What to Do With Your 401(k) - 4 Experts Weigh In

Approximately 45 million Americans have them, but many are abandoning them and hoping they will find other ways to live during retirement.


They are 401(k)s and a recent study by the Consumer Federation of America shows that 21 percent of people have abandoned their 401(k)s and are counting on hitting some sort of jackpot; 16 percent are hoping for an inheritance instead of saving. The study showed that 9 percent are looking for someone to sue to provide a retirement nest egg.

Experts say just about everyone is looking for an answer after the beating 401(k)s have taken on Wall Street.

Jessica Dancingheart, 43, is a student and a single mother. She is worried about the wild swings on Wall Street just like everyone else.

"It has, in some ways, changed my investment patterns. It's changed how I shop. It changes how I want to put my money to use," she said. "I'm pretty concerned."

9NEWS talked with four experts about what comes next for investors like Dancingheart and what comes next for 401(k)s.

"401(k)s are really a painful spot for a lot of people right now," Karl Frank, with A&I Financial Services, said.

"We have had the largest amount of net redemptions, or selling of American stock, by individuals ever," Bruce Allen, with Bruce G. Allen Investments, said.

Things don't look to change in the immediate future either.

"My best guess is that we will continue to see volatility," Susan O'Grady, with Equipoise Wealth Management, said.

That makes some of our experts queasy about Wall Street too.

"I think it's probably a good idea not to be all in stocks," Robert Douglas, with the Heartland Institute, said.

You can find predictions on the direction of the market all over the Internet, but our experts say if you find anyone who thinks they can actually forecast any market index, think again.

"I would run the other direction. I mean, nobody knows," Allen said.

Still, the experts say the stock market is a place you should be putting some money with investment strategies that vary depending on age. Most think young investors in their 20s, who have largely abandoned Wall Street, should instead be all in.

"If I were in my 20s, I'd put as much away as I possibly could and learn to live without it. If I could get away with putting 10 percent or more of my money away in a 401(k), I would do it," Frank said.

By the time you reach your 30s, you might want to have a "mixed" portfolio of both stocks and bonds. But given the recent market turmoil, one of our analysts likes the bond market more.

"At this point in time, particularly with the economy in the kind of shape it's in, it makes a good deal of sense to have more assets in bonds that it does in stocks. And actually, over the last 10 years, the bonds have outperformed the stocks," Douglas said.

Forty-year-olds had better get really serious about saving and growing their money, and another of our experts believes that means hitting the gas.

"Owning assets, owning corporations and owning real estate are the ways people are to going get wealthy over the next 20 to 30 years. It's not going to be by owning bonds," Allen said.

All of our experts agree that 50-year-olds and those in retirement still need "some" exposure to the market to avoid running out of money given longer life expectancies.

"You don't want to be out of the market, even if you're 70 or 80. However, you want to be less in the market, or less exposed to market volatility," O'Grady said.

The bottom line is to follow a strategy that matches your "risk tolerance." You need to be able to sleep at night, not worrying about what's happening to your money. But no matter your age, the message is: start investing now. The clock is running.

Source: http://www.9news.com/dontmiss/230003/630/What-to-do-with-your-401k---4-experts-weigh-in-

Many people look for help from professionals when it’s time to file their tax return. If you use a paid tax preparer to file your return this year, the IRS urges you to choose that preparer wisely. Even if a return is prepared by someone else, the taxpayer is legally responsible for what’s on it. So, it’s very important to choose your tax preparer carefully.

This year, the IRS wants to remind taxpayers to use a preparer who will sign the returns they prepare and enter their required Preparer Tax Identification Number (PTIN).

Here are ten tips to keep in mind when choosing a tax return preparer:

1. Check the preparer’s qualifications. New regulations require all paid tax return preparers to have a Preparer Tax Identification Number. In addition to making sure they have a PTIN, ask if the preparer is affiliated with a professional organization and attends continuing education classes. The IRS is also phasing in a new test requirement to make sure those who are not an enrolled agent, CPA, or attorney have met minimal competency requirements. Those subject to the test will become a Registered Tax Return Preparer once they pass it.
   
