Posts By Scott Weiss, CFP®

How to Take Advantage of A Down Market

· March 9, 2016 · Financial Planning, Investing, Uncategorized · , · No Comments

This article was originally published on NerdWallet.com

You’ve heard the old saying about investing success: Buy low and sell high. It sounds easy, doesn’t it? The problem is, no one knows exactly where the peaks and valleys are until after the market has reached them. That’s why it’s important to have an investment plan and stick to it.

How can the average investor find success in buying low and selling high? Here’s the secret: continually contribute to a diversified portfolio and rebalance it when your portfolio’s allocation falls outside its target range.

The Secret: Dollar Cost Averaging

Dollar-cost averaging is the key to a long-term investment strategy. It means contributing a set amount of money to your portfolio on a regular basis.

If you contribute to a 401(k) or 403(b) plan, you’re already doing this; every time you get paid, a certain percentage of your paycheck is deposited and immediately invested into your portfolio. There’s no consideration of market conditions. It doesn’t matter if the market is up or down; your money will get invested.

Here’s where the magic happens with dollar-cost averaging: When the market is down, it’s like getting your investments at a discount. You get to buy more shares of the same investment for less money.

Compare that to the alternative — a lump-sum portfolio, in which a larger sum is invested at one time, without regular additional contributions. With lump-sum investing, the available cash has already been invested, and taking advantage of sale prices becomes more difficult.

How Do I Benefit When the Market Recovers?

When you’re contributing regularly to your investment portfolio and purchasing shares at a discount during a bear market, you increase your upside potential when the market recovers.

When you take a lump sum of money and invest it, you initially have many more shares in a given investment than you would have if you spread those contributions out over a longer time. When the market declines, your lump-sum portfolio declines with it, but you’re not buying any additional shares at a discount like you are with your dollar-cost-averaged portfolio. You could end up with the same number of shares in both portfolios, but the average price per share in the dollar-cost-averaged portfolio will be lower.

This is why your 401(k) and 403(b) portfolios will seem to perform better than your lump-sum investment portfolio. In fact, they often do perform better because, over the long term, you end up purchasing your investment shares at a lower overall cost per share. So when the market recovers, you can be proud of yourself for buying at the bottom.

Stay Invested for the Long-Term

Dollar-cost averaging gives you an advantage over lump-sum investing, but in either case it’s important to stay the course and stay invested. Heading to the sidelines during market volatility greatly reduces your chances of long-term investment success.

The key phrase here is “long term.” If you are investing for the short term, market volatility is not your friend, and frankly, you probably shouldn’t be investing at all. Having a short-sighted view of the market causes many to abandon ship at the worst possible time and potentially end up buying high and selling low — the exact opposite of what you should be doing.

If you do have a lump-sum investment portfolio, don’t fear. You can still take advantage of market downturns by rebalancing your portfolio. What this means is that you move money out of the best-performing asset classes — whether they be stocks, bonds or Treasuries — and into the underperforming asset classes. This allows you to maintain your target asset allocation and helps you avoid being “overweighted” in an asset class that has performed well but may decline in the future. This is the essence of buying low and selling high.

Be the Tortoise

Although market downturns are no fun, they’re inevitable. The reason you have the potential to receive higher rates of return on your investments is because you take on the risk of losing money.

The best advice is to be the tortoise, not the hare. When you’re in the accumulation stage and building your nest egg, practice a slow and steady approach to investing. Stay the course, no matter what the markets are doing.

On the other hand, during the decumulation stage of your portfolio, you may need to minimize your exposure to equities to protect yourself from not having the money when you need it. Most importantly, during this stage, make sure your retirement income plan accounts for the inevitability of market downturns — and follow through on that plan.

I hope this gives you the confidence you need to stick to your investment plan no matter what is happening in the markets. If you don’t have a plan, start building one and set the goal of seeing it through.

For more financial planning tips, download my free report: “8 Steps to Organize and Optimize Your Financial Life”. Thanks for reading!

