It is that time of year again, tax season. The following article is about some investment strategies to help minimize the tax implications during retirement.  Read on to find out how.

How To Minimize Taxes On Your Retirement Income

To view the entire article, please visit forbes.com.

Nobody likes paying taxes. But what can be a mere annoyance while you’re working can be a major headache when you retire. That’s because taxes are generally the biggest expense in retirement and retirees often need every penny of income to make ends meet while leaving enough of a nest egg to ensure that they’re income will last as long as they will. Along those lines, we recently received a couple of questions about how to structure retirement income in order to minimize taxes in retirement. Here are some things to consider:

Location, Location, Location

No, I’m not referring to moving to a lower tax area (although that would help a lot too). I’m talking about the location of your investments. If you’re like most investors, you’ve probably made investment decisions about each of your accounts (employer’s retirement plan, Roth IRA, rollover IRA, and taxable accounts) independently.

The problem with this is that not all investments are taxed alike. Since cash and bonds are taxed at ordinary income rates, you’ll want to shield them from taxes in your retirement plans the most. Next would be mutual funds with a high turnover since stocks held for less than a year are also taxed at ordinary income rates. If you have gold or any other “collectibles,” they’re next since they’re taxed at a 28% rate.

If the lower tax on qualified dividends expires on schedule at the end of the year, you’ll want to shelter high-yield stocks and stock funds too. Since stocks held for more than a year are taxed at lower capital gains rates, individual stocks and low turnover mutual funds like index funds would be a lower priority for retirement accounts. Coming in last would be international stocks and funds since having them in retirement accounts disqualifies you from using the foreign tax credit to help offset taxes withheld overseas. The volatility of the last two groups also make them good candidates for a taxable account since you can sell them and write the losses off your taxes as long as you don’t repurchase a similar investment within 30 days of the sale.

However, don’t let the tax tail wag the dog by letting the size of your accounts determine your asset allocation. For example, if you have $300k in retirement accounts and $100k in taxable investments, this doesn’t mean you should have $300k in cash and bonds and $100k in stocks. Instead, start with the appropriate asset allocation based on your time horizon and risk tolerance. Then place them in your retirement accounts, starting with the most tax-inefficient investments. Let’s say your portfolio should be $240k in stocks and $160k in bonds. You’d start by placing the $160k of bonds in your retirement account, which allows you to invest the other $140k in your retirement account in stocks (starting with the highest turnover funds) as well as the $100k in the taxable account.

Do you have company stock in your 401(k)?

Before you start selling the stocks in your 401(k), there is a special rule to be aware of that allows you to pay the lower capital gains rate on the growth of your employer stock in your 401(k). (You still have to pay tax at regular rates on the total cost of that stock.) The key is that you have to take that stock out as an “in-kind distribution,” which basically means that you move it directly into a brokerage account instead of selling it first as most 401(k) distributions are done.  You also forfeit this option if you roll it into an IRA.

How young are you?

Speaking of IRAs, the next question might be whether to withdraw first from your IRAs, your 401(k), or your taxable account. The first timing factor is your age. If you retire in the year you turn 55 or later, you can take withdrawals immediately from your 401(k) without a penalty, but you’ll have to wait until age 59 1/2 to make penalty-free withdrawals from your IRAs (unless you take substantially equal periodic payments until the later of 5 years or when you turn 59 1/2). Keep in mind that you can always withdraw anything from your taxable accounts and the contributions from your Roth IRAs without penalty at any time and for any reason. Finally, when you turn 65, you can also access any HSAs you have for any purpose without penalty (although HSA distributions are subject to ordinary income tax if not used to pay for qualified medical expenses).

Will your tax rates be going up or down?

The second timing factor is whether you see your tax rates going higher or lower in the future. For example, if you think the lower capital gains rate will expire at the end of the year, it could be a good time to take some gains out of the taxable account. If you’re more worried about higher income tax rates, take withdrawals from your pre-tax accounts or consider converting them into Roths, which means you pay the tax now at the relatively lower rate instead of at the higher future rates. Just be aware that you may need to spread those Roth conversions over more than one year so they don’t push you into a higher tax bracket and thus defeat the whole purpose.

Another reason to take withdrawals from your pre-tax IRAs and 401(k) accounts first is if you’re retiring early and haven’t started collecting Social Security yet. That’s because future withdrawals from these accounts could cause more of your Social Security to be subject to taxes and push you into a higher tax bracket. In this scenario, it could make sense to reserve the taxable accounts and nontaxable Roth IRAs for when you’re taking Social Security since they won’t have the same effect.

