this.
• It isn't always best to leave a large amount of tax-free money to a spouse. While the thought is nice, the reality isn't always as nice. By leaving assets to a spouse, the estate tax exemption isn't utilized. This means that the surviving spouse will have a larger taxable estate. Couples who have children they plan to leave the money to should know that the children will have to pay more in estate taxes.
• Consider giving lasting charitable gifts. Individuals who donate to a community foundation or charitable gift fund will enjoy an investment that grows without tax building. They also have the benefit of choosing which charities to donate to before and after death.
• Giving tax-free gifts to reduce an estate can be done in two ways. Individuals may contribute up to the maximum allowable amount each year to an individual. There is no limit on the amount of education or medical bills that can be paid on behalf of someone else. This is only true if the amounts are paid directly to the institutions the expenses were incurred in.

It's important to understand the balance between benefits and consequences. To learn more about which options are the best in an individual situation, contact our office today.