Can You Avoid a Layoff?

Posted on January 26, 2012 by admin

Can You Avoid a Layoff?

You may be a dedicated employee who has worked for the same
employer for many years, yet you still may be susceptible to getting laid off.
Sometimes getting laid off is inevitable, but rarely does a company lay off all
of its workers. Usually, it retains those who are most valuable and offer the
greatest benefit, sometimes at the least cost. Fortunately, there may be some
things you can do to make the decision to lay you off a little harder.

Signs of impending layoff

It may not be obvious, but often there are signs that
layoffs are looming. Try looking at your employer from the outside. Often,
larger companies must file financial reports with the state and federal
government securities offices. You may be able to glean some information on the financial health of your employer from these reports. For example, if the
company has publicly traded stock, see if its price has dropped recently,
especially compared to stock of similar companies that have not experienced the same downward trend. Are there rumors in the press or within the industry that your employer is involved in a sale or merger?

More often than not, the most telling source of information
is what you hear and observe from within the company. What’s the scuttlebutt around the water cooler? Have any key employees left the company recently? Have key management positions changed? Has your department undergone recent budget cuts? Are the bosses meeting behind closed doors more frequently than usual? Has the company proposed or implemented cuts in employee benefits, such as a reduction in employer contributions to employee health insurance or retirement plans? Have you recently received any negative feedback on your job performance or on the performance of your department? In addition to these potential warning
signs, if there is a layoff in the offing, the Worker Adjustment and Retraining
Notification Act may require your company to provide 60 days notice to affected employees and local governments in advance of impending plant closings and “mass layoffs.” Check with your state’s Department of Labor for any notices filed by your employer.

Before protecting your job, protect yourself

In conjunction with trying to keep your job, be prepared to
lose it. Think who you might rely on for a good reference. Document your
accomplishments, goals attained, and any ideas you promoted. Have your resume updated and ready.

In addition, read your employee manual or other
documentation to find out about severance policies, health and life insurance
coverage, and retirement plans in which you participate. Is there a severance
package; if so, do you qualify? Can you remain covered by your
employer-sponsored health insurance? If you have company-provided life
insurance, what happens to it if you get laid off? Are you vested in your
retirement benefits? Can you roll over your defined benefit or pension plan to
another employer’s plan or to an IRA? Are you eligible for unemployment
payments; if so, at what rate and for how long? You should have answers to
these questions and review this information periodically.

Make yourself relevant on the job

Take a step back and evaluate your job performance. Honestly
and objectively examine how well you do your job. Can you find ways where you could improve your output? Can you improve your skills on the job? What can you do better or faster?

One surefire way to separate yourself from the majority of
your coworkers is to focus on work while you’re on the job. Sounds simple, but it’s easy to get distracted by activities unrelated to work. So instead of
engaging in online shopping, gaming, and personal e-mails, try increasing your productivity by focusing your time on getting your assignments done. Especially if your employer is experiencing some difficulties, don’t get distracted by gossip and long lunches. Rather, try to do more to improve your performance.

Tip: Don’t be afraid of “showing up” your coworkers. Remember, if a layoff is in the offing, you’re trying to stand out from other employees, not blend in with them. By the same token, try to be helpful and maintain a good working
relationship with your coworkers.

Another way to stand out is by continuing your education.
Demonstrate that you’re trying to enhance your job skills by taking advanced
courses, even if your employer isn’t paying for them. But if your company
offers tuition assistance or programs to defray education costs, take advantage of those opportunities.

Standing out also means making yourself as visible within
the company as possible. Attend staff meetings and company events, even if
they’re not mandatory. Arrive on time and be prepared. Participate during staff
meetings, even if it’s to express support for someone else’s idea or proposal.

You’ll also get noticed if you volunteer for tasks and
projects whenever you can. Let your boss know you’re willing to assume more
responsibilities and spend more time at your job. If your boss offers you extra
tasks and responsibilities, seize that opportunity to separate yourself from
the rest of the pack. And if there are no new assignments, come up with a
project on your own. Make your boss look good. The more you know, the harder it will be to replace you.

And don’t shy away from discretely communicating your
accomplishments. Update your boss on progress you’re making with a new task or project.

If you interviewed for your job, you probably dressed in a
manner befitting the position to which you were applying. Thereafter, your
attire may have become more casual. While overdressing isn’t recommended,
spruce up your wardrobe with some new work clothes. Look well-groomed and ready to work. Sometimes a change in your work attire gives your bosses the perception of a new, reenergized employee.

Another way to keep your job is by working in a department
that’s performing well. Depending on the size of your company, there may be
some areas that are underperforming, while other sections are surging. Find out which departments are holding their own and which sections are lagging. If you’re in an area that’s performing up to par or better, now’s not the time to
ask for a change. But if you happen to work in an underperforming sector, try
to be part of the solution and not the problem. Don’t complain about what’s not working; rather, try to figure out what you can do to enhance your department’s performance. In addition, offer to spend time working with growth segments–even if on a voluntary basis. If jobs open up in a department that’s prospering, consider making an internal move to that area if a position becomes available.

Finally, despite all your best efforts, if your boss tells
you your job is on the chopping block, you may be able to keep your position by offering to take a pay cut or a reduction in hours. If the company really
values your performance, it may be able to justify keeping you on at a reduced
cost, allowing you to hang on until the company is in a better position to
increase your pay or hours. Meanwhile, you can continue to work as you map out your strategy for a different job either with your current employer or with a new company.

If you get laid off anyway

Were your efforts to keep your job worth it? Probably yes.
If nothing else, you’re more marketable now, with greater skills,
accomplishments, and maybe even more training and education. Your job
performance should garner you some favorable recommendations and reference letters from your former employer to help you land that next job. And who knows, you might even be rehired by your former employer.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J
Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

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WEEKLY ECONOMIC UPDATE January 23, 2012

Posted on January 24, 2012 by admin

John Jastremski Presents:

WEEKLY ECONOMIC UPDATE January 23, 2012

NO CONSUMER INFLATION INCREASE IN DECEMBER

For the second month in a row, the Labor Department reported
no advance in its Consumer Price Index. Core CPI did rise 0.1% last month.
Across 2011, consumer prices rose 3.0%; last year was the most inflationary
year since 2007. As for wholesale inflation, the Producer Price Index declined
0.1% in December.1

MORE HOMES MOVING ON THE MARKET

The National Association of Realtors announced a 5.0%
increase in existing home sales for December, with a 4.6% gain in sales of
single-family houses. For all of 2011, existing home sales improved by 1.7% as
the median sale price declined 3.9%. One negative real estate signal last week: in December, housing starts fell by 4.1%.1,2,3

FEWEST INITIAL JOBLESS CLAIMS IN FOUR YEARS

The Labor Department said initial applications for jobless
benefits dropped by 50,000 to 352,000 in the week ending January 14. That isthe lowest number of initial claims taken in any week since April 2008.1