The reverse would be true if you’re receiving income from part-time work or a side business for the first part of your retirement. In that case, withdrawals from taxable accounts and Roth IRAs could be preferable since your tax bracket is likely to be higher than when you eventually stop working. Between the two, you’ll want to tap the taxable account first and let your Roth IRA continue growing tax free.

The Bottom Line

Unfortunately, there’s no way to eliminate taxes altogether, but you can use some of these strategies to minimize their impact on your retirement income. You can do this yourself or hire a financial professional who does proactive tax planning rather than just tax preparation. Either way, I hope these techniques can make this time of year a little less taxing for you in retirement.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

While we are in the midst of the tax season, it is always nice to learn of ways to maximize tax benefits. The following article describes ways you can maximize the tax benefits from contributing to an IRA.

How to Maximize the Tax Benefits of 401(k)s and IRAs

By David Ning

To view the entire article, please visit money.usnews.com.

Tax tips are always abundant this time of year. But it often takes a lot of precious time to figure out how to squeeze a bit more money out of Uncle Sam’s share. Instead, aim to take maximum advantage of one of the biggest and most common tax breaks: tax-advantaged retirement accounts. Here are a few ways to keep more of your hard-earned money for your retirement:

Maximize tax-deferred accounts each year. A Government Accountability Office report found that only about 5 percent of 401(k) participants contribute up to the limit. But many people ought to think about being more aggressive with their 401(k) and IRA contributions because tax-deferred growth is a great deal. The exact benefit will depend on the types of investments you choose within your tax-advantaged accounts. Over time, the money you are not paying in taxes each year will add up to a significant portion of your nest egg. So don’t miss out on the chance to contribute the maximum amount each year.

In fact, you can still max out contributions for tax-year 2012 if you haven’t done so already. The deadline to contribute to an IRA is not the end of the calendar year, but actually your tax filing date. For tax-year 2012, the deadline is April 15, 2013. So there is still time to claim this tax break.

And if you’ve already contributed the maximum for 2012, you should still try to maximize your accounts as early in 2013 as possible. After all, markets go up over time, and you want the tax-deferred growth to benefit you for as long as possible. Sure, there’s always the chance that the market will drop the second you contribute, but you will come out ahead on average if you always contribute early every year.

Get to know the matching rules for your 401(k). Some 401(k) plans won’t give you the full employer match if you don’t make contributions in every pay period throughout the year due to the formula they use to calculate the employer matching contribution. The details vary with each employer, but it’s best to work with the plan administrator to make sure you are going to get the full match if you front load your contributions. Otherwise, it’s probably best to stick with the strategy that guarantees the full match that is promised.

Consider a Roth IRA, even if you think your income tax rate will come down in future years. There are no mandatory minimum distributions for the Roth IRA while the owner is alive, which means more of the money can remain in a tax-free state longer. Depending on how long you live, the benefits of getting that money into a forever tax-free account can far outweigh the taxes you have to pay now.

Remember that IRA contribution limits are in addition to the 401(k) limits. Even if you don’t qualify for a Roth IRA due to making too much money, there’s a “back-door” way to make Roth contributions and enjoy the tax-free growth. You can contribute up to $5,500 (or $6,500 for those age 50 or older) to a non-deductible traditional IRA in 2013, and then immediately convert that amount to a Roth IRA.

Check out other tax-deferred options. I-bonds, EE savings bonds and 529 plans are all good candidates for those who want to keep more money working for them instead of Uncle Sam. Just make sure you understand what you are getting into before you shove a bunch of money into these types of investments.

This is a great time of year to be thinking about minimizing your taxes. But remember that tax tips may help you one time, but the tax-advantaged growth these retirement vehicles give you could benefit you for years to come.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

We all have heard that we should open up an IRA account and start preparing for retirement. But one has to ask, which IRA is best suited for them personally? Read the following article to learn more about the advantages of opening up an IRA.

Retirement: IRA Investment Advantages

To view the entire article please visit money.cnn.com.

As with a 401(k), you don’t pay taxes each year on capital gains, dividends, and other distributions from securities held in your IRA. Beyond that, there are different tax advantages, depending on which type of IRA you open.

There are two types: a traditional IRA offers tax-deferred growth, meaning you pay taxes on your investment gains only when you make withdrawals in retirement, and, if you qualify, your contributions may be deductible.

A Roth IRA, by contrast, doesn’t allow for deductible contributions but offers tax-free growth, meaning you owe no tax when you make withdrawals in retirement.