Top Money Posts: Week of March 7, 2016

· March 7, 2016 · College Planning, Financial Planning, Investing, Retirement, Uncategorized · , · No Comments

My Recent Posts on Nerdwallet’s ‘Ask an Advisor’

From Around the Web

  • Market downturns can have an adverse affect on a retirement income plan. Here are my tips for dealing with this inevitability.
  • Here’s a quick look  at your other options for college savings besides a 529 plan.
  • Retiring at 40 is a tough goal to achieve. Learn 5 lessons from people who actually pulled it off.

  • Many people have concerns about paying for traditional long-term care insurance policies since they may never use them. To combat these concerns, insurance companies have developed hybrid LTC policies that combine life insurance with long-term care. Are they right for you?

Great Resources

  • Need a simple and easy to use tool to help you keep track of your budget. Take a look at youneedabudget.com (YNAB). Great for people who love tech that can help improve their life!
  • Got taxes on your brain? The IRS has a pretty good YouTube channel. It’s particularly worth checking out their videos on ID theft.
  • Use our retirement Check-Up tool to see if you are on track with your retirement savings goals.

If you like this post, you might also like my FREE report: “8 Steps to Organize & Optimize Your Financial Life”. Check it out here!

Is There a Magic Number For Your Retirement Savings?

· March 2, 2016 · Financial Planning, Retirement, Uncategorized · · No Comments

Sorry to burst your bubble, but I don’t believe in the ‘magic number.’ Unfortunately, your wants and needs along with the unpredictability of life cause your ‘number’ to change over time. If you are not regularly assessing your financial situation, having a single number stuck in your head could be counter productive to your success.

So What Do I Do Now?

Instead of focusing on your ‘magic number’, I recommend building a solid retirement plan, setting a goal to save 10% -20% of what you make, invest your money, and regularly review and update that plan. In order to more accurately determine how much to set aside for retirement, you need to have a clear idea of how much you are spending annually to support your current lifestyle. Next, you will need to think through how those expenses may change in retirement. Will you move to a less expensive location? What about commuting expenses? How often will you need to purchase vehicles?  Once you’ve thought through those possibilities, or any others, you will want to think about the lifestyle you hope to have in retirement. Do you want to travel or are you a homebody? Do you want to join a club or take up a new hobby? Think about how much each of these activities may cost and work that into your plan.

What Else Should I Look At?

The next piece of the puzzle is to take a look at any guaranteed income you may have from Social Security, pensions, or annuities. The more guarantees you have the less you’ll need in savings to replace your income during retirement. Also, it’s a good idea to think about whether you will continue to do some type of work to assist in meeting your income needs. My final recommendation is to factor in your health. Are you relatively healthy or do you need to plan for additional medical costs during retirement?

Run the Numbers

Truthfully, the closer you get to retirement the more accurate your projections will be. However, when you are younger you can still work with approximations and run monte-carlo simulations on your numbers. Just be sure to revisit those numbers on a regular basis to account for changes in your income, spending habits, and lifestyle. As a rule of thumb, you will typically need to replace 70%-90% of your pre-retirement income to maintain your pre-retirement lifestyle. But, keep in mind, this is merely a rule of thumb. Your personal needs can vary depending on the factors I just discussed.

How much you’ll need for retirement is directly dependent on the lifestyle you envision. If you are willing to make some sacrifices or have enough guaranteed income you may not need to save as much. On the other hand, for most people, if you want to maintain your current lifestyle you’ll need to save and invest regularly and monitor and adjust your retirement plan on an on-going basis in order to create the retirement lifestyle of your dreams.

Want a quick assessment of where you stand for your retirement? You can use my Retirement Check-Up tool to see how you are doing right now and if you might need to make any adjustments to your plan.

For more financial planning tips download my free report: 8 Steps to Organize & Optimize Your Financial Life. It’s packed with helpful advice, useful tips and valuable resources.

To learn what I can do for you visit www.weiss-financial.com.

3 Mistakes That Leave You Vulnerable to Identity Theft & Tax Scams

· February 22, 2016 · Living Your Best Financial Life, Taxes · , , , , · One Comment

Despite all the media attention, tax scams along with Identity theft continue to plague the american public, especially during tax time. In fact, according to MarketWatch  the IRS  has seen a “400% increase in phishing and malware this tax season” compared to last season. So, what mistakes are you making that could potentially cause you to fall victim?

