Archive for 401K

Ways to Protect Your 401k Nest Egg

The current stock market volatility has placed many people into a frozen state. They look at their 401k balance daily and wonder if their lifetime savings will be decimated like in 2009. There has not been a 20% market correction since 2009. Normally, there is a correction of this magnitude every 3 years, so we are very overdue. You could take your 401k money and move it all to cash, but, you will miss any upside in the market. Keep it in the market and you can lose 40 – 50%.
For many of our clients we have been using a special program with one of our private money managers, Howard Capital Management. It is designed specifically for 401k plans. Their trade name for the program is: “401k Optimizer”. The program can work with any 401k plan. After a short risk quiz you will be instructed as to how to spread your monies among your plan’s various funds. Then, at least on a quarterly basis (or more if market conditions warrant), you will be sent an email to change your asset mix. In some cases they may tell you to move totally into cash, or, totally into market.

You must make the email instructed changes in your 401k since Howard Capital cannot. Typically, you will have up to 48 hours to make the changes after the signal from Howard Capital in order to benefit from the service. The program was very successful in the 2000 and 2009 meltdowns. The cost for the program is $79 per year… total!! If you want to subscribe or learn more about the program go to Once at the home page simply click the button at the top “Individual Investor” and hit “sign up”. Choose “standard subscription” by clicking “sign up now” and complete the personal information. Should you desire to save 10% on the annual fee simply enter coupon code HCM5152 at the bottom of the information sheet.

(I do not receive any compensation from this program). If you would like additional information or to talk with me personally about this, you may call our office Founder’s Group at 713-871-5919, or email:
(This is not an offer to buy or sell any securities and is strictly for educational information).

One thought of advice…Don’t close the barn door after the horse leaves, namely, make your decision to protect your 401k now before the next correction.

Obama Attacks 401(k)’s/IRA’s Again

Obama in his latest budget again has presented a requirement that your 401(k)/IRA monies be invested only into Government T-Bills and Bonds. Remember his “Executive Action” pen has been very hot as of late with no reason to cool it down. Since Congress is now a Republican Controlled House and Senate, and his inability to compromise on anything, watch out.

To people that I have spoken to about this their whole reaction is, “Well, if he does this I will just pull all of my money out and do something else.” Be careful! Included in his plan is a 100%, yes, 100% early withdrawal penalty. So the “king” will get hold of your money one way or the other.

I am baffled as there have been countless articles and links to my webinars about far better alternatives to 401(k)/IRA plans yet people continue to “follow the crowd” into destructive retirement behavior. You need to be educated now. Do not wait. Remember procrastination is the number one reason for financial failure! Contact us immediately at (713) 871-5919 and we will begin to enlighten you on a better approach to retirement that is away from the clutches of Government. Do not be guilty of closing the barn door after the horse leaves.

For those that think they are going to beat the 100% penalty tax by withdrawing now – be careful. All recent legislation has been effective back to the date it was proposed and NOT the day it was signed. Yikes!

Now for those that choose doing the “same old – same old” and parade up to the executioner’s platform here are the retirement plan limits for 2015:

Contributions for 401(k), 403(b) & 457 plans . . . . . . . . . . . . up to $18,000 per year
Those 50 years & older can catch up contributions . . . . . . . $6,000 per year
Phase out deductions for those contributing
to IRAs and already covered by work place
retirement plans are tax payers with MAGI of . . . . . . . . . . . .$61,000-$71,000

Why waste time with these programs when there are better alternatives with no limits on contributions and deductibility.

401k Choices

When one retires or leaves a company the question of what to do with the 401k arises. Most people are unaware that there are six basic options available. You must get competent help on which is best for you otherwise it can be extremely costly.

Here are the six basic choices without any explanation (I leave that to you to investigate or to discuss with your Certified Financial Planner).

    (1) An IRA Rollover
    (2) Leave it at the company plan
    (3) Roll it to a new company plan
    (4) Take a lump sum distribution
    (5) Make a Roth conversion
    (6) Make an in plan Roth conversion

How many did you know?