A traditional IRA comes in two flavors: deductible and nondeductible. To see if you qualify for a deductible IRA, which lets you deduct all or part of your contributions from your taxable income, use the following guidelines:

• If you have no retirement plan at work and you’re under 70-1/2, you can invest in a deductible IRA and deduct the entire amount from your taxes.
• If you have a 401(k) or other retirement plan at work, you may fully or partially deduct your contribution only if your adjusted gross income (AGI) qualifies. The deductions are phased out entirely for singles earning over $69,000 or couples earning over $115,000.
• If you’re not covered by a retirement plan, but your spouse is, you may qualify for a full or partial deduction if you file jointly and your AGI is below $188,000 for the 2013 tax year. (The same rule applies if you’re a non-working spouse of someone covered by a retirement plan at work.)

If you’re not eligible to contribute to a deductible IRA, you may be eligible to contribute to a Roth IRA if your AGI is below $127,000 if you’re single or $188,000 if you’re married and filing jointly. If you are above age 50, the maximum IRA contribution limit for 2013 is $6,500; otherwise, the max is $5,500.

If you make too much to qualify for a Roth IRA and are not eligible for a deductible IRA, a nondeductible IRA is a valid option. Your contribution won’t be deductible, but at least your savings will grow tax-deferred.

So which IRA is best for you? The nondeductible is the least attractive, so open one only if you don’t qualify for the other two. If you have a traditional IRA, you may want to consider converting it to a Roth in 2013, especially if you made non-deductible contributions.

The choice between a deductible and a Roth is more difficult, but generally you’re better off in a Roth if you expect to be in a higher tax bracket when you retire.

Plus, the Roth offers more flexibility: You are not required to make mandatory withdrawals from your account when you turn 70 1/2 — as you are with other IRAs — making the Roth a great way to leave money to your heirs.

Further, if you need the money before retirement, there are more opportunities for penalty-free withdrawals.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

The following article discusses three more tips for a better retirement. These tips apply for this year, 2013. Read on to see how these tips can best help you and your financial situation.

The 3 Best Retirement Tips Of 2013

Please visit forbes.com to view the entire article.

Retirement planning should be on everyone’s mind, whether you are a baby boomer reaching the end of your working life or a 20-something just starting out. One of the smartest financial advisors gives us her take on how to do this: Manisha Thakor is the CEO and founder of Money Zen Management in Santa Fe, N.M. – an independent boutique advisory firm focusing on the needs of high net worth women and families. Her suggestions:

As we ease into the New Year, we also welcome some changes that make it easier to retire with a solid nest egg.

Here are three simple steps that you can take in 2013 to maximize your retirement savings.

1) Take advantage of higher workplace retirement plan contribution limits.

In 2013, you are allowed to contribute $500 more to 401(k) and 403(b) plans than in 2012, bringing your total maximum possible annual contribution to $17,500, if you are under 50 years old.

Doesn’t sound like a big deal? If you are 25 and you save an extra $500 annually until you are 70, that extra $500 a year is worth $142,000, assuming an average annual return of 7% over that time.

If you are over 50, the government allows you to contribute even more. You can save an extra $5,500 on top of the new $17,500 limits, bringing your maximum annual workplace contribution to $23,000. The over-50 limit stays the same for 2013. This extra contribution applies to federal employees’ Thrift Savings Plans – as well as to private-sector 401(k)s, which are for profit-oriented companies, and 403(b)s, for nonprofits.

Despite their less-than-friendly sounding names, referring to sections of the U.S. tax code, these programs are your friends. Payroll deduction helps you save because, when a recurring sum automatically comes right out of your paycheck, you don’t have to consciously put the money away.

These programs also have two turbo-powered functions that can work in your favor: matching contributions from your employer (although not all companies make them) and the tax-deferral on your contribution – the money gets withdrawn from your salary before taxes, and you are taxed only when you take it out later.

2) Enjoy higher IRA contribution limits.

Limits for individual retirement account contributions also increase in 2013. If you earn income from work and are younger than 50, you can contribute up to $5,500 to an IRA. If you are over 50, you can contribute an extra $1,000, bringing the total to $6,500.

If you want to save more than the limit in your IRA or 401(k), you can go right ahead and do so, but you don’t get the benefit of a tax deduction for it. Higher contribution limits means more tax savings.

Stay-at-home parents can also contribute to their own IRA based on a spouse’s earnings from work.

3) If you qualify, use the Saver’s Credit to minimize taxes.

This is a little-known tax credit for low and middle-income workers that no qualified person should pass up. Depending upon your tax filing status and adjusted gross income, you may be eligible for a tax credit of $1,000 to $2,000 for saving for retirement with an IRA or other plan.