Mistake #1: Emailing Sensitive Information

The one is a HUGE problem, and the one I am most passionate about. Since email is so ubiquitous and simple to use most of us don’t think twice about sending our personal information to our accountants, financial planners, bankers, attorneys, etc. The problem is that most email is not encrypted and therefore not secure. Even services like dropbox are questionable when it comes to sharing documents containing your social security number, account information, etc, particularly if you are not using two-step verification. Don’t get me wrong, having free email and using a file sharing service like dropbox is great, just don’t use email for sending any information someone could potentially use to access your accounts or credit cards, open accounts in your name, or file a return to claim your refund! Also, be sure to add the extra layer of protection with dropbox if you plan to use it. If you need to send sensitive documents or information regularly, you should upgrade from free email and document sharing to a more robust, secure and encrypted solution. However, if you only occasionally need to send this type of information electronically, the person requesting the information should have their own solution in place for you to collaborate with them. For example, at Weiss Financial Group we use the Secure Client Website by eMoney and our affiliate company Weiss, Orro, & Stern uses SmartVault. Make use of these tools, because the more precautions you take the less chance you have of becoming the next victim of ID theft or fraud.

Mistake #2: Responding to a Phone Call From the IRS Saying You Owe Them Money

First off, the IRS will NEVER call your house if you aren’t already working with an agent. So, if you come home and you have a threatening message on your answering machine (do people still have those?) DO NOT call them back. If by some lapse of judgement you do call them back, DO NOT give them your Social Security number or other personal info, and NEVER give them money. It is a scam! Surprisingly, this scam keeps popping up every year, and every year people fall for it. My wife and I actually came home to one of these messages on our answering machine last year (ok, I admit, I still have an answering machine!). Obviously we did not call them back, however the message sounded authentic and was quite threatening. Want to hear a sample of one of these phony messages? Click here to watch a video I found on YouTube of an actual message left on someone’s cell phone. To see what the IRS says about all this, click here for a short video from the IRS regarding these scams along with some helpful scam prevention advice.

Mistake #3: Clicking on an email from the IRS or a Bank Requesting Personal Information

Clicking on emails from unknown sources exposes you to all sorts of bad things including a potential computer virus. So, as tempting as it is, train yourself not to open them! As I said before, the IRS will not call you at home, likewise they will not email you asking for sensitive information. Unfortunately, emails are quite easy to forge and fool you into thinking they are authentic. Just remember that the IRS will not send you a threatening email, so if you receive one don’t open it, and definitely do not hit reply.

I hope this gives you the ammo you need to protect yourself from making any of these mistakes. Be alert and be smart. If you have any questions, do not hesitate to reach out.

Source:

  1. This material was prepared, in part, by MarketingPro, Inc.

 

Top Money Posts: Week of February 15, 2016

· February 17, 2016 · College Planning, Financial Planning · · No Comments

College and Taxes seem to be on everyone’s mind this time of year so I figured I’d share a few articles on both topics worth checking out:

From Around the Web:

I’d love to hear from you! Feel free to post a comment in the “Leave a Reply” box below if you have thoughts or questions about any of the articles I’ve shared, or simply click the “Like” button.

You can also let me know if you are enjoying the content I am sharing and if there is anything in particular you’d like to read about or have me write about. My goal is to send you these round ups once a month and write at least one original piece of content per month. Thanks for reading!

 

How to Protect Your Loved One’s Financial Future

· February 8, 2016 · Financial Planning, Insurance Planning, Video · , , , · No Comments

Financial Planning Tip: February

As Valentine’s day approaches, we are thinking about the one’s we love and coming up with ways to show them we care. Once you have finished purchasing your cards, flowers and chocolates take some time this month to think about those people and whether you have appropriately planned for them. It may not be the most romantic thing to do, but now is a great time to sit down and determine if you have the proper insurance coverage to protect your loved one’s if you are not around to provide for them or if you become incapable.

