Posts Tagged ‘401k’
Tax Saving Strategies for Sabbaticals, Career Transitions or Early Retirement
Posted on: April 10, 2024
I have a client who is planning to take a year off to take care of her mother, another one who has quit his job to launch a new business, and yet another one who has retired early and needs to wait a few years to receive her pension and social security.
What they all have in common is that they will have at least one year during which they will have very low or even no income. I have been thinking about how they can take advantage of their situations to increase their lifetime wealth-being, or more specifically to reduce their lifetime tax liabilities. Here are two strategiesI came up with: 1) Roth Converstion and 2) Tax Gain Harvesting.
Folks who save money for retirement usually stash their money in three types of accounts: taxable accounts like banks and brokerages; tax-deferred accounts like IRAs, SEPs and 401ks, or tax-exempt accounts like Roth IRAs and HSAs.
With tax-deferred accounts, once you are over 71 years old, there will be a RMD (required minimum distribution) that will increase as you age. If you invest well, eventually this RMD will push you into the higher tax brackets like 35% or even 37%. Here is a table of tax brackets for 2024.
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1. “The gross revenues for the financial services industry in 2010 were $1.129 trillion. That year, total US financial assets stood at $50.38 trillion, meaning that the financial services industry as a whole is skimming 2.25% a year out of everyone’s wealth.” This is an excerpt from a post on Wealthcare Capital entitled “Investment Expenses – The Other Millionaire You Make.” How about I help you cut those expenses by half?
2. Shocking! Shocking! Your elected representatives want the financial industry to continue ripping you off!
3. Ike Devji wrote a piece “Investment Fraud Red Flag for Physicians.” It is packed full of useful tips. I have one thing to add though, never work with a broker, regardless how clean his or her broker check record. These people are not legally obliged to watch out for your best interest.
4. A very succinct piece in Physicians’ Monday Digest about How Rising Interest Rates Would Affect You.
5. Taxpayers beware, AccountingToday has a piece on tax deductions expiring in 2014.
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Government Retirees Beware: Your Financial Advisor May Not Be Your Friend
Posted on: January 14, 2012
I have a client (Let’s call him John) who retired 12 years ago from the government. He had a pension, and he had the option of taking out a lump sum of about $800k or drawing a monthly check of more than $4,400 per month until death.
Lost Retirement Money?
John took his options to his financial advisor from Smith Barney (now absorbed into Morgan Stanley Smith Barney.) Guess what the advisor recommended? He recommended that John take out the lump sum and let him manage it instead.
By the time John came to me for a second opinion financial review four years ago, his retirement account had only $265k left. John decided to become my client, and I have been able to restore some of his money, but not all.
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April Wealth Management Roundup
Posted on: April 16, 2011
Conflict of Interest
Goldman Sachs, Rating Agencies Blamed in Senate Crisis Probe by CNBC
Where to Find Financial Advice? Probably Not Your Brokerage Firm by Oblivious Investor
Asset Protection
Protecting 401(k)s, IRAs From Creditors by WSJ.com
Investing
10 Ways to Beat the Market by Nathan Hale of Money Watch
Variable Annuities Don’t Belong in Retirement Plans by Mel Lindauer of Bogleheads.org
5 Sexiest Things about Indexing by Allan Roth of Money Watch
Value of Full-Service Brokers? By CXO Advisory
What’s My Job? By DIY Investor.
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Roth 401k vs Traditional 401k
Posted on: April 14, 2011
Many companies now offer employees the option to contribute to a Roth or traditional 401k. For a long while, I have advised my clients to go for the traditional 401k; they are all high-income earners and the tax deductions can be substantial. Besides, what’s not to like about taking money out of the clutches of the IRS?
The other day I googled “US tax rate history.” I was shocked to learn that out of the last 100 years, there were 48 years when the top rate was above 70%. There was even a period when the top rate was 94%! For heaven’s sake, that’s not taxation, that’s deprivation!
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Suze Orman Talk Money at Google
Posted on: March 30, 2011
My friend DIY Investor found this pearl. I thought it contains incredibly good advice for young investors.
I personally had a few encounters with Google employees (to do their financial review.) In the end, I had to tell them they are fine on their own, they don’t need my help by and large. This is owing to three factors:
- Google provides strong continuous education on money, like this Suze Orman talk.
- They have a vibrant discussion forum about money inside Google.
- Their 401k plan is with Vanguard.
About Suze Orman, her show is the only show on CNBC that actually gives good information. Enough said. Enjoy the talk!
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Small Business 401k, Big Plan Fees
Posted on: July 15, 2010
Your retirement fund?
A recent study of 401k fees by Deloitte has revealed a troublesome fact. For companies that have less than 100 employees, the average “all-in” 401k plan fee is 2.03% of plan assets each year; for plans that have assets less than $1mm, the average “all-in” fee is 2.37%.
As a point of reference, large companies that employ more than 10,000 people on average pay only 0.48%; the federal government’s own TSP retirement plan has an expense ratio of less than 0.03%!
Keep in mind that small businesses employing less than 100 people account for 99% of all US businesses and employ more than 50% of the workforce. Why should they suffer the injustice of paying 80 times the fee of federal employees to have a retirement plan?
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If you are a typical 401(k) participant, you have stuffed 32% of your retirement money in a stable value fund offered by your company’s retirement plan. Throughout this crisis, stable value funds have lived up to their billing as “money market funds with better yields” or “intermediate bond funds sans the volatility.”
But do you know what a stable value fund is? Not according to a recent survey. Close to 90% of retirement plan sponsors (employers) don’t know the difference between a stable value fund and a regular bond fund, let alone plan participants (employees).
The Investment Scientist 