For example, if your tax filing status is single, and your income is $29,500 or less, you might be able to get a $1,000 tax credit. A tax credit is much more valuable than a tax deduction, as it represents a dollar-for-dollar reduction in your income taxes A dollar deduction, for someone with a 25% marginal tax rate, results in only 25 cents of savings.

Transamerica’s Center for Retirement Research found this valuable benefit to be quite underutilized. Only 21% of workers earning less than $50,000 a year even know that the Saver’s Credit exists.

It’s easy to get caught up with the gloom and doom in the headlines and worry about things that you can’t do anything about, like the fate of the euro or U.S. budget problems. So this year, focus on what you can control and take these powerful steps to increase your retirement savings.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Read the following article to learn about five items to do with your 401(k) before the end of the year.

Year-End Review: Five 401(k) Must-Dos Before 2013

Written by Chuck Saletta. To read the entire article, please visit dailyfinance.com

The end of the year is fast approaching, so you’ve only got a few days left before the window slams shut on your ability to make changes to your 401(k) for 2012.

The five tips below will help you make the most of that limited time, and put you on track in your efforts to make your golden years as comfortable as possible.

1. Make sure you’re getting your free money.

Many employers will provide matching money based on the amount you contribute to your 401(k). Check your employer’s policy on matches and make sure you’re socking away enough to capture every single dime the boss will give you. If you hurry, you may even still have time to adjust your contribution and get the most from your 2012 match.

Why this matters: When combined with the potential tax savings, a 401(k) match may very well let you double your money, instantly. There are very few other investments that give you the opportunity to get that large an instant return, and even fewer that provide that type of return with such certainty.

2. Diversify out of your employer’s stock.

You may work for the best company on Earth, but one of the most dangerous things you can do is to have your savings and your paycheck tied to the same business. If the company hits a rough patch, you may find yourself out of work and with a substantially diminished nest egg at the same time. Your own contributions should go into other options in the plan, and if your match comes in the form of company stock, check the rules on when you can sell it and shift your money into a different fund.

Why this matters: Remember Enron? It went from full-fledged Wall Street darling to becoming completely worthless as both an investment and an employer. And it really didn’t take long for it to move from the list of “Best Companies to Work For” to the list “Biggest Collapses of the Century.”

3. Make a plan to pay off any loans against your account.

If you’ve taken out a 401(k) loan, make it a priority to pay it back quickly. The convenience of being able to borrow money with no credit check and the pleasure of paying yourself back rather than sending your money to some faceless bank make 401(k) loans tempting. But the gotchas can be downright ugly if you’re unable to repay back the loan on schedule — especially if you lose your job.

Why this matters: If you lose or walk away from your job, you could be required to pay the loan back in full within 90 days. If you can’t, the outstanding balance is treated as a distribution. That means you’ll get socked with taxes at your ordinary income tax rate and pay a 10% penalty on top of that if you’re under age 59½. That’s an ugly outcome, especially since the people facing it are often in a tenuous financial position to start with.

4. Try to invest more.

Most employees are allowed to invest up to $17,000 in their 401(k) plans in 2012, and those ages 50 or higher can contribute an additional $5,500 in catch-up money, as well. (In 2013, the general limit rises to $17,500, though the catch-up limit stays at $5,500.) All else being equal, the more you put away with a decent allocation plan, the better off you will be in retirement, even if your investing returns wind up being somewhat lousy.

Why this matters: The biggest benefit of maxing out your retirement savings plans is the long-term financial health you get from building a decent nest egg. In addition, if your 401(k)nickels-and-dimes you to death with its fees, the more you sock away, the less many of those fees will bite.

5. Take your Required Minimum Distribution, if you need to.

Once you reach age 70½ and are retired, you must start taking money out of your 401(k), even if you don’t need to spend it to cover your lifestyle. There are special rules for the year of your first mandatory distribution, but for every year after that, you have to take money out of your account by Dec. 31 of each year.

Why this matters: If you don’t, Uncle Sam will tax you at a rate equal to 50 percent of the amount you should have taken out but didn’t. That’s way too much money to lose for simply forgetting to move your money from one pocket to another.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

The following article describes how automatically being enrolled into a 401(k) plan decreases the average of savings. Read on to why that it is.

401(k)s: Can savers save more?

By Anne Tergesen. To view the entire article, please visit marketwatch.com.

One of the few downsides of the trend towards automatically enrolling employees in 401(k) plans is that it tends to depress participants’ average savings rates. Indeed, as I’ve written in the Wall Street Journal, savings rates have fallen in recent years as auto-enrollment has taken off.

