When you reach 70 1/2, IRS rules say you have to start required minimum distributions from your traditional IRAs or your 401(k)s. The tax bite for not obeying the rules can be major.

required minimum distributions calculating_and_taking

Charles Schwab this week began offering employers a new type of 401(k) plan that it says is unique because it includes index funds only and will automatically enroll participants in an independent advice service that will choose their investments unless they opt out.

The goal is to increase workers’ retirement savings by driving down costs, simplifying the investment process and providing individualized advice.

Today, most 401(k) providers let employers decide if they want to offer their employees index funds, actively managed funds or a mix of the two. most choose a mix although most plans are skewed toward active funds, which are more expensive than index funds.

“So far the industry has not made available an index-fund-only 401(k) plan,” says Jim McCool, a Schwab executive vice president.

That compares with an industry-wide cost of around 0.95 percent per year for a typical midsize plan, or 1.5 percent if you include advice, McCool says.

New fee-disclosure rules scheduled to take effect this year are expected to put downward pressure on 401(k) costs. McCool says Schwab started developing a low-cost 401(k) long before the Labor Department published its proposed rules. (For more on the rules, and a potential delay, see my Tuesday column.)

Employers can choose from about 40 index funds managed by companies including Vanguard, BlackRock and Schwab. McCool says he expects most will offer employees 10 to 15 funds.

Most 401(k) plans already offer employees help choosing investments from some type of independent advice service, which is typically computer-based. about three-quarters of Schwab’s existing plans offer advice but only about 10 percent of employees who are offered it take advantage of it, says Steve Anderson, a Schwab senior vice president.

The new Schwab plan will automatically enroll employees in a program offered by GuidedChoice, an outside investment advisory firm headquartered in San Diego.

This service will choose 401(k) investments for employees based on information they provide, including any outside investments they or their spouse might have. They can enter the information online or provide it to a Schwab employee, but the investment advice will be generated by a computer program developed by GuidedChoice.

“The more information they share the more customized it becomes,” Anderson says.

If an employee doesn’t provide any information, the program will automatically invest their account based on information the employer can provide – such as age and salary – as well as the 401(k) account balance and savings rate.

Employees who opt out of the advice service and make all their own decisions will only pay 0.2 to 0.25 percent a year, McCool says.

The new Schwab plan is also unusual in that it will not offer target-date funds, which offer a mix of stock and bond funds geared toward the employee’s estimated retirement date. as that date approaches, the fund gradually becomes more conservative – by using fewer stock and more bond funds.

Target-date funds

Target-date funds are seen as a good option for employees who don’t want to manage their 401(k) accounts. Many plans that automatically enroll employees in the 401(k) will place them in a target date fund if they don’t choose another option.

But Schwab believes they’re a bad option because they are based solely on age.

“Two 45-year-olds can be altogether different,” McCool says. if one has built up a nice nest egg and the other has no savings, the recommendations for each should be very different.

The new plans will also offer an FDIC-insured account from Schwab Bank that will be available only to 401(k) account holders, not the general public. McCool could not say what the interest rate will be.

<a href="http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2012/01/11/BUQ81MO2UA.DTL&type=businesstag:news.google.com,2005:cluster=http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2012/01/11/BUQ81MO2UA.DTL”>Charles Schwab offers new index-fund 401(k) plan

For most people, a mortgage is their biggest monthly bill.? Although few realize it at first, their mortgage also represents one of their biggest savings each month. Since a part – a growing part – of every mortgage payment represents the repayment of principal, part of that big monthly bill is actually savings.? at the end of the typical 30-year mortgage, you’ll own your home free and clear.? Depending on what happens to the value of your home over that time, you might find yourself with quite an asset.

While a mortgage is certainly no substitute for a 401(k) or IRA, it’s certainly better than that other big monthly bill – the credit card.

Is your mortgage part of your retirement plan?

Is Paying your Mortgage like Saving for Retirement? originally appeared on About.com Retirement Planning on Monday, August 22nd, 2011 at 13:00:39.

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Is Paying Your Mortgage Like Saving for Retirement?