   
2. Check on the preparer’s history. Check to see if the preparer has a questionable history with the Better Business Bureau and check for any disciplinary actions and licensure status through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the IRS Office of Enrollment for enrolled agents.
   
   
3. Ask about their service fees. Avoid preparers who base their fee on a percentage of your refund or those who claim they can obtain larger refunds than other preparers. Also, always make sure any refund due is sent to you or deposited into an account in your name. Under no circumstances should all or part of your refund be directly deposited into a preparer’s bank account.
   
   
4. Ask if they offer electronic filing. Any paid preparer who prepares and files more than 10 returns for clients must file the returns electronically, unless the client opts to file a paper return.  More than 1 billion individual tax returns have been safely and securely processed since the debut of electronic filing in 1990.  Make sure your preparer offers IRS e-file.
   
   
5. Make sure the tax preparer is accessible.  Make sure you will be able to contact the tax preparer after the return has been filed, even after the April due date, in case questions arise.
   
   
6. Provide all records and receipts needed to prepare your return. Reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions and other items. Do not use a preparer who is willing to electronically file your return before you receive your Form W-2 using your last pay stub. This is against IRS e-file rules.
   
   
7. Never sign a blank return. Avoid tax preparers that ask you to sign a blank tax form.
   
   
8. Review the entire return before signing it.  Before you sign your tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it.
   
   
9. Make sure the preparer signs the form and includes their PTIN.  A paid preparer must sign the return and include their PTIN as required by law. Although the preparer signs the return, you are responsible for the accuracy of every item on your return.  The preparer must also give you a copy of the return.
   
   
10. Report abusive tax preparers to the IRS. You can report abusive tax preparers and suspected tax fraud to the IRS on Form 14157, Complaint: Tax Return Preparer. Download Form 14157 from www.irs.gov or order by mail at 800-TAX-FORM (800-829-3676).

SOURCE: http://www.irs.gov/newsroom/article/0,,id=252193,00.html

Using 401(k) Loans When Refinancing–Homeowners Apply Cash Towards Mortgage Principal But Drawbacks May Arise

Over the past months we have seen some workers borrow money from their 401(k), in the form of a 401(k) loan, for various purposes and, in some instances there have been homeowners who have used funds from their retirement as a way to apply money towards their mortgage principal at the time of refinancing as a way to apply cash to their principal balance, which may allow them to reduce their costs even further and potentially put them on a faster track to mortgage debt relief. Some financial professionals, such as Clark Howard, have even gone so far as to make the rare statement of urging homeowners, who can benefit to do so, to use funding from their 401(k) to participate in a cash-in refinance, but of course this comes with a caveat as homeowners do need to be sure that they are on a financial ground that will allow them to not only repay the funds into their retirement account but also benefit from this particular type of refinancing opportunity.


Homeowners who have successfully used a 401(k) loan to refinance with a cash-in option are those who, in the majority of cases, can affordably repay the money that will have to be returned to their 401(k), and of course they have been those who have qualified for a more affordable rate, and have obviously done a great deal of good when it comes to paying down their mortgage principal. Since rates on home loans, like the average 30-year fixed rate mortgage or the 15-year fixed rate home loan, still offer incredibly low interest rates at the present time, with the 30-year rate remaining around 4%, successful homeowners who have used a 401(k) loan to apply cash towards their principal at the time of refinancing have typically been able to get not only an affordable rate but potentially lower overall costs as well.

Some homeowners have made the decision to shorten their mortgage term, meaning they may have opted for a shorter home loan at the time they refinanced, and this coupled with applying money towards their mortgage principal has also helped some cut costs drastically in terms of the overall money they will pay on their home when all is said and done.

