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
visit MarketWatch to view the complete article

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

visit Investopedia.com to view the complete article

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.

photo by ucumari

As we recover from the worst bear market since The Depression, many investors wonder how they will ever be able to start or continue contributing to their investments. The following article, taken from the Simple Dollar blog, outlines simple and realistic steps anyone can take no matter their age or financial circumstances.

Investing Isn’t Just for Rich People: Five Ways Anyone Can Reap the Rewards of Investing

Written by Trent at The Simple Dollar

Quite a few readers simply tune out when I mention investments. They don’t believe the topic applies to them at all. “How can I possibly worry about investing when I can barely put food on the table?” they’ll ask.

The answer is simple: virtually every single person has the resources with which to begin investing. It may seem impossible for some to believe, but it’s true.

If you make purchasing decisions in your home, you have all you need to begin investing. Choose some generic items instead of the brands you usually buy and start your investing with the dollars you save.

If you ever spend money on entertainment, you have all you need to begin investing. Instead of renting a DVD at the Redbox, stop by your library, check out a movie for free, and put aside that dollar you save. There are countless other little ways to shave just a little bit here and there without changing your lifestyle.

If you use electricity, you have all you need to begin investing. Air seal your home or put in a programmable thermostat and you’ll see a significant drop in your energy bill, with which you can invest.

It all starts with the littlest of choices.

Here are five simple steps anyone can take with that savings

1. Participate in your employer’s retirement plan. More than 90% of the employers in the United States offer a retirement plan. Many of those plans offer matching funds, in which the employer will make contributions to the plan if the employee does as well. Plus, this money goes in before taxes, meaning for every dollar you put in, it reduces your paycheck by substantially less than a dollar - and it also reduces your income tax at the end of the year. If you have a retirement plan at work and are choosing not to even consider using it, you’re choosing poverty.

2. Start an automatic savings plan. If you’ve found a way to cut your spending by even a quarter a day, you have enough to start. Set up an automatic savings plan and transfer whatever you’ve saved to a savings account each week or each month. Even $10 a month - about $0.30 a day - is a great way to start, as it will add up to $121 or so over the course of a year and continue to earn interest beyond that.

3. “Snowflake” into a savings account. If you discover useful one-time ways to save or to earn a little bit more money, don’t spend it frivolously on something you want in the short term. Instead, take that little amount - the $10 you found in the parking lot, the $7 you saved buying toilet paper in bulk - and put it right into your savings account. Even better, just start a jar for it, throw that snowflake right into the jar, then take it down to the bank when the jar is full.

4. Save windfalls instead of spending them. What about when something bigger and unexpected comes along? A relative dies, leaving you an unexpected sum. You get a settlement. You win a large cash raffle. Sure, feel free to celebrate with a little of that windfall, but instead of blowing through the whole thing like a snowblower through powder, put most of it into your savings.

5. As your savings grows, buy a CD - and then grow from there. Once you hit your bank’s minimums for purchasing a certificate of deposit, do so. This will earn you quite a bit more interest than you were earning in your savings account, but it will “lock up” your money for a while. That’s a good thing - since you’re not intending to spend it anyway, locking it up is just fine.

Congratulations, you’re an investor. When that CD matures and you couple it with your additional savings, you may have enough to start branching into other investments. Hold onto that money - when opportunity comes your way, you’ll have exactly what you need to jump on board.

All this takes is a dollar a day.

Visit The Simple Dollar to read the entire article.

photo by EngineeringDaily.net

Due to the difficult economic environment of the past 12 months, it is even more important to follow a disciplined, proactive investment strategy.  By removing emotion from your investment process, costly mistakes can be avoided.

When it comes to your 401k be sure to not make the four common mistakes outlined below.

Visit Redeeming Riches to read the entire article by Jason Topp

Do You Make These Four Common 401k Mistakes?

We all make mistakes - some of them are just more costly than others.

When it comes to our retirement savings there’s a host of mistakes that could cost you.

Because companies are shifting the responsibility of retirement on the employees, it’s vital to correct any of these mistakes as quickly as you can.

1. Bad Methods for Choosing Funds

“I’m just not sure which funds to choose so I picked what did well last year.”

Perhaps you’ve found yourself saying that before.  Picking funds based on past performance is a losing proposition because past performance is no guarantee of future results.

An all-star fund could turn into a dog for a variety of reasons.  Don’t rely only on past performance to make your decisions.

“I didn’t know what to pick so I asked my co-worker what he did.”

