At Pacific Service Credit Union, we believe that teaching children and young adults about money management instills important financial habits that last a lifetime. That’s why we’ve designed a suite of products specifically suited to children and young adults. And better yet, when you give the gift of membership by opening an account for [...]
MSN Money’s 7th annual survey lists five big banks and credit card companies in their 2013 top 10 ‘Hall of Shame.’ According to MSN Money, complaints against American Express, Discover Card, Wells Fargo, Citibank and Bank of America include misleading marketing, lawsuit settlements and “poor” ratings on credit cards and banking. Read the entire list [...]
When you’re young, time is on your side. But retirement is not that far away even though it may seem like it now. In fact, the earlier you start saving for retirement, the easier it will be to hit your financial goals and the less of a drain it will be on your budget over your career.
Compound interest is a simple concept – the money you set aside for retirement earns interest and the interest paid on your deposits also earns interest in the future.
Here’s an example:
Let’s say John is 20.
He starts saving for retirement this year and puts away $100 per month.
If his savings earn 3% until he’s 65, he’ll have approximately $115,000.
Now, Jane waits until she’s 30 to begin investing.
She puts away the same $100 per month and earns the same rate of return.
At age 65, she has significantly less than John – approximately $75,000.
Even if Jane contributed $150 per month, she still saves less than John, approximately $112,000, assuming the same rate of return.
Even when he contributes less, John earns more than Jane because of the magic of compound interest and starting early.
If your employer matches 401k retirement contributions, be sure to contribute. By participating, you’re receiving an immediate and sustainable return on your money. When combined with the power of compound interest, joining your company’s retirement plan is a no-brainer. Moderate and consistent investing is how smart investors grow their nest egg effortlessly and enjoy a comfortable retirement.
The take away is this: start early, contribute often and as much as you can afford.
Investing in an Individual Retirement Account (IRA) is a valuable way to supplement your retirement income. IRAs offer valuable tax benefits and don’t require a company-sponsored retirement plan. This is a great time of year to get started. For most people, the biggest problem in deciding whether to open an IRA is determining their eligibility. The rules can be confusing.
So, is a traditional or Roth IRA right for you? The essential decision is whether it is more beneficial to take advantage of tax-free withdrawals upon retirement or receive an upfront tax break instead.
Here are some differences to help you decide:
Traditional IRA – Federal tax benefit now
Contribute up to age 70 ½ if you earn income
Provides a tax deduction on contributions
Must meet eligibility requirements
Earnings grow tax-deferred with funds being taxed only when they are withdrawn. To remain penalty free, withdrawals may begin after age 59 ½. In most cases, your tax rate will be lower in retirement, making this tax-deferred type of IRA a sound choice for many people.
Distributions must start by age 70 ½
Roth IRA – Federal tax benefit later
Contribute as long as you earn income
No tax deduction on contributions
No eligibility requirement
Earnings grow tax-free and qualified post-retirement distributions are not taxed
Does not require distributions to begin by any particular age
For more information, call an IRA specialist at (888) 858-6878, ext. 6231.
A will is a critical element in your financial planning. It’s not simply the way that you direct the distribution of your financial and personal assets. It also enables you to designate a personal representative who will act on your behalf and according to your wishes in handling your estate. Furthermore, if you have minor children, a will allows you to name a guardian.
California probate law says that your property will be divided into as many equal shares as there are living members of the nearest generation of issue. The bottom line is, in California, your decisions may be made for you if you don’t make your wishes known.
Work in progress. Your will isn’t final until you die, or are unable to change it. Therefore, it’s important to review your will from time to time to see whether adjustments may be necessary.
Consider changes or adjustments after the following events:
Asset Change – Have your assets changed substantially? Has your net worth increased? Income Change – Has your source of income changed? For example, in retirement. Dependents – Are your children grown up? Have they married? Are they disabled? Do you now have more children or grandchildren? Special Considerations – Do you have a new business interest? Other complicated assets? Law Changes – Federal and state tax laws are subject to change at any time. It’s important for you and your financial adviser(s) to stay on top of these developments and make adjustments to your estate plans, as required. Passing of Time – Periodically, it’s prudent to dust off your will and take a fresh look to ensure your recollections and instructions are correct.
Speak with a professional. As your wealth, business interests or assets expand, so does your exposure to gift and estate taxes. A professional can help you set up a trust or other designations that can save your heirs significant and needless estate taxes.
Your will may be your most important document. Yet, it is typically the most neglected. Your death will emotionally overwhelm your family. Ease their financial burden in handling your estate by considering a will.
I heard a great quote, “The best time to plant a tree is twenty years ago. The second best time is now.” Essentially, take action. Don’t let a late start stop you from saving.
If you are a later investor, say in your 50s or 60s, don’t worry. It’s not too late to plan and save for retirement. It’s more about making the right investment choices for you. And remember, your investments can continue to grow after you retire, too.
Set realistic goals. When do you want to retire? How much do you need to retire? Remember that you’ll probably have some Social Security money in retirement to supplement your investment income.
Save, save, save. You may have to trim your budget of nonessential items and entertainment to build your retirement account, but facing reality now will help you to enjoy your golden years.
Maximize your IRA contributions. The IRS lets you catch-up by increasing the annual IRA contribution limit if you’re over the age of 50. Take advantage of the tax benefit and add to your savings.
Diversify. Consider a variety of investment options, including stocks or mutual funds for money you don’t need for 5-10 years, varying term certificates for money you need over the next five years and an interest-bearing liquid account, like a money market, for what you’ll need in the next year. This approach should provide a pretty good cushion for necessary for emergencies and take advantage of future economic growth.
Get help. You don’t have to be a professional. You just need to get advice from one. You shouldn’t have to pay in advance to meet with and find the right person for you. Get some recommendations from trustworthy sources and speak with several financial planners until you find a person that makes you feel comfortable. Just remember to manage your risks by diversifying your portfolio and spreading your investment terms to cover short and long term needs.
You may have waited too long to realize the potential of compounding interest, but it’s not too late to secure your future with time and age appropriate investment options.
Beginning January 2010, the Adjusted Gross Income (AGI) limit and filing status requirements to convert a Traditional IRA to a Roth IRA have been eliminated. Prior to 2010, consumers with an AGI above $100,000 did not have this option. Now you do. By converting this year, you can defer and break up the tax burden, paying half in 2011 and the other half in 2012.
So, what’s the difference?
Roth IRA funds can be withdrawn tax free at age 59½ or older if the funds have been in the account for at least 5 years. With a Traditional IRA, however, there are required minimum distributions starting at age 70½ and amounts withdrawn are taxable at the time of distribution.
Taxable Event. Conversion from a Traditional to a Roth IRA is a taxable event. Contributions and earnings that have not already been taxed, will be taxed at your regular income tax rate. If you decide to convert this year and defer taxes to the following year(s), you should consider if your tax rate may be higher in 2011 and 2012. You may not want to convert if you don’t have the money available to pay the taxes now. If you pay the taxes with money from the Traditional IRA, you may lessen the value of the conversion.
Visit the IRS page for complete details. Pacific Service CU is not a qualified tax expert and does not provide tax advice. We encourage you to contact your tax advisor for details and to see if the 2010 Roth conversion options can benefit you.
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