GOLD GAINS 2% IN FIVE DAYS

Its 2.04% weekly advance on the COMEX led to a closing price
of $1,664.00 Friday. Gold’s rise was not matched by oil (-0.37%) or the U.S.
Dollar Index (-1.69%) last week. Oil ended the week at $98.33 a barrel on the
NYMEX.2

DOW RISES FOR A FOURTH STRAIGHT WEEK

Stocks have surprised many analysts this month, as Wall
Street has paid more attention to earnings than to news from Europe. The weeklynumbers: S&P 500, +2.04% to 1,315.38; NASDAQ, +2.80% to 2,786.70; DJIA,+2.40% to 12,720.48.2,3

THIS WEEK: EU finance ministers meet on Monday, and
Halliburton and Texas Instruments announce Q4 earnings. On Tuesday, Q4 results roll in from Apple, Yahoo!, Johnson & Johnson, Travelers, Verizon, DuPont, and McDonald’s, and President Obama will make a State of the Union address. On Wednesday, Boeing, Netflix, Motorola, Symantec, Amgen, SanDisk, ConocoPhillips and Delta all come out with earnings reports, NAR delivers news about December pending home sales, and the Fed concludes a policy meeting. Thursday brings Q4 earnings from AT&T, Time Warner Cable, Nokia, Starbucks, Caterpillar, 3M, Bristol-Myers and AutoNation, plus reports on December durable goods orders and new home sales and the latest initial claims figures. Friday, we have the government’s first take on Q4 GDP, the final University of Michigan consumer sentiment survey of January and earnings from Chevron, D.R. Horton and Procter & Gamble.

%
CHANGE

Y-T-D

1-YR
CHG

5-YR
AVG

10-YR
AVG

DJIA

+4.12

+7.59

+0.25

+3.10

NASDAQ

+6.97

+3.05

+2.74

+4.80

S&P 500

+4.59

+2.74

-1.61

+1.75

REAL YIELD

1/20
RATE

1 YR
AGO

5 YRS
AGO

10
YRS AGO

10 YR TIPS

0.01%

1.22%

2.47%

3.48%

Sources: money.msn.com, bigcharts.com, treasury.gov,
treasurydirect.gov – 1/20/122,4,5,6

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.These returns do not include dividends.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor
for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if
you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

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Market Week: January 23, 2012

Posted on January 23, 2012 by admin

Market Week: January 23, 2012

The Markets

Downgrades? What downgrades? Having just lowered its
long-term ratings on nine eurozone sovereigns, Standard and Poor’s downgradedthe European Financial Stability Fund itself early last week. European equity markets responded with a four-day rally, choosing to focus instead on the renewed possibility of a deal on Greek debt, and strong bond sales by France and Spain. The rally petered out on Friday, however, as doubts about Greece began to creep back in. Domestically, equities reached six-month highs, with the S&P 500 and Dow Industrials gaining every day of the holiday-shortened week (and the Nasdaq just missing that feat with a 1.63 point loss on Friday). This third straight week of equity gains–fueled by bank earnings, encouraging economic news, and eurozone optimism–slowed, at least temporarily, the flow of funds to U.S. Treasuries, which finished the week with yields on benchmark 10-year notes rising back above the 2% level.

Market/Index 2011
Close		 Prior
Week		 As
of 1/20		 Week
Change		 YTD
Change*
DJIA 12217.56 12422.06 12720.48 2.40% 4.12%
Nasdaq 2605.15 2710.67 2786.70 2.80% 6.97%
S&P
500		 1257.60 1289.09 1315.38 2.04% 4.59%
Russell
2000		 740.92 764.20 784.62 2.67% 5.90%
Global
Dow		 1801.60 1841.21 1908.00 3.63% 5.91%
Fed.
Funds		 .25% .25% .25% 0 bps 0 bps
10-year
Treasuries		 1.89% 1.89% 2.05% 16 bps 16 bps

 

*Equities data reflect price changes, not total return.

Last Week’s Headlines

•Standard and Poor’s downgraded its long-term rating on the
European Financial Stability Fund from AAA to AA+, expressing some concern about the fund’s bailout capabilities in light of S&P’s downgrade of member states Austria and France.

•Negotiators for Greece’s private creditors left talks in
Athens suddenly on Saturday, leaving the status of a possible deal unclear and resurrecting the specter of a disorderly default.

•Despite the selloff in traditional notes, the Treasury
Department announced the record sale of $15 billion of 10-year Treasury
Inflation Protected Securities (TIPS) last week with a “high-yield”
of negative 0.046%, marking the first time 10-year TIPS have been sold with a negative yield.

•After revising the prior week’s numbers back over the
400,000 benchmark, the Department of Labor reported that seasonally adjusted initial claims for unemployment benefits dropped by 50,000 to 352,000, the lowest total since April 2008. The somewhat less volatile 4-week moving average was 379,000, a decrease of 3,500 from the previous week’s revised average of 382,500.

•The Federal Reserve announced that industrial production
increased 0.4% in December after having fallen 0.3% in November. For the fourth quarter as a whole, industrial production rose at an annual rate of 3.1%, its 10th consecutive quarterly gain. Manufacturing production climbed 0.9% in December, the largest increase in a year, with gains widespread among major industry groups.

•The Bureau of Labor Statistics reported that the Consumer
Price Index for All Urban Consumers (CPI-U) remained flat for December. The index for all items other than food and energy (core inflation) increased just 0.1% in December, after rising 0.2% in November. However, the CPI rose 3% overall in 2011, compared to a 1.5% increase in 2010.

•The Bureau also reported that the producer price index for
finished goods (PPI, measuring wholesale inflation) declined 0.1% in December. Excluding food and energy, however, the index rose 0.3% in December, the largest increase since July 2011. The PPI rose 4.8% in 2011, after rising 3.8% in 2010.

•There was some positive news in the housing sector. The
National Association of Home Builders reported that builder confidence in the market for newly built single-family homes continued to rise for the fourth consecutive month, reaching its highest level since June 2007. The National Association of Realtors announced that sales of existing homes rose 5% in December to an 11-month high. For all of 2011, existing home sales rose 1.7% to 4.26 million, up from 4.19 million sales in 2010. And the Commerce Department reported that new single-family housing starts rose 4.4% in December. However, 2011 ended as the worst on record for single-family home construction. Meanwhile, Freddie Mac reported that the average 30-year fixed rate mortgage edged down slightly for the week ending January 19 to 3.88%, a new all-time record low, marking the seventh consecutive week below 4%.

