It is important to understand the value of a Roth IRA when you are planning for your retirement. Below is an article that will give you more information about Roth IRAs to help you in your decision making.

Roth:  Four Little Letters Leading to Financial Security

Written by James Lange, JD, CFP
Roth IRA Advisor

Roth IRAs and their more recent cousins, the Roth 401(k) and Roth 403(b), offer outstanding retirement and estate planning opportunities to most readers who qualify. Further, the chance to benefit from a Roth account does not end when employment ends, as Roth IRA conversions are favorable for many retirees. A significant change to the tax law effective in 2010 has the potential to significantly enhance the benefits of your retirement savings. The change which is now effective is that there is no income cap for Roth IRA eligibility for 2010. This means regardless of income, all IRA owners will be eligible for a Roth IRA conversion. Previously, only those with incomes under $100,000 could do a conversion.

If you are unsure about using a Roth plan, read on and discover how a Roth retirement plan can help provide you and your family with long-term financial security. In most cases, you will be better off and in many cases, you could start the foundation for a tax-free dynasty.

Roth IRA Contributions - Rules and Recommendations

In most cases, we recommend that you make a $5,000 Roth IRA contribution for yourself and (if applicable) a $5,000 contribution for your spouse for 2010. If either you or your spouse is over age 50, these amounts are increased to $6,000.

According to Roth IRA rules, to qualify for the maximum contribution, married taxpayers filing a joint return must have combined Adjusted Gross Income (AGI) of less than $166,000 (for 2009) or less than $167,000 (for 2010) and your earned income must be at least as much as the amount you want to contribute to the Roth IRA. For singles, you must have an AGI of less than $105,000 and an earned income of an amount at least equal to the contribution amount.

If you are wealthy and have qualifying children or grandchildren (i.e., the children are earning at least $5,000), please consider giving any eligible child or grandchild a gift of $5,000-with the stipulation that he or she should put the money into a Roth IRA for themselves.

Why is a Roth IRA Better than a Regular IRA?

Roth IRAs, with a few exceptions, grow income-tax free and owners are not required to begin taking minimum distributions at age 70½. Your Roth IRA can continue to grow tax-free for as long as you, or possibly your children or grandchildren, own it.

Regular IRAs grow tax-deferred, and both the original investment and the growth will be taxed when the money is withdrawn.

The disadvantage of the Roth IRA is that you do not receive a tax deduction when you make a contribution. In effect, Congress is taxing the seed (your contribution), but you reap the harvest (your withdrawals) tax free. In contrast, with a traditional IRA, you are not taxed on the seed, but your harvest is taxed.

The exception to our preference for the Roth over the regular IRA would be when you can anticipate that your income tax bracket will be lower later. However, even with a lower tax brackets in retirement, the Roth IRA can still be a better choice unless a short investment period is anticipated.

Roth IRA Conversion

Now that the $100,000 income limit is gone, you should give serious consideration to converting at least a portion of your current regular IRA to a Roth IRA. For most clients, we generally recommend a partial conversion. Making the conversion does require paying taxes on the converted amount to the extent it produces taxable income and larger conversions can result in taxes at higher rates. But, taking that tax payment into account, a strategic amount of conversion provides a dramatic increase in long-term benefits to your family.

How much better off are you? In the simple example graphed below using consistent tax rates, if you convert $100,000 today, then in 20 years, you are $51,227 ahead (using reasonable assumptions too lengthy to list).

But, then please consider this scenario: what if you die 20 years after you make the conversion and you opt to leave the Roth IRA to your 55-year-old child?

How much better off is your child? $1,537,493. To be fair, that is in future dollars. The present value of the benefit to your child or children in today’s dollars is $260,963 adjusted for 3% inflation.

But, what if you instead decide to leave the Roth IRA to your 25-year-old grandchild?