Yet, homeowners do need to realize that the costs associated with refinancing can be expensive, repaying a 401(k) loan will be necessary so that such drawbacks like defaulting on this loan and having the money received viewed as income, which then becomes taxable, are just a few of the factors that homeowners must consider if they wish to refinance at the present time. Understandably, low mortgage rates have been very attractive for homeowners who are in a position where they may potentially see a huge rate reduction, as well as lower costs, but homeowners are still being urged to consider all of the drawbacks that may arise when using retirement funds to apply cash towards their mortgage principal at the time of refinancing, look to see how beneficial refinancing will be for their situation, and whether all of the costs associated with cash-in refinancing can be met once they have completed the refinance on their current home.

Source: http://www.rwbpress.com/2011/11/16/using-401k-loans-when-refinancing-homeowners-apply-cash-towards-mortgage-principal-but-drawbacks-may-arise/

The Small Business 401(k) is the Holiday Gift That Keeps on Giving

This time of year, a lot of small business owners begin the annual process of planning for the holidays — picking out greeting cards for clients, booking a party for employees and asking the age-old question, “Can we afford to give out any bonuses?”


And while the idea of handing out cash to employees may seem far-fetched and costly these days, it’s actually very doable and affordable when packaged and gift-wrapped as a 401(k). First and foremost, you are helping you and your employees prepare for retirement. Secondly, any matching contributions or profit sharing contributions from the employer to employees are tax deductible for the business. But that’s really just the start.

The Benefit That Keeps on Giving and Can Pay for Itself

There’s no doubt about it, giving each of your employees a fat check around the holidays would feel great. But, in the long-term, giving them free money every two weeks — via matching contributions to their 401(k) — can actually work out even better for both you and your employees. And, for smaller firms, the plan may actually pay for itself outright.

Here’s how 401(k) saving and tax advantages can really add-up. Consider a scenario of two businesses. Each has seven employees including the owner, and the owner earns $150,000 a year. One offers a 401(k) plan with a “safe harbor” match to maximize her contributions and one does not provide a retirement plan at all.

So which owner keeps more of her money? In this situation, the owner with the 401(k) is much better off than the owner without a plan. The owner with a 401(k):

• Keeps $2,729 more of her own money
• Pays $7,465 less in personal and business taxes
• Saves $22,087 in tax-deferred income for retirement

That’s just year one. Take a ten year view, and the numbers get even more exciting. The owner saves nearly $75,000 in taxes and builds a nest egg $305,000 assuming a seven percent annual return over the period. Tax credits, deductions of any match and plan expenses, and matching can all have powerful effects on your bottom line.

Small business 401(k)s are in everyone’s best interest and bottom line. Now that’s a concept that even Scrooge could love.

Source: http://www.forbes.com/sites/stuartrobertson/2011/11/18/the-small-business-401k-is-the-holiday-gift-that-keeps-on-giving/

The Internal Revenue Service has free tax forms and publications on a wide variety of topics. Because of continued growth in electronic filing, the availability of free options to taxpayers and to reduce costs, the IRS discontinued the automatic mailing of paper tax packages last tax season.

If you need IRS forms and publications, here are four easy methods for getting them.

1. On the Internet You can access forms and publications on the IRS website 24 hours a day, seven days a week, at www.irs.gov.
   
   
2. IRS Taxpayer Assistance Centers There are 401 TACs across the country where IRS offers face-to-face assistance to taxpayers, and where taxpayers can pick up many IRS forms and publications. Visit www.irs.gov and go to Contact My Local Office on the Individuals page to find a list of TAC locations by state. On the Contact My Local Office page, you can also select Office Locator and enter your zip code to find the IRS walk-in office nearest you as well as a list of the services available at specific offices.
   
   
3. At convenient locations in your community During the tax filing season, many libraries and post offices offer free tax forms to taxpayers. Some libraries also have copies of commonly requested publications. Many large grocery stores, copy centers and office supply stores have forms you can photocopy or print from a CD.
   
   
4. By mail You can call 1-800-TAX-FORM (800-829-3676) Monday through Friday 7 a.m. to 7 p.m. local time – except Alaska and Hawaii which follow Pacific time – to order current year forms, instructions and publications as well as prior year forms and instructions by mail. You will receive your order by mail, usually within 10 days.

SOURCE: http://www.irs.gov/newsroom/article/0,,id=252076,00.html