Eye on the Week Ahead

The first look at U.S. economic growth for the final quarter
of 2011 could suggest the potential for further recovery in the coming year.
Wednesday’s Fed announcement is scheduled to include a forecast for the federal funds interest rate at the end of the year; any projected change could affect bond markets. But Greece may take center stage yet again, as the race to avoid a disorderly default continues.

Key dates and data releases: Federal Open Market Committee
announcement (1/25); durable goods orders, new home sales (1/26); initial
estimate of Q4 2011 gross domestic product (1/27).

Data sources: Includes data provided by Brounes &
Associates. All information is based on sources deemed reliable, but no
warranty or guarantee is made as to its accuracy or completeness. Neither the
information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial
advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted
index composed of 30 widely traded blue-chip U.S. common stocks. The S&P
500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to
its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is
needed, the reader is advised to engage the services of a competent
professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

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Self-Directed IRAs

Posted on January 22, 2012 by admin

Self-Directed IRAs

A self-directed IRA isn’t a different type of IRA. Rather,
the term refers to any individual retirement account (traditional or Roth) that
allows you to direct the investment of your IRA assets into nontraditional
investments. For example, in addition to the usual IRA mainstays (stocks,
bonds, mutual funds, and CDs), a self-directed IRA might invest in real estate,limited partnership interests, or anything else the law (and your IRA
trustee/custodian) allows. In fact, the only investment you can’t have in an
IRA is life insurance. Collectibles (e.g., artwork, stamps, wine, and antiques)
aren’t prohibited, but if your IRA purchases these items, you could suffer
adverse tax consequences.

Getting started

First, you’ll need to find a trustee or custodian that specializes
in self-directed IRAs. Make sure you understand the expenses involved–some trustees charge transaction fees and/or asset-based fees, depending on the particular investment. You also need to be aware of the prohibited transaction rules. These rules are designed to make sure that only your IRA, and not you
(or your immediate family), benefits from your IRA transactions. For example, you are prohibited from buying investments from, or selling investments to, your IRA. If you violate these rules, your account will cease to be treated as an IRA, with potentially devastating tax consequences.

Finally, you need to understand the UBIT (unrelated business
income tax) rules. Even though IRA investments usually grow tax deferred (or even potentially tax free in the case of a Roth IRA), if your IRA conducts
certain business activities or has debt-financed income, then your IRA could be taxed currently on all or part of the income generated.

Investing in real estate

Your self-directed IRA can invest in virtually any form of
real estate. That includes direct ownership in property as well as indirect
ownership through limited partnership interests, REITs, and mortgage
obligations. Your IRA can buy a beach house, a multifamily home, commercial property, raw land, time shares, condos, an island–almost anything. Your IRAcan be the sole owner of the real estate, or a partial owner with others.

Your IRA can even borrow money to purchase real estate.
However, it may be difficult to find a bank that will lend money to your IRA
(since you can’t personally guarantee the note). Borrowing may also cause some of the income (or sales proceeds) from the property to be taxed currently to your IRA under the UBIT rules. When you invest in real estate, you’ll also need to pay particular attention to the prohibited transaction rules. You can’t, for example, sell property you already own to your IRA. And neither you nor certain family members can use real estate while it’s owned by your IRA. As discussed below, that sort of self-dealing can result in your entire IRA becoming taxable to you.

Keep in mind that when you hold real estate in a traditional
IRA, you’ll have to pay tax at ordinary income rates when your account is
ultimately paid out to you–whether you receive cash or the property itself.
Qualified distributions from a self-directed Roth IRA, on the other hand, are
free from federal income tax, which makes the Roth IRA an attractive vehicle
for real estate ownership. Say you’ve found your dream retirement home. It may be possible to have your Roth IRA purchase the property, rent it out to an unrelated party to generate income, and then, when you’re ready to retire, have the IRA distribute the property (and any income) to you tax free. (A
distribution is qualified if you satisfy a five-year holding period and you’re
either age 59½ or disabled when you receive the distribution.)

Finally, note that you’ll need to pay any expenses related
to your real estate investment out of your IRA, so make sure it will have
enough cash each year to cover any real estate taxes, legal fees, repairs,
insurance, and other costs.

What are prohibited transactions?

Generally, a prohibited transaction is any improper use of
an IRA account or annuity by you, your beneficiary, or any disqualified person. Disqualified persons include IRA fiduciaries (see below) and members of your family (spouse, ancestor, lineal descendant, and any spouse of a lineal descendant). The following are examples of prohibited transactions with an IRA:

•Borrowing money from it

•Selling property to it

•Receiving unreasonable compensation for managing it

•Using it as security for a loan

•Buying property for personal use (present or future) with
IRA funds

For this purpose, a fiduciary includes anyone who does any
of the following:

•Exercises any discretionary authority or discretionary
control in managing your IRA or exercises any authority or control in managing or disposing of its assets

•Provides investment advice to your IRA for a fee, or has
any authority or responsibility to do so

•Has any discretionary authority or discretionary
responsibility in administering your IRA

Consequences of engaging in a prohibited transaction

Generally, if you (or your beneficiary after your death)
engage in a prohibited transaction at any time during the year, the account
stops being an IRA as of the first day of that year. The account is also
treated as distributing all its assets to you at their fair market values on
the first day of the year. For a traditional IRA, if the total of those values
exceeds your basis in the IRA, you’ll have a taxable gain that’s includible in
your income. If you’re not yet age 59½, the 10% premature distribution penalty tax may also apply. The IRS hasn’t yet provided specific guidance describing how these rules apply to Roth IRAs. However, it’s probable that if you’ve satisfied the requirements for a qualified distribution, the distribution will still be tax free. A nonqualified distribution from a Roth IRA will result in a taxable gain to the extent the distribution exceeds your Roth IRA contributions (and again, the premature distribution penalty tax may apply if you haven’t yet reached age 59½).

What is UBIT?

UBIT stands for “unrelated business income tax.”
While not common, it can apply to your traditional (and Roth) IRA. (The UBIT rules also apply to most employer retirement plans and tax-exempt
organizations.) In simple terms, if your IRA regularly conducts a trade or
business (for example, you buy and operate a bakery using IRA funds), then the income from that trade or business (less any expenses directly connected with carrying on the trade or business) is subject to UBIT. The IRA is taxed on the income (unrelated business taxable income, or UBTI) at trust tax rates.

The term “trade or business” is defined as any activity
carried on for the production of income from selling goods or performing
services. This has been broadly interpreted to apply even if an IRA doesn’t
directly conduct a business, but instead invests in a pass-through entity, like
a partnership, that conducts a trade or business. If an IRA invests in a
partnership that conducts a trade or business, then the IRA must calculate its
UBTI based on its share of the partnership’s gross income and deductions. This information is provided by the partnership to the IRA on Schedule K-1.

