1st Media Finance

January 28, 2011

Roth IRA Rules & Regulations

Filed under: Uncategorized — @ 4:36 pm

An Individual Retirement Account or IRA is a form of retirement plan which gives retirees tax advantages with their savings. It is best not to rely solely on retirement plans sponsored by our employers and start investing on a more secured life after retirement and that is through IRA. Some IRA’s are tax-deductible like Traditional IRA and others are non-tax-deductible like Roth IRA. Although contributions from a Roth IRA can’t be deducted from our taxes, this type of IRA account has been the choice of many because its distributions are tax-free.

Roth IRA rules are pretty simple. In fact every individual who is working for a living and are receiving tax compensations such as wages, salaries, bonuses, tips, professional fees and other amounts received by giving service to others is eligible to contribute to a Roth account. Rules of a Roth IRA account have set certain limits for account holders such as contribution limits and distribution limits.

Contribution Limits

  • Contributions with Roth are limited with an amount of $5,000.
  • A catch up limit of $1,000 is provided for individuals aging 50 and up.
  • Single filers, head of households and married couples filing separately but not living with spouse with a modified adjusted gross (MAGI) income of $107,000 is allowed a full contribution with Roth. If their MAGI exceed $122,000 any contribution with Roth is prohibited.
  • MAGI of joint filers should fall under the range of $169,000 to $179,000 to be allowed a full contribution.
  • Married couples filing separately and living together should not exceed an MAGI of $10,000 for a full contribution to be permitted.

Distribution Limits

As I have said, the main advantage of a Roth IRA is that its distributions/withdrawals are tax-free. But first distributions out of this account should be made at least 5 years after your first contribution with Roth. Also you need to be 59 ½ years old when you make your first withdrawal. Withdrawals without meeting these terms shall be imposed with a 10% early withdrawal penalty. These are basically the IRA distribution rules of Roth.

While you are still young it is very wise to invest on your future so as to secure a better life after we quit our jobs due to age constraints. And having an IRA account with the best discount brokerage firms online is one way to do it.

January 22, 2011

Why won’t my Employer give me any advice on my 401k options?

Filed under: Pension Advice — Tags: , , , — @ 10:26 am

It would certainly be nice if Employers could give investment advice on the 401k options in the company plan; but, they understand the legal responsibility that would come with that activity.

There is a legal concept called “Fiduciary Liability” which would apply to companies if they, in fact, gave employees “advice”. It was their desire to avoid this liability that prompted so many to abandon lifetime Pension Plans for their employees. The best they can do today is offer up the educational tools that come with the relationship they established with the vendor of your 401k platform.

This vendor, called the Plan Provider, gives your company these tools. You have no doubt see the Summary Plan Description including how the plan works, how you opt-in or opt-out, contribution elections investments available as well as product brochures. You may even have in-house educational seminars. However, it is almost unheard of that a Plan Provider will offer personalized, one-on-one, face-to-face investment advice.

The only Plan Provider that does offer individual advice to participants that I have heard about is Charles Schwab. They have established a relationship with an unaffiliated independent investment advisory firm called GuidedChoice Asset Management, Inc. Their advice however is strictly limited to the mutual funds offered on the main menu. If that plan also offers a self-directed brokerage account option, GuidedChoice Asset Management, Inc. will not offer advice on those investment options.

Be aware that with the Pension Protection Act of 2006, real one-on-one, face-to-face, personal investment advice may be available to you ~ paid for with pre-tax dollars directly from your own plan assets.  Check with your human resources liaison and see if your plan has been amended to allow this activity. If not, know too that it may be worthwhile to pay for this service out of pocket ~ depending on the size of your account.

Finally, be aware that your regular broker-dealer may gently refuse to help you with your 401k options. Their compliance (legal) department will have likely instructed your broker NOT to give 401k Investment Advice. The issue is Fiduciary Liability. Look for an independent investment advisor ~ unattached to any broker-dealer.

January 10, 2011

Best Short Term Investments

Filed under: Investments — Tags: , , , , , , — @ 4:39 am

You may have some cash to spare for a little while and may want to put it to work.  If you are looking for the best short term investments for that money, you may want to look at the following options.  It may not give you the best investment rates, but it will give you a positive return.

So here is the skinny on short term investments.  If you only have a limited time to place money somewhere, you want to make sure you put it in an asset class that won’t lose money.  That is because you won’t have time to recover should your investments go down.  Here are some of the best short term investments you can look at that probably won’t lose money in a short period of time.

The first and most obvious place is a savings account.  You won’t lose money because the FDIC insures it up to $100k.  They may even give you a small interest rate, but it may just be enough to cover inflation.  So you won’t really make money, but you won’t lose it either.

Then you have a investments like CD’s, certificate of deposits.  These give better rates than savings accounts, but it’s less liquid because your money get’s tied up for a period of time.

Some good stocks to invest in will be large cap stocks.  These stocks are good for short term investments because they aren’t as volatile as small cap stocks.  The share prices stay pretty stable and will keep you from losing a lot of money.  But you may even make pretty decent rates if the economy is doing well.  Depending on how long your short term period is, you may even be able to get some dividend income out of this category of stocks.  As always, get professional advice before investing any money.

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