How much better off is your grandchild? $2,555,058. Again, to be fair, that is in future dollars. The present value of the benefit to your grandchild or grandchildren in today’s dollars is $433,678 adjusted for 3% inflation. This is a greater advantage than for the children because the younger grandchildren have lower required minimum distributions and thus more tax-free growth than do the children.

What if the Tax Rates Go Up?

You will be ecstatic that you made the conversion. If you convert when taxes are lower and cut taxable income when taxes are higher, the benefits of the conversion will be much better than the graphs indicate.

What if We Abolish the Income Tax?

Oops, your hot air balloon will be deflated. You would have paid income tax for nothing.

Estate Planning for Roth and Regular IRAs

While conducting your estate planning, please keep in mind that it is not your will or living trust that establishes who will inherit your IRAs, Roth IRAs and retirement plans. Those determinations are controlled by the beneficiary designations that you have chosen for each of these specific plans. Many readers have complicated wills, but they make the mistake of not doing the same depth of planning when specifying their IRA and retirement plan beneficiaries. IRA owners and retirement plan participants should consider whether they need sophisticated IRA and retirement plan beneficiary designations, in addition to sophisticated wills or living trusts. An integrated tax-savvy approach including wills, trusts and retirement plan beneficiary designations will dramatically increase the amount of the funds retained by the family.

Discover the wealth-building power of a Roth IRA!

James Lange, CPA, JD, is a nationally recognized tax and retirement and estate planning attorneywith a thriving practice in Pittsburgh, Pennsylvania.  He is also the author of the bestselling book Retire Secure! Pay Taxes Later:  The Key to Making Your Money Last as Long as You Do. He offers well researched, time tested recommendations focusing on the unique needs of individuals with appreciable assets in their IRAs and 401(k) plans.  His plans include tax-savvy advice, will and trust preparation, and intricate beneficiary designations for IRAs and other retirement plans.  Jim’s advice and recommendations have received national attention from syndicated columnist Jane Bryant Quinn, his recommendation frequently appear in the Wall Street Journal,  and his articles have been published in Financial Planning, Kiplinger’s Retirement Report and The Tax Adviser.

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 josipbroz

Understanding your options to save for retirement can be daunting. The following article gives basic information about the different types of individual retirement accounts (IRAs) to help you prepare for your financial future.

Invest in an IRA to build your savings and get tax benefits

Provided by Charles Schwab 

An IRA is an easy way to save for retirement. You get to choose the investments you want, your earnings can grow tax-deferred and withdrawals you take at retirement may be tax-free. Select your IRA from the list below or use the Schwab IRA Analyzer to help you decide.

Traditional IRA

A traditional IRA is a great way to build your retirement nest egg while enjoying tax benefits. You won’t pay tax on your earnings until you make withdrawals, and your contributions may be tax-deductible. This could be the right choice for you if you are under 70 ½ and have earned income.

Roth IRA

With a Roth IRA, your contributions aren’t tax-deductible- but your earnings grow tax-deferred and withdrawals can be made tax-free. Unlike a traditional IRA, you don’t have to make annual withdrawals at a certain age. A Roth IRA could be the right choice for you if you expect to be in a higher tax bracket in the future.

Rollover IRA

If you have assets in an old employer-sponsored retirement plan, it’s easy to move them into a Schwab Rollover IRA. You keep the tax benefits and get to choose how your money is invested. This could be the right choice for you if you’ve changed jobs or retired.

Inherited IRA

If you’re the beneficiary of an IRA, opening an inherited IRA will preserve the tax-deferred status of the account. This could be the right choice for you if you don’t have an immediate need for the cash and you want to avoid taxes that would be due if you were to take the assets as a lump sum.

Custodial IRA

A custodial IRA makes it possible to set up a retirement account for a minor so that he or she can benefit from tax-free or tax-deferred growth. Custodial IRAs require that an adult be named as custodian of the account until the minor reaches the age when he or she can take control of the assets. This could be the right choice for you if you’re the parent of a child under 18 who has earned income.