There are numerous exclusions from the definition of UBTI,
including dividends, interest, annuities, royalties, and rents from real
property. However, even otherwise exempt income can become subject to UBIT if the property is acquired with borrowed funds. For example, if your IRA purchases real property and finances the purchase with a mortgage, any rental income attributable to the financed portion of the property will be UBTI, even though that rental income would otherwise be exempt. An IRA needs at least $1,000 of gross income from unrelated businesses for the UBIT to apply. The IRA itself is responsible for paying the tax. This may result in double taxation as the income will be subject to tax again, under the regular IRA distribution rules, when ultimately distributed from the IRA (although qualified distributions from Roth IRAs will be tax free).

As you can see, a self-directed IRA can provide you with
almost unlimited investment flexibility, but also presents some traps for the
unwary. Your financial professional can help you weigh the benefits and risks
of a self-directed IRA, and help you determine if it’s the right choice for
you.


This material was prepared by Broadridge Investor Communication Solutions, Inc., and
does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to
its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is
needed, the reader is advised to engage the services of a competent
professional. Please consult your Financial Advisor for further information or call 800-900-5867.       

The Retirement Group is not affiliated with nor endorsed by fidelity.com,
netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may
be reached at www.theretirementgroup.com.

 

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Return of Premium Term Insurance: Reward for Living

Posted on January 21, 2012 by admin

Return of Premium Term Insurance: Reward for Living

You’ve come to the conclusion that you need life insurance
for your young family who depends on you for financial support. So with the
help of your insurance professional, you consider various types of life
insurance, from permanent cash value insurance to temporary or term insurance. You like the potential of cash value accumulation provided by permanent insurance, but you don’t like the higher premiums. You decide term insurance better suits your finances, but you ask “What if I don’t die during the term of coverage? Do I get any of my money back?” You may, if you consider buying a special kind of term insurance called return of premium term insurance, or ROP.

ROP in a nutshell

In general, straight term insurance provides life insurance
coverage for a specific number of years, called the term. The face amount of
the policy, or death benefit, is paid to your beneficiaries if you die during
the term. If you live longer than the term, or if you cancel your policy during
the term, nothing is paid. Alternatively, ROP returns all of your premiums at
the end of the term of insurance coverage, as long as you haven’t died or
cancelled the insurance. Some issuers even pay back a prorated portion of your premium if you cancel the ROP term insurance before the end of the term. Also, the premium returned generally is not considered ordinary income, so you won’t have to pay income taxes on the money you receive from the insurance company (please consult your tax advisor).

Unlike permanent cash value life insurance, ROP premiums
generally do not earn interest or appreciate in value. Also, the premium
returned usually does not include the return of added premium charges for
substandard coverage (extra premium charged for poor health) or costs for
certain policy riders (extra premium you pay for benefits added to the basic
term policy, such as a disability rider).

ROP compared to straight term

ROP term insurance appeals to the idea that you won’t die
during the time coverage is in effect. Live to the end of the term, and all of
your premiums are returned to you. However, there are some differences betweenROP term and straight term. The cost of ROP can be significantly greater than straight term insurance, depending on the issuer, age of the insured, the amount of coverage (death benefit) and the length of the term. But ROP almost always costs less than permanent life insurance with the same death benefit. While straight term insurance can be purchased for terms as short as 1 year, most ROP insurance is sold for terms of 10 years or longer.

Can you get a better return on your money?

Some financial professionals recommend that the best way to
provide for your life insurance needs is to “buy term and invest the
difference.” This suggestion is based on the premise that you know how
long you will need life insurance protection (until your mortgage is paid off,
for example), and that you’ll be able to get a better return on your savings
from other investments. The same rationale may apply to ROP term insurance. Since your premiums do not earn interest while with the issuer, they likely will not keep up with inflation. So, you may want to consider paying the lower premiums for straight term insurance and investing the difference to potentially accumulate more savings.

However, term life insurance is not sold as an investment,
but is intended to insure against financial hardships that may occur due to
your death. Viewed in this light, whether to buy ROP term (and pay a higher
premium) may depend on whether you can afford the extra premium cost, and whether you want to provide for the chance that you outlive the term of
insurance coverage.

Calculating the rate of return of ROP allows you to compare
it to the rates of return of other investments. For illustration purposes,
assume a 30-year-old male in good health can purchase a $1,000,000 20-year term policy at an annual cost of $420 for straight term and $1,210 for ROP term. If we assume that the difference in cost ($790) is available for investment, and the payout ($24,200) is the amount received at the end of the ROP term ($1,210 x 20 years), the approximate rate of return of this ROP policy is about 3.9%. Incorporating these hypothetical facts, the following table illustrates the rate of return of ROP, the annual rate of return needed for a taxable
investment to match the rate of return of the ROP (Strategy 1), and the 20-year return of savings at different interest rates (Strategy 2 and Strategy 3).

ROP Strategy
1*		 Strategy
2*		 Strategy
3*
Amount
invested		 $790 $790 $790 $790
Annual
return		 3.9% 5.42% 5%** 6%**
Return
in 20 years		 $24,200 $24,200 $23,068 $24,950

 

*Assumes 28% federal and state income tax rate. **These
rates of return are hypothetical and are not intended to depict a particular
investment.

Is ROP term the right choice?

Before you buy life insurance, you should know how much
insurance you need. Your need for insurance is based on numerous factors, some of which include your current age and income, your marital status, the number of incomes in your household, the number of dependents, your long-term financial goals, the amount of your outstanding debt, your existing life
insurance, and your other assets. You should also consider your overall
financial, estate, and tax-planning goals as part of your insurance needs
evaluation.

Term insurance is appropriate for situations when there is a
high need for insurance but not much cash flow to pay for it. For example, a
young family with limited cash resources may have a great need for survivor
income to provide for living expenses and education needs. Term insurance is
especially helpful here, allowing the family to buy insurance protection with
minimal cash outlay. Also, term insurance is well suited to cover needs for a
limited period of time, such as coverage during your working years, your
children’s college years, or for the duration of a loan or mortgage.

Whether to consider ROP term insurance usually revolves
around a few issues. Does the added cost of ROP fit into your budget? It’s
great to know you can get your money back if you outlive the term of your life
insurance coverage, but there is a cost for that benefit. Also, if you die
during the term of insurance coverage, your beneficiaries will receive the same death benefit from the ROP policy as they will from the less expensive straight term.

When choosing between these two alternatives, you may want
to think about the amount of coverage you need, the amount of money you can afford to spend, and the length of time you need the coverage to continue. Your insurance professional can help you by providing information on straight term and ROP term life insurance available, including their respective premium costs.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information
should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com,
netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, INGRetirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may
be reached at www.theretirementgroup.com.