Last week, Microsoft 401(k) plan Administrators announced several exciting changes to the plan in 2008.

First off, four mutual fund investment options currently available to plan participants will be replaced with Separately Managed Accounts (SMAs) on January 16, 2008. These SMAs are designed exclusively for Microsoft’s 401(k) plan, managed by the same investment team and closely mirroring the current investment options. the caveat, however, is the new investment options will carry much lower fee structure, thus improving long-term return of the portfolio.

One has to admire our plan Administrators for doing an excellent job in negotiating down the cost. Especially in the case of ING International value Fund, annual fee will be reduced from 1.22% to 0.41% in the new SMA that is to be set up. What’s the last time you can invest in a fine actively managed foreign equity fund by only paying 0.41% on annual fee? (In comparison, the widely-held index-tracking foreign-equity ETF option iShares MSCI EAFE Index carries an annual fee of 0.35%.)

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Upcoming 401(k) Plan Changes: More SMAs and Self-Directed Brokerage Accounts

A Roth Conversion means entering retirement with tax-free income. however, a Roth IRA conversion also comes at an upfront cost of paying taxes now. Converting your qualified retirement account (like a traditional IRA or old 401(k) plan) to a Roth IRA may be a great idea. But since your tax may be significant, make sure to learn the key considerations.

Roth Conversion

401k retirement plan is one form of many retirement savings accounts in the United States. the term 401k is derived from the 401(k) article of the Internal Revenue Code of the United States Code. Roth IRA 401k account is the most common withdrawal plan used by American employees from way back in 1980s. It was [...]

401k Retirement Plan For Beginners

Even late starters to retirement planning have options. whether by taking advantage of the 401(k) and IRA catch-up provisions or by strategically delaying your retirement date, you can still achieve a comfortable retirement via solid last-minute planning.

Last Minute Retirement Plans

Q: I am 73 and retired, collecting Social Security and taking Required Minimum Distributions. I have no debt. I have $190,000 in a Fidelity traditional IRA (rollover from 401(k)), all in the Cash Reserves money market fund. What should I do? – S.K., by email

A: What you do depends on your tolerance for risk. you may not want to experience the risk of the stock market, but you should be aware that you are still at risk with all your money in cash.

Fidelity Cash Reserves recently reported having an annualized return of 0.01 percent. that means your entire account will earn about $190 in interest. More important, it is earning less than the inflation rate. As a result, the purchasing power of your IRA is declining year by year. the Consumer Price Index for April of this year was 3.64 percent higher than it was in 2010. As I have pointed out many times, savers and retirees are paying a special “tax” to bail out the banks.

One alternative would be to keep about 20 percent of your IRA in a money market fund and invest the remainder in a balanced fund. having this much in cash would mean you could draw down the money market fund to meet your Required Minimum Distribution for some time before having to touch the riskier balanced fund.

Fidelity Puritan fund is a managed fund with no sales commission and relatively low annual expenses of 0.61 percent. It has performed in the top 20 percent of its category over all of the preceding

time periods out to 20 years. While I generally prefer index funds because they cost less, are more tax efficient and have no manager risk, Puritan offers low cost and very consistent management – one of the reasons Morningstar has given it a superior four-star rating for a long time.

Q: I am a 69-year-old retired teacher and have a 403(b) annuity contract that has just ended. the company wants me to put this in another variable annuity investment. They say I can take out 6 percent a year for life, have a death benefit and access to the principal that I put in. the company guarantees that my 6 percent income rate cannot go down, but will only go up. They guarantee me easy access to my principal, even though it can go down due to my withdrawals and the possibility of the stock market going down.

I need the income, but am confused about what would be the best investment to make given today’s circumstances. I have over $185,000 in my annuity. If I put it in a federally insured program I will only get around 1 percent. – J.G., by email

A: the 6 percent a year for life is some form of “living benefit” offer. It is more likely to be principal than income from your investment. Living benefits add substantially to the cost of variable annuity contracts, often bringing the total cost to over 3 percent a year. As a consequence, it is highly unlikely that your principal will ever rise enough to increase your annual income.