Bob might be a great guy, but he could be a total goofball when it comes to investing.  Sure, he talks a good game, but your needs and goals are different.  Don’t base your investments on someone else.

“I figured I’m aggressive so I just went with a more risky stock fund.”

It’s OK to be aggressive, but using only one or two funds will typically increase your volatility and expose you to greater risk.  You need to diversify the holdings.

2. Not Diversifying Your Investments

Don’t put all your eggs in one basket.

Diversification simply means spreading your money over various types of funds and asset classes (i.e. small, mid, and large sized stocks etc.).

The reason you want to diversify is because we don’t know what will go up or down in any given year.  You can take advantage of rising stars and also soften the blow on investments that are stinking it up.

3. Not Knowing Your Risk Tolerance

“I want to make big returns in my 401k without much risk.”

Really?  Let me know when you find something like that because I’d like to use that too!

Of course we all want to make good returns without much risk, but those investments don’t exist - if they do, they are typically too good to be true.

You need to understand your risk profile and how that impacts your decision-making with your 401k funds.

4. Not Paying Attention to Company Match

Although the recession has led many companies to forego their 401k matching programs, there are still some who offer some sort of match.

A big mistake often made is not knowing what kind of match the company is offering resulting in leaving free money on the table.

If a company is matching dollar for dollar up to - say five percent, it’s silly to only put in three.  You’re leaving an additional two percent out there that could be matched.

At the very least you should be putting enough into your 401k to take full advantage of any money they are going to give you.

Pay attention to the details of your company’s matching program and by all means take what they are willing to give you!

Reaching retirement is up to you, so make sure you are doing all you can to correct mistakes early so you can reach your goals.

photo by anthonyimages

In difficult economic times you might be wondering if you should continue contributing to your 401k or if it would be better to have a cash reserve instead. The following article addresses this concern while outlining the reasons to continue or even increase your contributions.

Excerpts taken from indystar.com on September 13, 2009.

When making decisions about saving, the first question to ask is, “For what purpose is the money earmarked?”

If this savings is for retirement, favor the 401(k) plan. It offers many significant advantages, even during a difficult recession.

First, there are tax advantages. If the dollars you deposit are pre-tax deposits, you’ll save on taxes this year by making deposits. If you choose a Roth 401(k) plan deposit option, you will create tax-free income in your retirement.

Second, you may pick up some free retirement funds from your employer. Although some employers have suspended or reduced their profit-sharing and matching deposits, most haven’t. These deposits come to you without current taxation requirements, which further maximizes their value in growing your retirement nest egg. At a minimum, always deposit the amount your employer will match.

Third, deposits are made through payroll deduction, so saving happens automatically. You’ll buy when prices are low as well as high, which can lower your average cost over the long term.

Despite the discouraging investment results in 401(k) plans for the past few years, they are still a good place to save for the retirement you hope for.

It is in times like these that it is most difficult to remain disciplined with your investments. However, it is also in times like these that it is most important to remain disciplined.

If you still plan to retire someday, you should continue your 401(k) contributions regardless of short-term market or economic conditions. In fact, it is probably a great time to increase your contribution level, as the equity markets are still well off their highs.

One possible reason you might temporarily reduce your contributions is if you don’t have an adequate emergency fund of three to six months’ worth of living expenses. In this case, reducing 401(k) contributions should be only temporary until you build a sufficient emergency fund.

However, if your employer matches your contributions, you don’t want to reduce your contributions below the level that is matched.

If you are within three years of retirement, it might be wise to accumulate some additional “cash” savings that could be drawn upon in retirement to meet your living expenses. If the equity markets happen to be down in the year you retire, you could draw upon those cash reserves instead of having to liquidate investments.

But this cash savings can be done within the 401(k), so it doesn’t justify discontinuing your contributions. Instead, a reallocation of the way those contributions are invested may be in order.

Investing in your 401(k) versus saving cash should never be dictated by the current market conditions. Investing in a 401(k) or other “pretax” account is most prudent when savings are needed to fund your retirement and if your current tax rate is higher than your forecast rate in retirement. One exception is taking advantage of an employer’s matching contributions whenever possible.

Also, if you’re in a cash crunch, don’t cancel your 401(k) contributions. Instead, reduce them to the minimum amount. Otherwise, you may have to wait for the next open-enrollment period.

Last, you should review your portfolio and retirement plan. Ensure you are allocated according to your risk tolerance and time horizon, and double-check to make sure you’re on track to reach your retirement-funding goal.