 

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Long-Term Care Annuities

Posted on January 20, 2012 by admin

Long-Term Care Annuities

When planning for the potential cost of long-term care, you’ve probably considered long-term care insurance. But premiums can be expensive and if you do buy the coverage, you probably hope you never have to use it. The prospect of paying costly premiums for long-term care insurance that you might never use might discourage you. Enter the long-term care annuity.

What is it?

This hybrid product, offered by insurance companies, is a nonqualified annuity that provides long-term care benefits (it can’t be used with IRAs or employer-sponsored qualified retirement plans). These policies allow you to use the annuity proceeds for long-term care, and if you don’t use the long-term care benefit, you still have typical annuity options. For instance, you can convert the annuity to a stream of income payments (annuitization), redeem the annuity at its maturity (e.g., cash in the annuity), or, at your death, you can pass the remaining balance of your annuity to your named beneficiaries.

While policy provisions may differ from company to company, generally you put money into the annuity, usually in a lump sum or through a series of premium payments. You may also exchange another annuity or cash value life insurance for a long-term care annuity via a Section 1035 exchange. The annuity typically pays a fixed rate of interest each year. In addition, the annuity provides a long-term care benefit amount, usually equal to two or three times your annuity cash value, subject to a maximum benefit period, which is the maximum length of time that you may receive long-term care benefit payments from the annuity. Long-term care annuity benefits are usually paid monthly. There is usually a charge for the long-term care component (generally ranging from 0.4% to 1.25% of the annuity’s cash value) that is deducted from your annuity each year.

How does this product work?

Typically, long-term care annuities have the same qualification requirements as most stand-alone long-term care insurance policies. You first have to be considered “insurable” by the annuity company, which means you have to answer questions relating to whether you have suffered any major illness such as cancer or heart disease, or whether you have a significant cognitive impairment like Alzheimer’s disease. But you usually don’t have to undergo a physical, and the underwriting is generally less stringent than with stand-alone long-term care insurance, meaning it’s a little easier to qualify for the long-term care annuity.

Like most stand-alone long-term care policies, in order to be eligible for long-term care benefits from the annuity, you must either suffer from cognitive or mental incapacity or be unable to perform at least two of six activities of daily living that include feeding, bathing, dressing, transferring, continence, and toileting. Thereafter, benefits are typically available after a waiting period of between 30 days and 2 years (depending on the particular product).

Example:   Say you pay $75,000 to purchase a long-term care annuity. You select a long-term care benefit equal to 200% of your annuity’s cash value, with a 5-year benefit period. Initially, your long-term care benefit equals $150,000 ($75,000 x 2). Let’s assume the annuity earns 4.5% per year and the cost of the long-term care provision is 0.5% per year. At the end of 20 years (presuming you take no withdrawals) the annuity is worth about $163,622 and the long-term care benefit amount is $327,244. This will provide maximum long-term care benefit payments of $5,454 per month for as long as 5 years. And even if cumulative long-term care payments exceed the annuity’s contract value ($163,622), the long-term care payments will continue until you either exhaust the long-term care benefit amount ($327,244) or you no longer need long-term care. (This is a hypothetical example. It does not represent a specific product. Product terms and conditions may differ. Check with the annuity issuer for specific product details.)

What about taxes?

Generally, withdrawals from an annuity are considered to come from earnings first and are subject to income tax. With respect to long-term care annuities in particular, prior to 2010, payments of long-term care benefits from annuities were also deemed to have been taken from annuity earnings first, then principal. Thus, each long-term care benefit payment was taxed as ordinary income to the annuity owner until all earnings within the annuity had been exhausted.

Beginning January 1, 2010, potentially favorable tax treatment applies to certain withdrawals from annuities purchased after 1996, if the withdrawals are used to pay for qualified long-term care insurance coverage. This means you won’t have to pay income tax on the benefits you receive from your long-term care annuity used to pay for long-term care expenses.

More on exchanges

Prior to 2010, you couldn’t exchange your annuity for a long-term care insurance policy without incurring income tax on the earnings portion of the annuity. Now you can exchange your deferred annuity for either a stand-alone long-term care insurance policy or a long-term care annuity on a tax-free basis. However, with any exchange, be sure your current annuity has reached maturity before exchanging it; otherwise surrender charges may reduce your current annuity’s value. Also, if you exchange your current annuity for a long-term care annuity, you will likely incur a new surrender charge period that accompanies the new long-term care annuity. Surrender charges may apply to withdrawals you take from your annuity. However, surrender charges generally do not apply to long-term care benefit payments. Before entering into an exchange, you should talk to your financial professional or tax professional to be sure the exchange will be tax free.

Pluses/minuses

As with most insurance products, there are pluses and minuses to consider in determining whether a long-term care annuity is right for you. On the plus side:

•Long-term care annuities allow for tax-free withdrawals if used to pay for qualified long-term care coverage

•With typical long-term care insurance, if you don’t use the coverage, you generally don’t get a return of your premiums; but with a long-term care annuity, at your death you can pass any remaining annuity balance to your beneficiaries

•If you’re not in the best of health and you want some long-term care protection, you might not be able to qualify for stand-alone long-term care insurance. But, it’s generally easier to qualify for a long-term care annuity (e.g., you probably won’t need a physical)

•Once you put money in the annuity, you don’t have to make any more premium payments as you would with stand-alone long-term care insurance policies

On the other hand:

•Most long-term care annuities are funded with a single premium payment of at least $50,000, so you may need to have at least that much available in a lump sum

•Long-term care annuities, like most deferred annuities, come with surrender charges, so taking money out of the annuity that’s not used for long-term care expenses may be subject to surrender charges, income tax, and a penalty of 10% if taken before age 59½

•Currently, long-term care annuities do not qualify as partnership plans, which otherwise afford some asset protection when trying to qualify for Medicaid

•If you don’t deposit enough money into the long-term care annuity, you may not have enough protection to cover your long-term care expenses

•There’s a cost to purchase the long-term care benefit which can range from 0.4% to 1.25% of the annuity’s account value

•Since the cost of the long-term care portion of the annuity is deducted from your investment in the annuity (and not the earnings), you can’t take the cost of long-term care as a medical expense deduction

Is it right for you?

Whether a long-term care annuity is right for you depends on a number of factors. But the long-term care annuity is certainly a viable option available for long-term care planning that might merit a second look.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867. 

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

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Leaving a Legacy 1/18/2012

Posted on January 18, 2012 by admin
This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.
The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.
John Jastremski is a Representative with FSC Securities and may be reached atwww.theretirementgroup.com.

Leaving a Legacy 1/18/2012

You’ve worked hard over the years to accumulate wealth, and you probably find it comforting to know that after your death the assets you leave behind will continue to be a source of support for your family, friends, and the causes that are important to you. But to ensure that your legacy reaches your heirs as you intend, you must make the proper arrangements now. There are four basic ways to leave a legacy: (1) by will, (2) by trust, (3) by beneficiary designation, and (4) by joint ownership arrangements.