To get started, ask yourself a few questions. Have your needs changed over the years? Did you get married? Did you have a child? Did you retire? Are you thinking about retirement? Have you taken on other financial responsibilities that would negatively affect the people you care about should you pass away too soon? The answers to these questions will help you figure out if you need to make some changes to your coverage. You should periodically evaluate your life insurance coverage, disability insurance coverage, and determine if long-term care insurance is appropriate. There are many resources online to help you get started. For example, to get a basic idea of how much life insurance coverage you may need, use this online calculator as a starting point. Thinking about your own demise is no fun at all, however with smart planning you will sleep better at night knowing you have taken the right steps to protect the one’s you love most.

Watch this video for even more tips:

If you would like to discuss your particular situation and how much insurance you may need to protect your family, feel free to contact me at sweiss@weiss-financial.com.

For more financial planning tips download my free report: 8 Steps to Organize & Optimize Your Financial Life. It’s packed with helpful advice, useful tips and valuable resources.

To learn what I can do for you visit www.weiss-financial.com.

How Big Should Your Emergency Fund Be?

· February 2, 2016 · Financial Planning, Spending & Saving · 2 Comments

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Having an emergency fund is essential to a successful financial plan. You won’t truly understand how important it is to your financial health until the day comes when you absolutely need it. So, how much do you actually need in your emergency fund?

Rule of Thumb

The basic rule of thumb has been 6 months of take home pay or 6 months basic living expenses. However, the problem with rules of thumb is that they don’t take into account the nuances of people’s lives. The size of your fund will depend on your personal situation and financial needs. Figuring this out is more art than science.

When I work with a client I actually do use a general rule of thumb as a starting point to determine how much they should have. I try to figure out if they should save 3, 6, 9, or 12 months basic living expenses or 3, 6, 9 or 12 months take home pay. What’s the difference? Well, for one thing saving for basic expenses may be a lot easier than saving for take home pay. However, saving only for basic expenses could mean a lifestyle change when you need to start tapping that fund. Whether you can make those changes is an important question you’ll need to ask yourself when building your fund.

Questions to Ask Yourself

Take some time to think about the list of questions below. The answers to these questions will help you figure out what your emergency fund goal should be:

  • How much do you take home in your paycheck every month?
  • What are your basic monthly expenses (i.e. groceries, mortgage, car payment, insurance, utilities, etc.)?
  • What are your extras every month (i.e. shopping, entertainment, dining, vacations, children’s activities, etc.)?
  • How much are your insurance deductibles?
  • Are you married or single?
  • Do you have anyone you are financially responsible for?
  • How secure is your job?
  • If you lost your job how difficult would it be to replace your income?
  • How long would it take for you to get another job?
  • Are you retired?

Now let’s take a look at my more broad rules of thumb and who they might be good for. Keep in mind, the examples I use below to illustrate a hypothetical emergency fund assume saving for basic living expenses. You will need to increase that amount if you want to save for take home pay.

The 3 Month Fund

In my opinion, this is the bare bones amount anyone should have in their emergency fund. When you are just starting to build a fund your goal should be to set aside 3 months of basic monthly expenses.

Who is this good for?

  • Anyone just starting to build an emergency fund (Having a small fund is better than having no fund at all!)
  • Someone in the early stages of their career
  • Someone who does not have any dependants or still lives at home

Example:

  • Monthly take home pay = $3,000
  • Monthly living expenses = $2,500
  • Emergency fund = $7,500

The 6 Month Fund

Once you’ve started to make some money and have responsibilities like auto payments, rent, student loans, etc. this should be your goal.

Who is this good for?

  • Anyone with financial responsibilities
  • A married couple with no children
  • Someone who many not have a mortgage

Example:

  • Monthly take home pay = $5,000
  • Monthly living expenses = $4,000
  • Emergency fund = $24,000

The 9 Month Fund

At this point in your financial life, you may be married, have children and have a mortgage. You have accumulated a good deal of financial responsibilities and a disruption in income will cause a significant lifestyle change.

Who is this good for?

  • Someone with a mortgage
  • A couple who have similar salaries
  • A married couple with children
  • Someone who feels they can land another job within 6 months of losing their current job

Example:

  • Monthly take home pay = $7,500
  • Monthly living expenses = $5,000
  • Emergency fund = $45,000

The 12 Month Fund

When your financial situation gets more complicated and your financial responsibilities have grown, you may need to consider this larger emergency fund.