The problem: Many companies that auto-enroll employees set contribution rates at a relatively low 3% of salary or less, unless an employee chooses otherwise. That’s far below the 5% to 10% rates participants typically elect when left to their own devices, researchers say, and also well below what most financial planners recommend.

Auto-enrollment has long been celebrated for its impact on participation rates. Companies that have implemented it report average participation rates above 85%, compared with 67% for plans without auto-enrollment, according to Aon Hewitt, a plan administrator. But plan administrators also have linked auto-enrollment to a decline in average contribution rates. Among plans Aon Hewitt administers, average savings rates fell to 7.3% in 2010, from 7.9% in 2006. The Vanguard Group Inc. says average contribution rates at its plans fell to 6.8% in 2010, from 7.3% in 2006. Over the same period, the average for Fidelity Investments’ defined contribution plans decreased to 8.2%, from 8.9%.

The good news: New data from New York Life Retirement Plan Services indicates that the gap in savings rates between those who are auto-enrolled and those who voluntarily sign up tends to narrow over time. Among the 480 401(k) plans that use New York Life as an administrator, 64% now auto-enroll, up from 21% in 2006. The average participant who was auto-enrolled deferred 4.65% of his or her salary at first. But after four years, the auto-enrolled population was saving 6.1% of pay. In contrast, for those in plans that don’t offer auto-enrollment, deferrals started at 7.29% and declined to 6.77% after four years.

One important factor that could be at play among the investors in New York Life’s study:  one-third of the plans that use auto-enrollment also automatically increase employees’ savings rates by a set amount, typically one percentage point, annually until they reach a certain threshold. Some advocates of auto-enrollment, including the University of Chicago’s Richard Thaler, have argued that such programs need to be combined with automatic increases to be truly effective.

David Castellani, CEO of New York Life’s Retirement Plan Services, says the narrowing of the savings gap should encourage employers who have yet to adopt auto-enrollment to jump on the bandwagon. Castellani also says that employers “should not be afraid” to auto-enroll employees at deferral rates above the popular 3% level. Academic studies and data from plan administrators indicate that when employees are auto-enrolled at higher rates, few drop out.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

The following article addressed the basics between investing in a 401(k) and a Roth IRA, and answers many commonly asked questions about these retirement savings options.

Visit the The Simple Dollar to view the complete article

One of the most common questions I get asked about retirement plans is whether or not a person should be putting their money into a 401(k) or a Roth IRA for retirement. The answer isn’t as straightforward as it might seem.

What Are The Options?

A 401(k) is a employer-sponsored deferred contribution retirement plan, so named because it’s defined under section 401(k) of the IRS code. In a nutshell, it works like this. You sign up for a 401(k) plan in your workplace and choose investment options within the plan. Your workplace takes money out of your paycheck before income taxes are taken out and deposits this in your plan. In some workplaces, your contributions are matched by the employer. Then, when you reach retirement age, you can take money out of the 401(k), but those withdrawals are subject to income tax - since you didn’t pay it earlier, you have to pay it later on. Currently, there is no upper income limit on who can contribute, but an individual can contribute at most $15,500 to his or her 401(k) in 2008 and the maximum amount that can be contributed total between employer and employee is $46,000 in 2008.

A Roth IRA is an independent individual retirement account that you set up directly with an investment firm; it’s name comes from its chief legislative sponsor, Senator William Roth. With a Roth IRA, you set up an account with an investment house yourself (mine is with Vanguard), choose investment options with them, and then directly deposit after-tax money (from your checking account, for example) into the Roth IRA. Then, after meeting a few basic requirements (you’re 59 1/2 years old or older and have had the plan for five years or more), you can withdraw both your deposits and gains completely tax free. In 2008, the maximum contribution you can make is $5,000 a year (unless you’re over 50). There is one big caveat: there are income limits on who can contribute - if you make more than $99,000 individually or $156,000 jointly, you can’t contribute the full amount (and may not be able to contribute at all).

What Are The Big Differences?

The big differences between the two are employer contributions, investment options/management, and taxes. Let’s look at each aspect.

Employer contributions
With a 401(k) retirement plan, an employer may match contributions made by an employee up to a certain percentage. For example, one 401(k) program I know of offers a 2:1 match for every dollar contributed to a 401(k) up to 5% of the salary. So, if you contribute 5% of your salary to your 401(k), the employer also puts in an extra 10% of your salary, effectively tripling your contribution. In short, if your employer offers matching contributions to your 401(k), that likely trumps any other concern and you should use a 401(k). It’s free money, after all - don’t turn it down.