Wills

A will is the cornerstone of any estate plan. You should have a will no matter how much your estate is worth, and even if you’ve implemented other estate planning strategies.

You can leave property by will in two ways: making specific bequests and making general bequests. A specific bequest directs a particular piece of property to a particular person (“I leave Aunt Martha’s diamond broach to my niece, Jen”). A general bequest is typically a percentage of property or property that is left over after all specific bequests have been made. Typically, principal heirs receive general bequests (“I leave all the rest of my property to my wife, Jane”).

With a will, you can generally leave any type of property to whomever you wish, with some exceptions, including:

  • Property will pass according to a beneficiary designation even if you name a different beneficiary for the same property in your will
  • Property owned jointly with rights of survivorship passes directly to the joint owner
  • Property in a trust passes according to the terms of the trust
  • Your surviving spouse has a right to a statutory share (e.g., 50%) of your property, regardless of what you leave him or her in your will
  • Children may have inheritance rights in certain states

Caution:   Leaving property outright to minor children is problematic. You should name a custodian or property guardian, or use a trust.

Trusts

You can also leave property to your heirs using a trust. Trust property passes directly to the trust beneficiaries according to the trust terms. There are two basic types of trusts: (1) living or revocable, and (2) irrevocable.

Living trusts are very flexible because you can change the terms of the trust (e.g., rename beneficiaries) and the property in the trust at any time. You can even change your mind by taking your property back and ending the trust.

An irrevocable trust, on the other hand, can’t be changed or ended except by its terms, but can be useful if you want to minimize estate taxes or protect your property from potential creditors.

You create a trust by executing a document called a trust agreement (you should have an attorney draft any type of trust to be sure it accomplishes what you want).

A trust can’t distribute property it does not own, so you must also transfer ownership of your property to the name of the trust. Property without ownership documentation (e.g., jewelry, tools, furniture) are transferred to a trust by listing the items on a trust schedule. Property with ownership documents must be re-titled or re-registered.

You must also name a trustee to administer the trust and manage the trust property. With a living trust, you can name yourself trustee, but you’ll need to name a successor trustee who’ll transfer the property to your heirs after your death.

Tip:   A living trust is also a good way to protect your property in case you become incapacitated.

Beneficiary designations

Property that is contractual in nature, such as life insurance, annuities, and retirement accounts, passes to heirs by beneficiary designation. Typically, all you have to do is fill out a form and sign it. Beneficiaries can be persons or entities, such as a charity or a trust, and you can name multiple beneficiaries to share the proceeds. You should name primary and contingent beneficiaries.

Caution:   You shouldn’t name minor children as beneficiaries. You can, however, name a guardian to receive the proceeds for the benefit of the minor child.

You should consider the income and estate tax ramifications for your heirs and your estate when naming a beneficiary. For example, proceeds your beneficiaries receive from life insurance are generally not subject to income tax, while your beneficiaries will have to pay income tax on proceeds received from tax-deferred retirement plans (e.g., traditional IRAs). Check with your financial planning professional to determine whether your beneficiary designations will have the desired results.

Be sure to re-evaluate your beneficiary designations when your circumstances change (e.g., marriage, divorce, death of beneficiary). You can’t change the beneficiary with your will or a trust. You must fill out and sign a new beneficiary designation form.

Caution:   Some beneficiaries can’t be changed. For example, a divorce decree may stipulate that an ex-spouse will receive the proceeds.

Tip:   Certain bank accounts and investments also allow you to name someone to receive the asset at your death.

Joint ownership arrangements

Two (or more) persons can own property equally, and at the death of one, the other becomes the sole owner. This type of ownership is called joint tenancy with rights of survivorship (JTWRS). A JTWRS arrangement between spouses is known as tenancy by the entirety in certain states, and a handful of states have a form of joint ownership known as community property.

Caution:   There is another type of joint ownership called tenancy in common where there is no right of survivorship. Property held as tenancy in common will not pass to a joint owner automatically, although you can leave your interest in the property to your heirs in your will.

You may find joint ownership arrangements are useful and convenient with some types of property, but may not be desirable with all of your property. For example, having a joint checking account ensures that, upon your death, an heir will have immediate access to needed cash. And owning an out-of state residence jointly (e.g., a vacation home) can avoid an ancillary probate process in that state. But it may not be practical to own property jointly where frequent transactions are involved (e.g., your investment portfolio or business assets) because you may need the joint owner’s approval and signature for each transaction.

There are some other disadvantages to joint ownership arrangements, including: (1) your co-owner has immediate access to your property, (2) naming someone who is not your spouse as co-owner may trigger gift tax consequences, and (3) if the co-owner has debt problems, creditors may go after the co-owner’s share.

Caution:   Unlike with most other types of property, a co-owner of your checking or savings account can withdraw the entire balance without your knowledge or consent.

 

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The Roth 401(k) 1/16/2012

Posted on January 16, 2012 by admin

The Roth 401(k) 1/16/2012

Some employers offer 401(k) plan participants the opportunity to make Roth 401(k) contributions. If you’re lucky enough to work for an employer who offers this option, Roth contributions could play an important role in maximizing your retirement income.

What is a Roth 401(k)?

A Roth 401(k) is simply a traditional 401(k) plan that accepts Roth 401(k) contributions. Roth 401(k) contributions are made on an after-tax basis, just like Roth IRA contributions. This means there’s no up-front tax benefit, but if certain conditions are met, your Roth 401(k) contributions and all accumulated investment earnings on those contributions are free from federal income tax when distributed from the plan. (403(b) and 457(b) plans can also allow Roth contributions.)

Who can contribute?

Unlike Roth IRAs, where individuals who earn more than a certain dollar amount aren’t allowed to contribute, you can make Roth contributions, regardless of your salary level, as soon as you’re eligible to participate in the plan. And while a 401(k) plan can require employees to wait up to one year before they become eligible to contribute, many plans allow you to contribute beginning with your first paycheck.

How much can I contribute?

There’s an overall cap on your combined pretax and Roth 401(k) contributions. You can contribute up to $17,000 of your pay ($22,500 if you’re age 50 or older) to a 401(k) plan in 2012. You can split your contribution any way you wish. For example, you can make $10,000 of Roth contributions and $7,000 of pretax 401(k) contributions. It’s up to you.

But keep in mind that if you also contribute to another employer’s 401(k), 403(b), SIMPLE, or SAR-SEP plan, your total contributions to all of these plans–both pretax and Roth–can’t exceed $17,000 ($22,500 if you’re age 50 or older). It’s up to you to make sure you don’t exceed these limits if you contribute to plans of more than one employer.

Can I also contribute to a Roth IRA?