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.

Your investment risk tolerance is the amount of stress you experience when your account declines. If you invest too aggressively for your risk tolerance, then at some level of decline you may reach a breaking point. When that point is hit, many investors feel the need to sell their investments in order to protect themselves. As a result, they make the classic mistake of selling out right at the market bottom just before the market rebounds. This causes them to lock in their losses and miss out on future gains.

We invite you to watch this video and then take a short 10-question survey to determine 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 E l u s i v e E y E

Finding a financial advisor can be daunting. This is because the title “financial advisor” is not regulated, and advisors range the gamut from annuity sales people to insurance agents to registered money managers.

Who you select to be your financial advisor is largely dependant upon your goals, financial situation, state of life and investment style. If you are just looking to buy insurance, there are certainly no problems buying from an insurance agent. But, if you are interseted in investing in your 401k or other funds for long-term growth, it is crucial that you understand how to select the top money managers that will help you grow your instement portfolio over time.

You should ask the following 7 questions before you select a financial advisor. We also invite you to watch a short video for additional information on How To Select A Financial Advisor.

#1 - Is the advisor a fiduciary advisor? Do they have the legal obligation to put your interest ahead of their own?

#2 - Does the advisor have at least 10 years of experience? 

#3 - Can the advisor produce a clear report that shows exactly what their track record has been over the years?

#4 - Does the advisor have a conflict of interest? Are they paid based on a commission for selling you a product you may not need?

#5 - Do they have a surrender charge? Are you free to move your money out of an investment if you are not satisfied?

#6 - How will your funds be protected? 

#7 - Will the advisor work with you to determine your risk tolerance and make sure your investments are in line with your ability to tolerate risk? 

To download the complete article visit paragonwealth.com. 

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 Rick Brotherton

When it comes to building a retirement portfolio it is important to take a comprehensive look at all your investments and organize them into a collective portfolio. This will ensure that your long-term objectives and risk tolerance are truly in line with how you are currently saving for your retirement. The following article discusses three main things to keep in mind when preparing for retirement.

Things To Consider When Building Your Retirement Portfolio

Article taken from Investing Toolkit

#1 Put Your Retirement Plan in Writing

It is important to begin by assessing your expected retirement needs, anticipated lifestyle, and current assets. Before you can adequately evaluate the essential components you will need to build your portfolio, you have to know where you are beginning and what your final goal is. Let’s take a look at the major components that make up a retirement portfolio:

• Pension
• 401k
• IRAs
• Stocks, bonds, mutual funds, certificates of deposit, and treasuries
• Real estate
• Social Security Income

You may well have some of these items in place. So to start out, you need to take a written inventory of what you have in place. This will give you your starting point for your map to retirement freedom.

#2 Know Your Financial Goals

Once you know what your starting point entails, you can decide what you will actually need to have in place to achieve your retirement goals. There are certain items that should be put in place as quickly as possible.

If your employer offers a pension or 401k program, especially if they provide fund matching, you should absolutely - at the very least - participate up to the match point. This is a way to immediately double your investment. Find out if you qualify for an IRA; in particular, check into the Roth IRA. There are many benefits specific to the Roth, including the fact that all contributions can be withdrawn at any time tax free as the contributions are made after taxes.

#3 Save For Competing Goals

Before saving for retirement, make sure you have higher priority financial goals addressed such as saving for things you may need for the shorter term. For instance, save for an emergency fund by keeping around 6 to 9 months’ worth of expenses in a safe, liquid account.

Also, if you are renting a home, it is wise to save up towards purchasing your own home. Instead of throwing money away on rent, you will be building equity in something of your own. There are also several tax benefits that go along with home ownership, including tax-deductible interest and a one time capital gains tax exemption if you sell.

Other common goals to save for include your children’s (or future children’s) educational funds. But take note that if you have to decide between saving for retirement vs your kids’ college education, you should prioritize towards retirement saving and investing.