Investment options/management
With a 401(k), you’re tied into whatever management and investment options are made available to you by the plan your company offers. That often means the investment choices are relatively weak. Things to look out for in your investment plans are expense ratios (if they’re high, that’s bad) and investment options (the more choices, the better). With a Roth IRA, you are allowed to choose your management and thus also your investment options - you pick the investing house you want to use. I chose Vanguard because the expenses they charge me are very low and they offer a huge number of index funds, my investment of choice. Roth IRAs offer an advantage in that they allow you to choose your plan’s manager, though if your 401(k) offers good options, this may not be a big advantage.

Taxes
This is really the sticky wicket out of the three because it involves some prediction of what the future holds for you. Here’s the deal: if you think your income tax rate will be higher at withdrawal time than it is now, a Roth IRA is a better choice and will save you money in the long run. If you think your income tax rate will be lower at withdrawal time than it is now, a 401(k) is a better choice and will save you money in the long run.

How can you know which rate will be higher? Here are a few things to ask yourself.

Will my income grow vastly between now and retirement? If the answer is yes, you’ll likely be in a higher tax bracket when you retire, which favors the Roth. If you’re near your peak, you’ll probably be in the same bracket or lower, which favors the 401(k).

Will I be working in my retirement years? If the answer is yes, you have a much higher chance of at least being in the same tax bracket you are now. If the answer is now, likely your income will be lower.

Will the political landscape shift towards higher tax rates? This one, honestly, is complete guesswork. If I had to guess, I would speculate that tax rates will go up in the future, and that favors the Roth IRA. If you think they’ll go down, that favors the 401(k).

Seem confusing, even overwhelming?
That’s because it is. It’s really hard to tell what will happen with the future and balancing different factors like that is hard. My personal opinion is that the Roth IRA has a slight edge in the tax department, but that’s mostly because I believe taxes are going to eventually go up.

So What Should I Do?

The first step, to me, is pretty easy. If your employer’s 401(k) plan has matching funds, always contribute up to the maximum amount that receives matching. This is free money, and enough of it that it trumps the other concerns. Get it while you can.

The question really revolves around what to do with additional retirement money. Given all the factors above, and also assuming you’re young and have many years of income growth ahead of you, I believe the best option is a Roth IRA - but they take a bit more work. You have to find your own investment plan with a Roth IRA and set it up yourself (it’s not that hard, but it does take a bit of time up front), but that gives you the freedom to find an investment house that matches your philosophy and saves you money (for me, that’s Vanguard).

If you’re older, near the peak of your income potential, and expect to have a smaller income in retirement, thenmore contributions to your 401(k) is probably your better choice.

No matter which path you decide to follow, simply by the act of putting money away you’re putting yourself ahead of the game. Don’t let this debate keep you from starting to save - if all else fails, simply start making contributions to one or the other now and then make up your mind later on - you can always change your contributions around later.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Here is a list of what you might need to do before 2012 to ensure that everything is in order with your IRA.

10 IRA Tasks To Do Before The Year End

by Robert Powell
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1. Take your required minimum distribution

Make sure all RMDs are taken for the year.

“Look at all owned IRA accounts and employer plans for individuals age 70 ½ or older this year, as well as at inherited IRAs, employer plans and Roth IRAs,” said Beverly DeVeny, an IRA technical consultant with Ed Slott and Company.

“Beneficiaries, no matter what their age, must take distributions from all inherited accounts beginning in the year after the death of the account owner,” she said, adding that inherited accounts must be split before year end so beneficiaries can use their own life expectancies to calculate their RMDs.

2. Check for excess contributions

It might seem unlikely, given that the average IRA contribution is $3,798, but it’s possible that you contributed too much to your IRA during the year. If so, remove any excess contributions before year end. You will be charged a 6% penalty for excess contributions, said Lustberg.

The maximum amount of an annual IRA contribution for a specified tax year, and whether or not your contribution is tax deductible, varies depending on a number of factors related to eligibility rules, according to Fidelity Investments. In 2009, the maximum allowable contribution to an IRA is the lesser of 100% of eligible compensation or $5,000 in 2009, and $6,000 for those age 50 or older.

3. Is everything in place?

Take nothing for granted when it comes to your IRA. “Before year end, double check on all IRA funds that moved during the year,” DeVeny said. “Make sure that IRA funds went into IRA accounts, not non-IRA accounts or Roth IRAs and be sure that Roth IRA funds went into Roth IRA accounts. Look for any unexplained distributions during the year.”