Yes. Your participation in a Roth 401(k) plan has no impact on your ability to contribute to a Roth IRA. You can contribute to both if you wish (assuming you meet the Roth IRA income limits). You can contribute up to $5,000 to a Roth IRA in 2012, $6,000 if you’re age 50 or older (or, if less, 100% of your taxable compensation).

Should I make pretax or Roth 401(k) contributions?

When you make pretax 401(k) contributions, you don’t pay current income taxes on those dollars (which means more take-home pay). But your contributions and investment earnings are fully taxable when you receive a distribution from the plan. In contrast, Roth 401(k) contributions are subject to income taxes up front, but qualified distributions of your contributions and earnings are entirely free from federal income tax.

Which is the better option depends upon your personal situation. If you think you’ll be in a similar or higher tax bracket when you retire, Roth 401(k) contributions may be more appealing, since you’ll effectively lock in today’s lower tax rates. However, if you think you’ll be in a lower tax bracket when you retire, pretax 401(k) contributions may be more appropriate. Your investment horizon and projected investment results are also important factors. A financial professional can help you determine which course is best for you.

Are distributions really tax free?

Because your Roth 401(k) contributions are made on an after-tax basis, they’re always free from federal income tax when distributed from the plan. But the investment earnings on your Roth contributions are tax free only if you meet the requirements for a “qualified distribution.”

In general, a distribution is qualified only if it satisfies both of the following:

  • It’s made after the end of a five-year waiting period
  • The payment is made after you turn 59½, become disabled, or die

The five-year waiting period for qualified distributions starts with the year you make your first Roth contribution to your employer’s 401(k) plan. For example, if you make your first Roth contribution to the plan in December 2012, then the first year of your five-year waiting period is 2012, and your waiting period ends on December 31, 2016.

But if you change employers and roll over your Roth 401(k) account from your prior employer’s plan to your new employer’s plan (assuming the new plan accepts Roth rollovers), the five-year waiting period starts instead with the year you made your first contribution to the earlier plan.

If your distribution isn’t qualified (for example, if you receive a payout before the five-year waiting period has elapsed or because you terminate employment), the portion of your distribution that represents investment earnings on your Roth contributions will be taxable, and will be subject to a 10% early distribution penalty unless you are 59½ or another exception applies.

You can generally avoid taxation by rolling your distribution over into a Roth IRA or into another employer’s Roth 401(k), 403(b), or 457(b) plan, if that plan accepts Roth rollovers. (State income tax treatment of Roth 401(k) contributions may differ from the federal rules.)

What about employer contributions?

While employers don’t have to contribute to 401(k) plans, many will match all or part of your contributions. Your employer can match your Roth contributions, your pretax contributions, or both. But your employer contributions are always made on a pretax basis, even if they match your Roth contributions. That is, your employer’s contributions, and investment earnings on those contributions, are not taxed until you receive a plan distribution.

What else do I need to know?

Like pretax 401(k) contributions, your Roth 401(k) contributions and investment earnings can be paid from the plan only after you terminate employment, incur a financial hardship, attain age 59½, become disabled, or die.

Also, unlike Roth IRAs, you must begin taking distributions from a Roth 401(k) plan after you reach age 70½ (or in some cases, after you retire). But this isn’t as significant as it might seem, since you can generally roll over your Roth 401(k) dollars (other than RMDs themselves) into a Roth IRA if you don’t need or want the lifetime distributions.

Employers aren’t required to make Roth contributions available in their 401(k) plans. So be sure to ask your employer if they are considering adding this exciting feature to your 401(k) plan.

Roth 401(k) Roth IRA
Maximum contribution (2012) Lesser of $17,000 or 100% of compensation Lesser of $5,000 or 100% of compensation
Age 50 catch-up (2012) $5,500 $1,000
Who can contribute? Any eligible employee Only if under income limit
Age 70½ required distributions? Yes No
Potential matching contributions? Yes No
Potential loans? Yes No
Tax-free qualified distributions? Yes, 5-year waiting period plus either 59½, disability, or death Same, plus first time homebuyer expenses (up to $10,000 lifetime)
Nonqualified distributions Pro-rata distribution of tax-free contributions and taxable earnings Tax-free contributions distributed first, then taxable earnings
Investment choices Limited to plan options Virtually unlimited
Bankruptcy protection Unlimited At least $1,171,650 (total of all IRAs)

 

 

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

 

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

 

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

 

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In-Service Withdrawals from 401(k) Plans

Posted on January 11, 2012 by admin

In-Service Withdrawals from 401(k) Plans

You may be familiar with the rules for putting money into a 401(k) plan. But are you familiar with the rules for taking your money out? Federal law limits the withdrawal options that a 401(k) plan can offer. But a 401(k) plan may offer fewer withdrawal options than the law allows, and may even provide that you can’t take any money out at all until you leave employment. However, many 401(k) plans are more flexible.

First, consider a plan loan

Many 401(k) plans allow you to borrow money from your own account. A loan may be attractive if you don’t qualify for a withdrawal, or you don’t want to incur the taxes and penalties that may apply to a withdrawal, or you don’t want to permanently deplete your retirement assets. (Also, you must take any available loans from all plans maintained by your employer before you’re even eligible to withdraw your own pretax or Roth contributions from a 401(k) plan because of hardship.)

In general, you can borrow up to one half of your vested account balance (including your contributions, your employer’s contributions, and earnings), but not more than $50,000.

You can borrow the funds for up to five years (longer if the loan is to purchase your principal residence). In most cases you repay the loan through payroll deduction, with principal and interest flowing back into your account. But keep in mind that when you borrow, the unpaid principal of your loan is no longer in your 401(k) account working for you.

Withdrawing your own contributions

If you’ve made after-tax (non-Roth) contributions, your 401(k) plan can let you withdraw those dollars (and any investment earnings on them) for any reason, at any time. You can withdraw your pretax and Roth contributions (that is, your “elective deferrals”), however, only for one of the following reasons–and again, only if your plan specifically allows the withdrawal:

•You attain age 59½

•You become disabled

•The distribution is a “qualified reservist distribution”

•You incur a hardship (i.e., a “hardship withdrawal”)

Hardship withdrawals are allowed only if you have an immediate and heavy financial need, and only up to the amount necessary to meet that need. In most plans, you must require the money to:

•Purchase a principal residence or repair a principal residence damaged by an unexpected event (e.g., a hurricane)

•Prevent eviction or foreclosure

•Pay medical bills

•Pay certain funeral expenses

•Pay certain education expenses

•Pay income tax and/or penalties due on the hardship withdrawal itself

Investment earnings aren’t available for hardship withdrawal, except for certain pre-1989 grandfathered amounts.