Who is this good for?

  • A married couple with unequal incomes
  • Someone with a mortgage
  • Someone who is concerned it will take awhile to replace their income if they lost their job
  • A married couple with children
  • Someone who is fairly risk averse and knows they will sleep better at night if they have a large emergency fund

Example:

  • Monthly take home pay = $10,000
  • Monthly living expenses = $8,000
  • Emergency fund = $96,000

Bonus: The 24 Month Fund

This fund is reserved specifically for retirees. It covers a much longer time frame because the emergency fund serves a different function during retirement than it does during your working years. If you are taking systematic withdrawals from your investment accounts to fund your retirement, you should have at least 24 months of basic living expenses set aside to use during market downturns. This money should be in safe and highly liquid investments like traditional savings accounts, CD’s, money market accounts or money market mutual funds.

Who is this good for?

  • Retirees taking systematic withdrawals from investment accounts
  • Retirees not wanting to make lifestyle changes during market downturns
  • Retirees not wanting to reduce their withdrawals during market downturns

Example

  • Monthly withdrawal from investments = $2,000
  • Emergency fund = $48,000

5 Important Things to Remember

  1. Never invest your emergency fund in equities
  2. Always keep the money for your emergency fund in safe, highly liquid investments like traditional savings accounts, CD’s, money market accounts or money market mutual funds.
  3. If you deplete your fund, make it a priority to build it back up
  4. To assist in building your emergency fund, set up a separate, designated savings account and have automatic transfers deposited into that account
  5. Avoid using a line of credit as your emergency fund

As you have seen, there is no one right way to build an emergency fund. I’ve illustrated what I believe to be a prudent approach and provided a sample of possible solutions. As such, I tend to be fairly conservative and risk averse in my recommendations as far as emergency funds are concerned. To determine your ideal emergency fund, I encourage you to honestly answer the questions above and closely examine your personal financial situation. What is good for you may not be the same as what is good for someone else.

To learn what I can do for you visit www.weiss-financial.com.

Keep Calm and Invest On

· January 26, 2016 · Investing · , , · No Comments

No doubt, there has been a great deal of drama on Wall Street lately. However, long-term investors need to stay focused on their objectives and try to avoid being influenced by their emotions. That being said, money you need soon should not be invested in the stock market. It’s too risky to expose that money to market fluctuations. If you do, the money may not be there when you need it. Instead, look for safer alternatives to park money for short-term goals and keep your long-term money invested appropriately for your risk tolerance, time-horizon and goals.

Retirees, on the other hand, may have a more challenging issue to deal with when they continue to withdraw money from their portfolio during downturns. If staying the course isn’t an option, consider reducing your withdrawals. This forbes article, 5 tips To Survive Stock Market Volatility in Retirement, gives great advice to retirees for dealing with this potential problem.

To provide additional perspective on the recent stock market volatility, here are some thoughts and smart advice from Bob Veres, owner of Inside Information and former Editor of Financial Planning Magazine:

Since 1950, the U.S. markets have experienced a decline of between 5% and 10% (the territory we’re in already) in 35.5% of all calendar years—which is another way of saying that this recent drawdown is entirely normal. One in five years (22.6%) have experienced drawdowns of 10-15%, and 17.7% of our last 56 stock market years have seen downturns, at some point in the year, above 20%.

For long-term investors, the result is much the same as if you went to the grocery store and discovered that the prices had fallen roughly 5% across the board. At first, you might think this is a great bargain. But then you might wonder whether the prices will be even lower tomorrow or next week. One thing you probably WOULDN’T worry about is whether prices will eventually go back up; you know they always have in the past after these sale events expire.

Will they? The truth is, nobody knows—and if you see pundits on TV say with certainty that they know where the markets are going, your first impulse should be to laugh, and your second should be to check their track record for predicting the future. Without a working crystal ball, it’s hard to know whether the markets are entering a correction phase which will make stocks even cheaper to buy, or whether people will wake up and realize that they don’t have to share the panic of Chinese investors on this side of the ocean. The good news is there appears to be no major economic disruption like the Wall Street derivatives mess that triggered the 2008 downturn. The best, sanest investors will once again watch the markets for entertainment purposes—or just change the channel.

