Add to your nest egg!

Have you made your 2010 Roth IRA contribution?

If you have not yet made the maximum contribution, and are eligible to make contributions, you still have time!

Tax payers have until April 18^th of 2011 to make their Roth contributions for the 2010 tax year.  If you are within the income limitations to make contributions, a Roth IRA is an excellent investment account as investment growth is tax deferred and withdrawals in retirement can be tax free.

For 2010, single filers are able to fund their Roth IRAs with 100% of the contribution limits if their income is below $105,000.  Their amount of contribution availability drops if they are above the $105,000 and are phased out completely at $120,000.  For Married Filing Joint taxpayers, income restraints begin at $166,000 and end at $176,000.

Looking forward for 2011 contributions, contribution limits for this year have stayed the same as 2010.  This includes the limits for the Roth and Traditional IRAs and the majority of employer sponsored plans such as 401ks and 403bs. A very good practice is to contribute enough of your salary to receive at least the employer match.  Also, pay raises often present an easy opportunity to increase your deferral, while reducing your adjusted gross income.

The contribution limits for nearly all types of retirement plans are listed in the following chart:

Our wealth management service monitors your income and determines every year how much you should be contributing to each of these investment accounts.  It also reviews your income tax and estate picture, which may provide opportunities for tax savings.  If you are interested in this service, please contact us.

Photo credit: Scott Willis.

Many of our newer clients have come to us with old 401(k), 403(b), 457 and Simple IRA accounts from previous employers.  Some even have multiple IRA accounts, often from past rollover situations.  It’s important to have qualified professionals to help you decide on what to do with your inactive qualified plan and multiple IRA accounts.  Whether you are changing jobs, entering retirement or simply wanting to consolidate your accounts, we can help you with each step of the rollover process.

Should you always Rollover a 401k?

There are a few options for dealing with an inactive qualified plan including:

• Rollover the account into a self-directed IRA account, such as a traditional IRA.
• Rollover the account into a new employer-sponsored plan, if allowed under your current plan’s rules.
• Rollover the account into a self-directed IRA account, then convert all or a portion of the funds to a Roth IRA account (after careful tax analysis).
• Leave the account at the current custodian and bring your investment options in line with a comprehensive portfolio strategy.

Despite popular belief, it is not always best to rollover an old employer plan.  Certain custodians offer favorable investment options or have special tax provisions (the North Carolina employees’ Bailey provision, for example), meaning  it could benefit you to leave your account at the current institution rather than combining the funds into another account.

We have experience in dealing with many different custodians when it comes to the rollover process.  For our investment management clients, part of our service is to request and complete paperwork while monitoring the rollover process.  If you are interested in combining inactive qualified accounts, please feel free to contact us.  Your advisor will research the best approach for your individual situation and determine if a rollover is the best choice for you.  If it is, we’ll get the process started as soon as possible.

Not yet a client and unsure if a rollover is right for you? Contact us to schedule an appointment to review your financial picture and develop a plan that will help provide the answer.

Finding the motivation to save can be just as difficult as motivating yourself to diet and exercise. In both cases you know the outcome will be worthwhile — financial security and better health. However, taking the steps to get there is easier said than done.

If you have ever watched the show “The Biggest Loser,” you have probably heard the trainers say that being fit is not about dieting, but about making lifestyle changes that you can stick with over time. As the contestants participate in the challenge, their health gradually improves and their motivation to continue a healthy lifestyle typically increases. The hardest part is usually getting started.

The same is true with saving. While difficult at first, adopting a scheduled savings strategy and making budgeting part of your routine will increase your odds of achieving your financial goals. Identifying those goals is the first step to finding that motivation, so spend some time thinking about what you want your money to do for you. Maybe you are saving for a family vacation, your children’s education, retirement, or all of the above. Make a list prioritizing each goal and put time frames on them.

Next, work on identifying those triggers that keep you from saving money. Just as having chips and cookies in the house can derail your healthy lifestyle, so can mail order catalogs on your coffee table or even a clear view of your neighbor’s new BMW. Toss those catalogues in the recycle bin, put a limit on your Amazon or eBay habit, and start planning a savings strategy.

One of the best ways to stick to your financially fit goals is to make savings automatic. Hopefully you are already deferring money from every paycheck to your 401k. Think about increasing your deferral to put more toward your retirement goal. Then find other savings you can make automatic. Maybe you can set up a monthly transfer into your savings account, Roth IRA, or your child’s 529 plan. This strategy takes some of the work out of saving and automatically curbs spending, as your checking account appears less flush each month.

Lastly, remember that you are not alone. You probably have friends and neighbors who are also trying to stick to a financially fit lifestyle. Work together on finding low cost activities to do, and exchange tips and tricks along the way. You may also want to consider using a professional. A financial planner can help you develop a strategy specific to your needs in the same way a personal trainer can recommend the best exercises for your health and fitness goals. You can seek out a fee-only financial planner at napfa.org.