Visit indystar.com to read the entire article.

photo by MargoLuc

There are many factors to take into consideration when rolling over your 401k.  Whether you have recently retired, or have simply switched employers, the following article outlines six questions to ask when determining what is best for you.

A Step by Step Guide to Your 401k Rollover or Retirement Consolidation - Understand Your Rollover Choices

Excerpts taken from Insider’s Investment Guide on August 24, 2009

Rollover Choice One - Figure Out Your Retirement Needs and How You Should Use Your Retirement Funds

Retirement planning is not easy. It is a budgeting process for the rest of your life for which you must account for many unknowns like inflation, stock fluctuations, changes in real estate prices, personal health costs, taxes and your own longevity.

When deciding what to do with your 401k, the most important consideration is your retirement plan and how it may need bolstering. This is a big and important question and many retirees choose to work with a Financial Planner who can help them create a strong plan.

Rollover Choice Two - Decide to Rollover or Keep Funds in Company Plan or with Existing Institution

Once you have a better idea of how you need to use your savings for retirement, you can better decide if you require a rollover.

Rolling Over from a Company Plan: Some 401k plans require that you rollover the funds at retirement. Others do not. However, if your retirement funds are in a company plan, most financial planners advise that you rollover.

The advantages of rolling over your 401k into an IRA at retirement include:

• Rollovers provide more flexibility in how you can allocate and use the money. You can rollover your funds into a vehicle suited to your particular situation.
• Security against your employer going out of business, merging with another company or other event that could potentially impact your 401k funds.
• More control over when and how you can withdraw money and manage your account. (Employer sponsored 401ks often have limits on when you can do this.)
• Ability to consolidate all of your 401k accounts into one IRA. Many retirees have 401ks at various companies. This money will be easier to manage in retirement if you consolidate it in one place - even if it is invested in different types of financial products.
• Puts you in charge of your account. Even if you like your current 401k plan, there are no guarantees that your employer will stick with that platform.

While there is no requirement to rollover your retirement funds, most believe it to be a good idea.

Rolling Over from Existing Financial Institution: If you have already transferred your funds out of your company plan or if you have various accounts with different institutions, you may want to consolidate with a single financial institution that offers the type of investment vehicles and financial advice that you really need in retirement.

Rollover Choice Three - Choose Between an IRA and a Roth IRA

There are two main types of 401k rollover accounts - IRA and Roth IRA. The IRA is also sometimes referred to as a traditional IRA.

The main differences between the two accounts are related to taxes and the rules surrounding withdrawals.

Rollover Choice Four: Decide How Much Rollover Advice and Service You Need and Understand Fees and Minimum Balances

When opening an IRA at retirement, there are two buckets of fees and costs that you will want to consider:

• IRA and Account Maintenance Fees: There can be fees associated with opening and maintaining an IRA. Before opening a Rollover IRA, be sure you understand any setup fees, maintenance fees, trading commissions and minimum balance requirements.

While you may automatically think that you would like a “no fee IRA,” you are actually likely to find significant costs associated with them when you read the fine print.

• Financial Planning Fees: There are two main routes to opening an IRA. You can be self directed or you can work with a Financial Advisor.

Rollover Choice Five - Find a Financial Institution that Offers Qualified Investments that Suit Your Retirement Goals

Depending on your retirement goal - guaranteed income, adequate insurance, estate planning or a combination of these objectives - you will want to choose an investment strategy for your 401k rollover.

The good news is that you have an ever growing number of tax friendly - “qualified” options. These options include:

• CDs
• Bonds and Bond Ladders
• Stocks
• Dividend Yielding Stocks
• Exchange Traded Funds (ETFs)
• Money Market Accounts
• Mutual Funds
• Annuities
• Insurance
• Managed Accounts
• Hybrid Products - offering benefits of many of the above products

Rollover Choice Six - Respect the Distribution Rules!

The final step when conducting a Rollover is to respect the Distribution rules.

• Respect Distribution Rules with Rollover: When rolling over 401k funds or consolidating IRAs, it is very important that you follow the distribution rules. In most cases you should probably do a Direct Rollover. With a Direct Rollover, a check for your retirement funds is made payable to the new IRA custodian or financial institution. This is the preferred way to conduct a rollover since there is no chance of there being tax consequences as is possible with an Indirect Rollover.

With an Indirect Rollover the check for your funds is made payable to you. And you must forward the money yourself within the allotted time period.