There are many things to think about. Here are just a few:

    (1) Do you want to minimize your taxes from the plan?
    (2) How will the withdrawal affect the taxation of your Social Security?
    (3) How will you be taxed if you move from a state with income taxes to one that does not have taxes, or, vice versa?
    (4) If you keep your money in the employer’s current plan or roll to a new company plan it is creditor protected, most other options are not creditor protected. Better do some homework to see what creditor protection is in your state.
    (5) Do you have highly appreciated company stock in your plan? If you do a rollover to an IRA you will lose the “net unrealized appreciation” tax break.

It is not just a discussion to roll over or not rollover. The actions must fall in line with your comprehensive financial plan that you have drafted.


IRA Minefield

Those that still own IRA plans (or 401(k)’s that will someday become IRAs) beware; there are multiple rules and exceptions that will result in unnecessary taxes for you! [For the record I have never owned, nor ever will own an IRA or 401(k) plan. There are far better alternatives].

Too many people think the rules for withdrawal are simple and basic. The rules for withdrawal fill volumes of the tax code.

Here are just 6 rules where people end up paying excessive taxes:

    (1) Failing to withdraw the required minimum distribution (RMD). Once the owner becomes 70 ½, distributions MUST begin whether you need it or not. If you do not take the amount annually under the government rules you will be taxed at the regular rate, PLUS a 50% penalty rate for the amount you did not take out (unfortunately, poor planning in conjunction with your social security payments can make each new dollar of IRA withdrawal turn into $1.85 of taxable income!!!)

    (2) Unnecessary acceleration of IRA distributions: Usually happens when a qualified beneficiary inherits an IRA and takes money out based on the age of the decedent instead of the beneficiary’s age.

    (3) Missed 60 day rollover
    This happens when one withdrawals from their IRA and then does NOT recontribute the distribution within 60 days. The entire distribution will be subject to income tax and possible penalty tax. (Always do a trustee to trustee rollover to avoid this trap.)

    (4) Improper titling of an IRA:
    If a beneficiary (other than surviving spouse) rolls a decedent’s IRA into their own IRA, then, that rollover will be treated as excess contribution and subject to a 6% penalty tax, plus regular tax. Avoid this be setting up a separate IRA with correct titling… “For the benefit of”.

    (5) Naming an estate as an IRA beneficiary:
    If you do this then monies must be distributed (and taxed) quicker than if a qualified beneficiary had been named (i.e. spouse, child, etc.).

    (6) Spousal Rollover Trap
    A surviving spouse has the option to roll the inherited IRA to their own IRA or establishing an inherited IRA. If surviving spouse is younger…then an inherited IRA may be best.

These are just a few rules and the remaining rules are even more confusing. We have worked for over 40 years in helping people legally move monies out of their IRA’s without any tax into better alternatives. Contact us if you want to learn about these strategies.


Not all Roth’s are created equal

Roth IRAs and Roth 401(k) plans although similar in nature are not the same. Many higher income people are not allowed to fund a Roth IRA. They can contribute via a company sponsored Roth 401(k).

There are differences in the way contributions and distributions are handled.

    • Both Roth IRA and 401(k) plans require a 5 year holding period before withdrawals can be made without penalty.

    • Roth 401(k) distributions must be held for the 5 years and AFTER age 59 ½ before a qualified distribution can be made.

    • Unlike a IRA conversion to a Roth IRA…if you convert a 401(k) to a Roth 401(k)…you can NOT later change your mind and redo the conversion. For instance, if you find you cannot come up with the tax due…you cannot change back.

    • Both Roth IRA and Roth 401(k) require, in a conversion, that you pay the tax from outside funds to be a tax free exchange. If you pay taxes from the conversion plan…it will be deemed a premature distribution and be subject to regular and penalty taxes.

    • Roth 401(k) plans ARE subject to RMD rules; Roth IRAs are not subject to RMD rules. Roth 401(k)s act like regular 401(k)s at age 70 ½.

    • You can rollover your Roth 401(k) to a Roth IRA to avoid RMD rules…but…

    (1) Creditor protection is not as strong in a Roth IRA as in a Roth 401(k)

    (2) If you roll your Roth 401(k) to a Roth IRA…the 5 year rule starts again. (Time in the Roth 401(k) does not count at rollover.)

    (3) If you already have a Roth IRA and roll the Roth 401(k) into it…then, the 5 year rule applies to when you originally started the Roth IRA.

As always, get help from a professional before doing anything in the financial area. Ah yes…discipline or regret!