Sources:

http://finance.yahoo.com/news/why-the-heck-are-the-markets-tanking-165146322.html

http://www.ft.com/intl/cms/s/0/f248931e-b4e5-11e5-8358-9a82b43f6b2f.html#axzz3wc533ghn

4 Options for Your 401(k) When You Leave Your Job

· January 23, 2016 · Investing, Retirement · , , , , · One Comment

The days of staying at the same job your entire working life are pretty much over. Also gone are the days when your company would finance your retirement with a comfortable pension. That responsibility now falls squarely on you. Subsequently, your 401(k) is a great way to build your retirement war chest.
So, what is the smartest thing to do with the money in that 401(k) when you leave for the next big thing, get laid off, or retire? You basically have four options. The best one for you will depend on your situation and your objectives.

OPTION 1: Take a Lump Sum Distribution

With this option the company closes your account and sends you a check for whatever you’ve accumulated minus taxes. You will be taxed at ordinary income tax rates and could potentially be bumped into the next tax bracket if the distribution is large enough. Also, if you are under age 59 1/2, you may be subject to a 10% early distribution penalty.

Who could this option be good for?

  • Someone who got laid off and really needs the money. They understand the tax ramifications but there is really no other option to keep the lights on until they find a new job. As a side note, this is a good reason to build an emergency fund.
  • If you have accumulated very little money (i.e. a few hundred dollars or so) because you just started contributing to your 401(k) and feel the hassle of selecting another option is not worth it, then you could take the distribution. It’s not the best thing to do, but it won’t really hurt you.

OPTION 2: Leave the Money Where it is

This option is self explanatory. You just leave the money within the existing 401(k) plan at your previous employer. There is a comfort factor here; you know the plan, most likely know how to use the online access, are familiar with their customer service and know the investment options inside the plan. The downside is that you can no longer add money to this plan, get the company match, or possibly take loans if needed. You are also limited to the investment options offered by the plan which could be good or bad depending on the quality of the investments offered inside the plan. Also, keep an eye on expenses. They can vary significantly from plan to plan. In some cases you may be getting a better deal on the mutual funds inside the plan, but in other cases you may pay more for those same funds outside the plan. Be sure to review the plan documents. One final note about leaving your 401(k) with your old employer. Over the years, if you don’t stay on top of things, you can easily accumulate several retirement accounts spread among your previous employers. For many people, it can be confusing to keep track of everything which could, ultimately, be detrimental to your wealth.

Who could this option be good for?

  • If you are age 55 or older and need to begin taking distributions from your 401(k) for retirement, this might be a good option for you. In an IRA, you must wait until age 59 1/2 to take a distribution without incurring the extra 10% early distribution penalty. But, with a 401(k), if you leave your job the year you turn age 55 or later, the IRS will allow you to begin withdrawals without incurring the extra penalty. (Here are the IRS rules)
  • If you land another job, like your new employer’s 401(k) and want to roll your money into the new plan, then leave your money in your old 401(k) until you can make the transfer. There is no need to roll it over to an IRA for a short period of time and roll it over again several months later.
  • If you just really like your old employer’s 401(k) plan and are a do-it-yourself-er who will keep track of the money, perform the necessary re-balancing and periodically review the investments, leave it there.

OPTION 3: Roll your old 401(k) into your new 401(k)

If your new employer’s plan allows it, you can roll your old 401(k) over into your new 401(k). Doing this will help keep all your 401(k) assets together and make it simpler to manage your entire retirement portfolio. Keep in mind, your money will now be subject to the rules and regulations of the new plan and can only be invested in the options available inside the new plan. However, there is a lot to be said for keeping things simple. One other potential benefit is that your money will be available for plan loans if needed.

Who could this option be good for?