• Respect the Plan’s Distribution Rules for Withdrawals: This is particularly important if you rollover your funds into a Traditional IRA. Withdrawals on a Traditional IRA (also known as distributions) can begin at age 59 1/2 and are mandatory by 70 1/2. (Withdrawals before age 59 and a half are usually subject to a 10 percent penalty.)

With a Roth IRA, withdrawals may be taken at any time without penalty and there is no mandatory distribution age.

Visit Insider’s Investment Guide online to read the entire article.

photo by pedrosimoes7

Are you worried about running out of money for retirement? This question has been on many investors minds the past year and a half. Below is an article from Motley Fool’s website. It gives a few useful tips of ways to prepare for a happy retirement.

Start Doing This or You’ll Retire Poor

By Dan Caplinger
August 24, 2009

Many investors would just as soon forget last year, and for good reason — the downturn ravaged 401(k) account balances. But the more important issue is whether workers are doing the right things in response to a terrible 2008.

Another look at 401(k) plans
Recently, 401(k) administrators have reported about what their participants have done with their money lately. After Fidelity released its quarterly report a couple of weeks ago, Vanguard followed suit last week with its look at 2008 data from its 3 million customers across 1,800 plan sponsors.

The report included a lot of good news. Here are some positive signs for workers:

• Muted losses. Even with the stock market down sharply, account balances for continuous 401(k) plan participants in 2008 fell less dramatically — about a 14% loss at the median, with a third of plan accounts actually staying flat or rising in value.
• Higher automatic enrollment. The number of plans offering automatic enrollment into quadrupled from 2006 levels, with most of those plans opting for some form of balanced investment option as their default rather than a money-market fund.
• Target-date fund popularity rising. About 70% of plan sponsors offered target-date funds in 2008, with more than a third of eligible participants using them.
• Active trading levels low. Only one out of every six participants traded in their 401(k) accounts in 2008.
• Participants got smarter. Most employees avoided risky practices like owning too much employer stock, taking 401(k) loans, and opting for cashing out rather than rollovers when they switched jobs.

But hold off before you count the 401(k) problem solved for good. Workers have a long way to go before they should feel safe about their plan accounts.

Not saving enough
Perhaps most revealing about the report was how little most people have in their 401(k) plans. Vanguard’s average balance was $56,000, while half of all participants had $17,400 or less in their accounts. Only 15% had account balances of $100,000 or more. Even with many young participants, those numbers aren’t encouraging.

Moreover, most people didn’t save a big percentage of their salary. More than half of participants saved 6% or less, while only a fifth set aside 10% or more of their earnings to their 401(k).

Making the wrong investments
In addition, 401(k) participants don’t always invest well. For instance, only small percentages of workers invested in small-cap or international funds. Those numbers don’t include the allocations to those assets in target funds, though, so the numbers aren’t quite as discouraging as they appear.

In contrast, what workers do buy is employer stock. More than half of those who can buy shares do so. And while a vast majority of them — 80% — have 20% or less of their 401(k) invested in it, numbers from outside Vanguard suggest the problem is much more serious at some companies. For instance, look at how much workers at these companies have in company stock:

	Company Plan Assets Invested in Company Stock ExxonMobil (NYSE: XOM) 71% General Dynamics (NYSE: GD) 37% Wells Fargo (NYSE: WFC) 43% Duke Energy (NYSE: DUK) 37% Kroger (NYSE: KR) 42% Lockheed Martin (NYSE: LMT) 27% Coca-Cola (NYSE: KO) 54%

Source: Brightscope.

Given how much workers already rely on their employers for their salary, pension, and benefits, putting a big slug of money into company stock leaves you dangerously reliant on your company’s survival. That’s a risk you probably shouldn’t take.

A fair snapshot?
Although 401(k) statistics are interesting, you should take them with a grain of salt. Many people make big investments outside their 401(k)s that can change things dramatically.

But you can still take a few lessons from the report:

• Take charge. Don’t just rely on your plan’s default choice. Look into your investment options and choose the ones that make sense for you.
• Save more. The thing you have the most control over with your retirement nest egg is how much you set aside from your paycheck. The more you can live without now, the more you’ll have later.
• Don’t panic. It appears that whether it was simple inertia or conscious choice, most participants stayed the course throughout last year’s panic. Stick with your long-term investing plan and you should also come out ahead in the long run.

Your 401(k) is one of the most valuable tools you have for retirement. Make the most of it, and you’ll get the results you want.

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