More important, over time your principal will slowly erode as you take 6 percent and the insurance company takes 3 percent each year. the same economics also means that while your income will be constant, your purchasing power is likely to decline over time due to inflation.

A better alternative is to do a rollover to an IRA account at a low-cost, no-commission mutual fund firm and invest in a balanced mutual fund. While you will lose the 6 percent income-for-life guarantee, you’ll be paying far less in fees and expenses.

An extreme example is Vanguard Balanced Index fund. Admiral shares of this fund (which require an investment of at least $10,000) have an annual cost of only 0.14 percent. that means the 2.86 percent of the return that would be siphoned off by the insurance company will be available for you. even if you move to a managed balanced fund, such as Fidelity Puritan, your expenses will be about 2.4 percent a year less. With either fund, you won’t have the restrictions of the insurance-based product.

Questions about personal finance and investments may be sent by email to scott@scottburns.com.

<a href="http://www.dailybreeze.com/business/ci_18347202tag:news.google.com,2005:cluster=http://www.dailybreeze.com/business/ci_18347202Fri, 24 Jun 2011 22:38:29 GMT 00:00″>SCOTT BURNS: Diversifying IRA funds to help reduce risk

(Money Magazine) — I’ve always used the order of ride of 100 reduction my age to confirm what commission of my 401(k) to deposit in stocks. But right away that I’m getting shut to early retirement I’m wondering either that’s as well conservative? Do you think it is? — Martin, Middleton, Wisconsin

I think you must be look over manners of ride when creation critical decisions about your finances. That’s since even even though such manners may be willing to help in providing broad discipline or ranges, they can’t give you a answer tailored to your particular financial circumstances.

as I’ve remarkable before , this is loyal either you’re conversing about the oft-cited 4% order for withdrawing allowance from extra savings in retirement, the 80% order for gauging how ample income you’ll need in early retirement and the 10% order for reckoning out how ample you should save during your vocation to have a secure retirement.

It’s moreover the box with the order of ride that says you should deduct your age from 100 to establish the commission of bonds in your early retirement portfolio is no exception.

The order says that when you’re 30 years old, you would keep 70% in stocks. when you strike 65, you’d wish to be more conservative, and dial back to 35%. The proof is that bonds are more dangerous than bonds, and you wish less chance as you draw close retirement.

But the order keeps changing. as batch investing began to earn more preference during the 1990s longhorn run, 100 reduction your age began to morph in to 110 reduction your age, as people began to disregard the risks that bonds pose.

We moreover saw the presentation of the 120-minus-your-age benchmark, when people motionless they indispensable more bonds to indemnify for low extra savings rates.

Given these hostile thumbs, so to speak, a 30-year-old could finish up with a batch interest trimming from 70% to 90% and a 65-year-old could have wherever from 35% to 55% in stocks.

So where does this leave you?

Generally, the proof that you should have less in bonds as you age is flattering sound. After all, if you maintain a large loss early in your career, you have lots of time is to marketplace to rebound back and you can always save more.

But if you’re about to retire and start pulling allowance from your portfolio for living expenses, the multiple of a leading loss in addition to withdrawals will put a leading hole in your extra savings and enlarge your chances of running by your nest egg early in retirement.

The actual subject you face is how ample chance are you willing to take with your early retirement extra savings at this theatre of your life? take the 65-year-old with 35% in stocks.

I think many, if not most, investment pros would consider that a sincerely regressive stance. Two of the 3 largest providers of target-date early retirement supports (Fidelity and Vanguard) set a batch apportionment of rounded off 50% for someone timid at 65. The other (T. Rowe Price) recommends 55%.

But it’s not as if descend allocations are unheard of, or espoused usually by a extreme fringe. The well-noted 401(k) recommendation definite Financial Engines not long ago introduced a early retirement income service that would have someone timid at 65 with usually about 20% of his or her portfolio in stocks.

Ditto is to lifecycle supports of the Thrift Savings plan , that is the sovereign government’s homogeneous of a 401(k). in short, there’s no singular “correct” percentage.

You must be arrive at a commission you’re cozy with. Toward that end, a thing to consider is what loss you feel you could stomach.