4. Can you do a stretch IRA?

Check whether your IRA custodian or 401(k) plan administrator will allow for the so-called “stretch” for beneficiaries, said Ben E. Connor, an attorney with Connor Law Firm.

The stretch means that beneficiaries can use their own life expectancy for distributions. In addition, check whether the custodian or plan administrator will accept a durable power of attorney, and disclaimers.

“The answer to these questions will have substantial impact on the success of their estate plan,” Connor said. (If the custodian or 401(k) plan administrator doesn’t accept a durable power of attorney or disclaimer, you might consider another custodian or plan administrator.)

5. Who’s your beneficiary?

Here’s some well-worn but can’t-be-repeated-often-enough advice: Review your beneficiary designations. Make sure there is both a primary and a contingent beneficiary named on the beneficiary designation form.

“If there is no beneficiary named, the IRA proceeds will go to the estate and lose the tax advantage of the stretch,” said Connor. “If there is no contingent beneficiary, and the primary beneficiary has died and no new primary beneficiary has been named, then the assets also go to the estate with the same negative result.”

It’s especially worth checking your beneficiary designations if you’re divorced, recently or ever. “Make sure your ex-spouse has been deleted as a beneficiary, unless you want them to remain as a beneficiary,” said Connor. “The U.S. Supreme Court has recently ruled that the beneficiary named on the beneficiary designation form trumps divorce.”

Connor also advised against naming a “living trust” as the beneficiary. “A living trust should not be the beneficiary because the living trust must qualify as a ‘designated beneficiary’ to receive favorable stretch and tax treatment,” he said. “I find that most living trusts do not qualify, or lose their designated beneficiary status through later changes to the trust.”

Make sure your custodian has a written copy of your beneficiary designations.

6. One last chance for Roth conversions

If you plan to do a Roth conversion , “the funds must leave the IRA by Dec. 31 to be reported and taxable as a 2011 distribution and conversion,” DeVeny said. “The funds can then be rolled over to the Roth IRA up to 60 days after they are received by the account owner - up to March 1 if the distribution was received on Dec. 31.”

Contrary to what some might believe, you do not have until April 15, 2011 to do a 2010 conversion, DeVeny said.

Here’s another reason why you might want to convert some or all of your IRA to a Roth IRA: according to Connor, the Roth IRA could fund a credit shelter or by-pass trust.

“A Roth IRA is usually not subject to the trust tax rate,” he said. Also, review your power of attorney to make sure the agent has authority to recharacterize the Roth, if needed, Connor said.

Remember, too, that anyone can convert their traditional IRAs to a Roth IRA in 2010 regardless of income. What’s more, you can pay the taxes over two years, instead of one.

7. Turn wealth into income

Right about now, the Social Security Administration is sending you a report that tells you how much income you’ll receive in today’s dollars when you retire. Write down that number on a piece of paper.

Now, total up the value of all IRAs and 401(k)s in your household and multiple that number by 0.04. That number is the amount some experts say you could withdraw from your retirement in today’s dollars.

Now, add that number to your Social Security benefit figure, and then subtract that amount from your income. The results are roughly the amount of money you’ll need from other sources - such as work, pensions, reverse mortgages, life insurance or inheritances - to enjoy a lifestyle similar to what you have today.

For some, the best way to close the gap will be to contribute more to their IRAs and 401(k)s, work longer, and lower their standard of living.

8. Review your investment plan

Consider updating your investment policy statement or plan. “Make sure your asset allocation remains appropriate given your financial goals,” said Michael L. Gay, a certified financial planner with Portfolio Solutions.

Also, rebalance your IRA if you haven’t done so within the past year. It’s best to rebalance your IRA in a holistic manner. That is, look at all your assets in all your accounts, taxable and tax-deferred.

In many cases, consider putting your fixed-income investments in your tax-deferred accounts and those investments that produce capital gains and dividend income in your taxable accounts. And while you’re at it, check whether you’ve bought or sold any inappropriate investments in your IRA accounts.

“Since IRAs are tax-deferred vehicles, it makes no sense for them to hold ‘tax-preferenced’ investments such as municipal bonds and annuities,” said Gay.

Gay also suggested using your RMDs to rebalance. It could save on transaction costs.

9. Roll old 401(k)s to an IRA

If you have one or more 401(k)s sitting with former employers, consider rolling that money over to an IRA. “You’ll generally get better investment choices, lower costs and more control of your investment assets,” said Gay.

10. Recharacterize your Roth IRA

If you converted a traditional IRA into a Roth IRA and now realize that your income taxes were higher than expected due to the conversion, or you’re short money to pay the income tax or you’re unwilling to pay the income tax, consider a recharacterization, DeVeny said. That is, consider putting the money in the Roth IRA back into your traditional IRA.