  • This is a good option for staying organized. Having all your money in one account is much easier to keep track of.
  • This is also a good option for the do-it-yourself-er who stays on top of their investments and regularly re-balances their portfolio
  • If you are in a situation where it maybe necessary to to take a loan from your 401(k), then rolling your money into the new plan is an option. Although I do not recommend 401(k) loans, sometimes they may be the only option. The important thing to be aware of when taking a 401(k) loan is that when you leave the company the loan needs to be paid back in full or the balance of the loan will be treated as a distribution and taxed accordingly.
  • If you have serious debt concerns, keeping your money in a 401(k) rather than rolling it over into an IRA may be the better option. Some states offer greater creditor protection for a 401(k) then they do for an IRA.
  • If you will be working into your 70’s and do not yet want to begin withdrawing money, then keeping your money in a 401(k) is better than an IRA rollover. With an IRA you must take Required Minimum Distributions (RMDs) at age 70 1/2. Not so with a 401(k), as long as you are still working at the company maintaining the plan.

OPTION 4: Roll your old 401(k) into an IRA

The final option is to roll your old 401(k) into an IRA. Typically what happens is you open an IRA account and instruct your old employer to transfer the money directly into your IRA. Sometimes, however, your company will send a check directly to you which must be deposited into your IRA within 60 days or be subject to taxes at ordinary rates and possibly the 10% early withdrawal penalty (Here are the IRS Rules). One big benefit of rolling your 401(k) over into an IRA is that you will have more investment options.

Who could this option be good for?

  • Great for someone who changes jobs a lot. You can have one account that you roll your old 401(k) accounts into as your situation changes.
  • If you plan to work with a fiduciary advisor to help you manage your investments, this may be the best option.
  • If you are heading into retirement and want assistance creating a retirement income plan, an IRA rollover could be a good option for you.
  • If you are a do-it-yourself-er, this might be a good option.
  • If you need to pay for college, you may be able to withdraw money from your IRA and not incur the 10% penalty. You don’t have the ability to do this with a 401(k). You will, however, need to pay ordinary income tax on the withdrawal. In most cases, I do not recommend using IRA money to pay for college, however, it is a potential benefit of an IRA.
  • If you are a first time home-buyer you can take $10,000 out of an IRA for a down payment without incurring the 10% early withdrawal penalty. Taxes at ordinary income tax rates will still apply.
So, those are your four options. What’s best for you will depend on your situation and the type of assistance you want managing your money. For me, I always rolled over my old 401(k) accounts into an IRA. I prefer keeping my retirement assets together, manage my own money, and do not like being restricted by the investment options inside a 401(k).

For more financial planning tips download my free report: 8 Steps to Organize & Optimize Your Financial Life. It’s packed with helpful advice, useful tips and valuable resources.

To learn what I can do for you visit www.weiss-financial.com.

Top Money Posts: Week of January 18, 2016

· January 19, 2016 · College Planning, Investing · , , , , · No Comments

Here are some articles I recommend checking out. I’ve also mixed in a few good one’s I shared previously in case you missed them.

From around the web:

  • With Powerball having reached record territory last week, I was asked by several friends (and my wife) what to do if they won all that money. For most of the people I work with, I’d give the same advice found in this NY Times piece that taking the annuity option is the best choice. However, this Money Magazine post makes a good counter argument for taking the lump sum. Wired magazine took an entirely different (and more fun) approach to answering this question with “How to Spend Your Powerball Winnings Like a Baller.” Regardless, even though it would have been great to be the winner, I agree with the Notorious B.I.G: “Mo Money, Mo Problems.”
  • The other big news has been the recent volatility in the stock market. Paul R. La Monica at CNNMoney.com says investors are overreacting. Nevertheless, it can be gut wrenching to watch the drops. Unfortunately, short term losses are the price we pay for the potential of long-term gains. If you need your money soon (12 months or less), you should avoid investing in the stock market.
  • As tax season approaches, tax scams will inevitably increase. Here are 7 Ways to Keep Your Tax Refund Safe From Thieves.
  • Microsoft has ended support for older versions of Explorer. Make sure you update your browser to help minimize the potential for viruses.
  • With high school seniors receiving acceptance letters over the past few weeks, many will need to take out student loans to pay for their dream college. But, how much is too much when it comes to taking out student loan debt?