The aloft the commission of bonds you hold, the bigger downdrafts you should be ready to handle. to obtain a clarity of what size hits not similar stocks-bonds mixes might take, you can go to Morningstar’s Asset Allocator apparatus .

Since you’re nearby retirement, you may moreover look at how not similar stocks-bonds allocations could affect how ample allowance you can expected draw from your account without running by your nest egg.

To do that, examine out T. Rowe Price’s Retirement Income Calculator . consider as well the on the whole riches at your disposal. If your pool of early retirement extra savings is so large that a sizeable reversal wouldn’t jeopardise your capability to obtain the income you need from it, then you may be able to go with a incomparable dollop of stocks.

The same goes if you have other resources you can daub — additional company pension, on trial income from an annuity, cash worth in a life insurance process or sizeable home equity.

If, on the other hand, your 401(k) isn’t outrageous and it’s flattering ample all you have, then you probably wish to lean your blend more toward the safety finish of the chance spectrum. Finally, in early retirement particularly you wish to be aware of “black swan” risk. No, I’m not conversing about the Natalie Portman movie.

Rather, it’s the chance that your portfolio might be decimated by a rare but inauspicious marketplace meltdown. we lend towards to polish over cataclysmic events in our formulation since they’re deliberate exceedingly low luck events.

But new investigate suggests they may cocktail up more often than we’ve believed. to me, that argues for personification it safer late in one’s vocation and during retirement. we moreover think it bolsters the box for at least deliberation adding a few on trial income to one’s early retirement investing strategy.

If you go by the process I’ve described on your own or with the help of an confidant , you should be able to arrive at a bonds commission that balances your need for earnings with your toleration for risk.

Once you’ve completed that, we wouldn’t fret either that figure agrees with the 100 reduction your age order of thumb, or any of its variations.

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Stock Investing | How Much In Stocks Should You Own? – wealth …

In 2011, you can even the best mutual funds in the stock fund or bond fund Department, but without a timing strategy is not the best results get. Investment funds investment strategy is a two part deal, consisting of two fund selection and timing. The good news is that mutual funds timing the easy part.

Keep things simple we are talking about Fund timing of stock funds vs. bond funds in 2011 and beyond. These are the most people the two basic types of funds, money in for greater long-term income. And most of the time either one or the other is the best investment funds category in any year. Most people have both for the balance, this is your entire portfolio, and you should too. for example, suppose you invest $10,000 in each in 2011. What kind of timing strategy should be to deal with you over the years?

First, you need not be the best investment funds in either category will find, and you will probably never be. there are thousands of choose and when you invest in a 401-k, IRA, or with a single fund companies your list of choices will be limited. therefore, Fund timing is important. secondly, to my knowledge ever invest timing in every arena no one dominated by a complicated formula. Third, most complicated timing strategies work sometimes but not through long term – and funds are a long-term investment.

That is, it is a simple, sensible and best mutual funds timing strategy, which has worked for a long time and is likely to work on 2011. there is balance and balance. Here is how it works in our example of the $10,000 in a stock fund and $ 10,000 to a pension fund. one year after you will make your original investment we say that is your stock fund in the amount of $12,000 and your pension fund in the amount of $8000. she broke even with a total inventory value of $20,000, and if you as most people are not you do something about it. What you should do: balance, by he $2000 from your stock fund, and set it to your pension fund.

This leads by two things. First it contains again you on the track half in each Fund. secondly, is there an automatic system of Fund timing that you buy more shares Fund, if the price (net asset value); on the sale of shares among others in its price rises. Market timing is all about low buying and selling of high. With balance and the balance, you can to consistently, in the long term. No prediction involved. It is an ongoing process that requires your attention only once in the year, and it is your best investment timing strategy, because it works.

In the year 2011, many 401-k and other retirement plans offer a timing program that automatically runs every year for you. It is a feature called “automatic balance”. Reporting you are just for you and your plan does the rest. Even the best mutual funds have good years and bad years. With the best investment timing strategy can rolls with the punches and make the most from it every year.

Best mutual fund timing strategy for 2011 and beyond