“This is the last year that some individuals must recharacterize,” DeVeny said. “Those who have no choice are individuals who converted in 2009 and whose modified adjusted gross income exceeded $100,000 or who were married filing separate.”

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

If you are thinking about rolling over your IRA here are some common mistakes to avoid.

Common IRA Rollover Mistakes

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The 60-Day Rule

After you receive the funds from your IRA, you have 60 days to complete the rollover to another IRA. If you do not complete the rollover within the time allowed, or receive a waiver, or extension, of the 60-day period from the Internal Revenue Service (IRS), the amount will be treated as ordinary income in the IRS’s eyes. That means you must include the amount as income on your tax return, where any taxable amounts will be taxed at your current, ordinary income tax rate. Plus, if you did not reach age 59.5 when the distribution occurred, you’ll face a 10% penalty on the withdrawal.

One-Year Waiting Rule
Within one year, after you distribute assets from your IRA and rollover any part of that amount, you cannot make another rollover from the same IRA to another (or the same) IRA.

For example, imagine that you have two IRAs - IRA-1 and IRA-2 - and you make a tax-free rollover from IRA-1 into a new IRA (IRA-3).

Within one year of the distribution from IRA-1, you cannot make another tax-free rollover from IRA-1 or from IRA-3 into another IRA. However, you could roll funds out of IRA-2 into any other IRA, because you did not roll money into or out of that account within the previous year.

The once-a-year limit on IRA-to-IRA rollovers does not apply to eligible rollover distributions from an employer plan. Therefore, you can roll over more than one distribution from the same qualified plan, 403(b) or 457(b) account within a year. (Note: This one year limit does not apply to rollovers from Traditional IRAs to Roth IRAs, i.e. Roth conversions.)

RMDs Not Eligible for Rollover
You are allowed to make tax-free rollovers from your IRAs at any age, but if you are 70.5 or older, you cannot rollover your annual required minimum distribution (RMD), as a rollover of a RMD would be considered an excess contribution.

If you are required to make a RMD each year, be sure to remove the current year’s RMD amount from your IRA before implementing the rollover.

Same Property Rule
Your rollover, from one IRA or to another IRA, must consist of the same property. This means that you cannot take cash distributions from your IRA, purchase other assets with the cash and then roll those assets over into a new (or the same) IRA. Should this occur, the IRS would consider the cash distribution from the IRA as ordinary income.

Caution: When Not to Use a Rollover
If you are simply moving your IRA from one financial institution to another and you do not need to use the funds, then you should consider using the transfer method, instead of a rollover. A transfer is non-reportable, and can be done for an unlimited number of times during any period. A rollover leaves room for errors, including missing the 60-day deadline, losing the check and you are limited to the once per 12-month rule, discussed earlier.

Additional points
You can roll over funds from any of your own Traditional IRAs, but you can also roll over funds to your Traditional IRA from the following retirement plans:

• A Traditional IRA you inherit from your deceased spouse
• Aqualified plan
• Atax-sheltered annuityplan (section 403(b) plan)
• A Government deferred-compensation plan (section 457 plan)

Note that if rollover eligible amounts, from qualified plans, 403(b) plans or governmental 457 plans, are paid to you instead of processed as a direct rollover to an eligible retirement plan, the payor must withhold 20% of the amount distributed to you. Of course, you will receive credit for the taxes that were withheld. However, if you decide to rollover the total distribution, you will need to make up the 20%, out of pocket. If you want to avoid the withholding and the associated reporting requirements, a direct rollover is the method that should be used to effectuate your rollover from your qualified plan, 403(b) plan or governmental 457 plan account. A direct rollover is reportable, but not taxable. Plus, there is no 60-day window to worry about. Be sure to check with your plan administrator and IRA custodian regarding their documentation and operational requirements for processing a direct rollover on your behalf.

You might be able to move funds the other direction, too. That is, you may be able to take a distribution from your IRA, and then roll it into a qualified plan. Note, however, that your employer is not required to accept such rollovers, so check with your plan’s administrator before you distribute the assets from your IRA. Further, certain amounts, such as nontaxable amounts and RMDs, cannot be rolled from an IRA to a qualified plan

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

There are a number of questions that need to be answered in order to put together a long-term investment strategy that will align your risk tolerance with your portfolio. We invite you to watch this short video that discusses these questions.

You can schedule a complimentary portfolio review with one of Paragon’s financial advisors if you have additional questions about aligning your portfolio with your risk tolerance.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.