But there are some disadvantages to hardship withdrawals, in addition to the tax consequences described below. You can’t take a hardship withdrawal at all until you’ve first withdrawn all other funds, and taken all nontaxable plan loans, available to you under all retirement plans maintained by your employer. And, in most 401(k) plans, your employer must suspend your participation in the plan for at least six months after the withdrawal, meaning you could lose valuable employer matching contributions. And hardship withdrawals can’t be rolled over. So think carefully before making a hardship withdrawal.

Withdrawing employer contributions

Getting employer dollars out of a 401(k) plan can be even more challenging. While some plans won’t let you withdraw employer contributions at all before you terminate employment, other plans are more flexible, and let you withdraw at least some vested employer contributions before then. “Vested” means that you own the contributions and they can’t be forfeited for any reason. In general, a 401(k) plan can allow you to withdraw vested company matching and profit-sharing contributions if:

•You become disabled

•You incur a hardship (your employer has some discretion in how hardship is defined for this purpose)

•You attain a specified age (for example, 59½)

•You participate in the plan for at least five years, or

•The employer contribution has been in the account for a specified period of time (generally at least two years)

Taxation

Your own pretax contributions, company contributions, and investment earnings are subject to income tax when you withdraw them from the plan. If you’ve made any after-tax contributions, they’ll be nontaxable when withdrawn. Each withdrawal you make is deemed to carry out a pro-rata portion of taxable and any nontaxable dollars.

Your Roth contributions, and investment earnings on them, are taxed separately: if your distribution is “qualified,” then your withdrawal will be entirely free from federal income taxes. If your withdrawal is “nonqualified,” then each withdrawal will be deemed to carry out a pro-rata amount of your nontaxable Roth contributions and taxable investment earnings. A distribution is qualified if you satisfy a five-year holding period, and your distribution is made either after you’ve reached age 59½, or after you’ve become disabled. The five-year period begins on the first day of the first calendar year you make your first Roth 401(k) contribution to the plan.

The taxable portion of your distribution may be subject to a 10% premature distribution tax, in addition to any income tax due, unless an exception applies. Exceptions to the penalty include distributions after age 59½, distributions on account of disability, qualified reservist distributions, and distributions to pay medical expenses.

Rollovers and conversions

Rollover of non-Roth funds

If your in-service withdrawal qualifies as an “eligible rollover distribution,” you can roll over all or part of the withdrawal tax free to a traditional IRA or to another employer’s plan that accepts rollovers. In general, most in-service withdrawals qualify as eligible rollover distributions except for hardship withdrawals and required minimum distributions after age 70½. If your withdrawal qualifies as an eligible rollover distribution, your plan administrator will give you a notice (a “402(f) notice”) explaining the rollover rules, the withholding rules, and other related tax issues. (Your plan administrator will withhold 20% of the taxable portion of your eligible rollover distribution for federal income tax purposes if you don’t directly roll the funds over to another plan or IRA.)

You can also roll over (“convert”) an eligible rollover distribution of non-Roth funds to a Roth IRA. And some 401(k) plans even allow you to make an “in-plan conversion”–that is, you can request an in-service withdrawal of non-Roth funds, and have those dollars transferred into a Roth account within the same 401(k) plan. In either case, you’ll pay income tax on the amount you convert (less any nontaxable after-tax contributions you’ve made).

Rollover of Roth funds

If you withdraw funds from your Roth 401(k) account, those dollars can only be rolled over to a Roth IRA, or to another Roth 401(k)/403(b)/457(b) plan that accepts rollovers. (Again, hardship withdrawals can’t be rolled over.) But be sure to understand how a rollover will affect the taxation of future distributions from the IRA or plan. For example, if you roll over a nonqualified distribution from a Roth 401(k) account to a Roth IRA, the Roth IRA five-year holding period will apply when determining if any future distributions from the IRA are tax-free qualified distributions. That is, you won’t get credit for the time those dollars resided in the 401(k) plan.

Be informed

You should become familiar with the terms of your employer’s 401(k) plan to understand your particular withdrawal rights. A good place to start is the plan’s summary plan description (SPD). Your employer will give you a copy of the SPD within 90 days after you join the plan.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

 

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Market Week: January 9, 2012

Posted on January 10, 2012 by admin

Market Week: January 9, 2012

The Markets

So far, so good: The new year got off to a moderately encouraging start, beginning with solid reports on manufacturing and construction and ending with a fourth month of improved employment data. The Nasdaq took the lead; it was the first week since early October in which its gains outpaced those of the other three domestic indices. Not surprisingly, the Global Dow continued to be sluggish.

Market/Index 2011 Close Prior Week As of 1/6 Week Change YTD Change*
DJIA 12217.56 12217.56 12359.92 1.17% 1.17%
Nasdaq 2605.15 2605.15 2674.22 2.65% 2.65%
S&P 500 1257.60 1257.60 1277.81 1.61% 1.61%
Russell 2000 740.92 740.92 749.71 1.19% 1.19%
Global Dow 1801.60 1801.60 1812.76 .62% .62%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 1.89% 1.89% 1.92% 3 bps 3 bps

 

*Equities data reflect price changes, not total return.

Last Week’s Headlines

•Unemployment fell in December for the fourth straight month, hitting 8.5%; that’s almost a full percentage point from last December’s 9.4%. The Bureau of Labor Statistics said employers added 200,000 net new jobs, with the biggest gains occurring in transportation/warehousing, retail, and manufacturing. The measure of unemployment that includes underemployed workers also fell; it’s down from 15.6% to 15.2%.

•U.S. manufacturing growth accelerated in December, according to the Institute for Supply Management. The ISM’s index hit 53.9%, its highest level since June; it was the 29th straight month of expansion. Meanwhile, the Commerce Department said new durable goods orders also rose by 3.8%. The growth, driven primarily by new orders for aircraft and other transportation equipment, represented the fourth increase in the last five months.

•The Federal Reserve will start spelling out its expectations for the direction of short-term interest rates, including when it might start to raise rates. The forecasts will be made quarterly beginning with the January 25 release of other Fed economic forecasts, which will include projections for the end of this year.

•Expansion in the U.S. services sector picked up at a faster pace in December as the Institute for Supply Management’s index rose 0.6% to 52.6%. It was the 26th consecutive month of growth, with 11 of the index’s 18 industries reporting improvement.

•The average interest rate on 30-year fixed mortgages fell to 3.91% during the first week of 2012. According to mortgage giant Freddie Mac, that’s as low as it’s ever been. It also was the fifth straight week of rates under 4%.

Eye on the Week Ahead

Bond auctions are scheduled in Italy and Spain; with Italian 10-year yields over 7%, the results will be watched. Also, Monday’s Alcoa earnings announcement represents the informal kickoff for the fourth-quarter earnings season.

Key dates and data releases: Fed “beige book” report (1/11); weekly new jobless claims, retail sales, business inventories (1/12); international trade, import/export prices, consumer sentiment (1/13).

Data sources: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

 

 

 

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