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 past few months we have been working on some new videos about Paragon Wealth Management to help investors understand who we are and what we are all about. This short video is an introduction our company. It also shares our views on active money management vs. buy and hold. This video was created for our website. If you would like to see steps 1, 2, and 3 mentioned at the end of the video, visit www.paragonwealth.com

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 uruandimi

How It Works/Example:

Active management is the opposite of passive management (also known as buy-and-hold investing). Instead of dismissing short-term trends and focusing on long-term profits, active managers believe short-term price movements are important and often predictable. In this vein, active managers often refer to statistical anomalies, recurring patterns, and other data that supports a correlation between certain information and stock prices.

For any given investment, the passive manager is likely to rely more on the fundamental analysis of the company behind the security, such as the company’s long-term strategy, the quality of its products, or the company’s relationships with management when deciding whether to buy or sell. This type of analysis is largely intended to evaluate the investment’s long-term potential, which is the passive investor’s typical investment horizon.

The active manager, however, seeks to detect and exploit short-term trends in a security. This often involves quantitative and technical analyses, including ratio analysis, stock chart analysis, and other mathematical measures that have less to do with the nature of the company and more to do with trading patterns, news, and other market factors. An active manager’s investment horizon can be months, days, or even hours or minutes.

Active managers are more likely to use leverage than passive managers because they are as concerned with mitigating short-term risk as they are about exploiting short-term gains. This in turn introduces more risk into an active portfolio but may also provide higher returns.

Why It Matters:

In general, the constant analysis associated with active management involves more trading activity than passive management. Active trading thus also generally requires more time and education than passive management, and it is important to note that the higher trading commissions and capital gains taxes may translate to higher management fees and return requirements.

The idea of active management is not immune from controversy. Passive managers note that active managers frequently fail to match or beat their benchmarks, and they question the reliability of active managers’ methods for recognizing and predicting trends. But the most notable areas of disagreement between active and passive managers are theoretical rather than mechanical.

Many passive managers espouse the efficient market hypothesis, which says that stock prices are random and already reflect all available information. A cousin of this hypothesis, the random walk theory, also claims it is impossible to consistently outperform the market, particularly in the short term, because it is impossible to predict stock prices. 

Regardless, active management enjoys a large and loyal following among investors, and many active managers have posted returns well above market benchmarks. However, consistently providing above-average returns remains a big challenge.

No matter where they rest on the issue, most analysts encourage even the most passive investor to learn about and understand active management methods, stay current on their investments, and know how to read stock charts.

photo by thefuturistics

This article gives several good tips to help you save money and plan for an enjoyable retirement. Feel free to leave your comments and thoughts on the subject.

Financial Tips for a Better Future

Taken from the Article Directory Online

In this era of credit crunch, people are going through tough time of their lives, as it is driving people out of their jobs, and causing the businesses to shutdown. People are now using their saved up money, which is consuming their savings, which they have accumulated over the years.

Saving money should be your lifestyle, but not everyone is good at it. There are ways to stretch your money and to save them in the bank accounts. First of all, we have to stop the extravagant spending and should start using our money wisely. If we start from today, we will be able to save a lot, and ultimately it will pay us back in huge dividends. Let us have a look at certain tips which can help us getting grip on our bank balance.

For a start, one must have a planned budget, which must be followed, people do not have such habits, and in this time of credit crunch, it is important to do so. When one sticks to plans, which will eventually lead to better debts payments, and savings for holidays, educational purposes, and for emergencies, and above all for carefree life after retirement.

If you keep track of your spending you would know where your money is going, and when you know where your money goes, you know where you are spending. If you limit the purchase of luxury items, which includes your usual morning coffee, you would definitely save a lot of money by the end of every month. By knowing your spending, you would avoid late or overdraft fees and interest payments on your account. Following this method with your budget will be a dynamic duo!

You can get membership of local area library to have access to movies, and DVDs at much lesser cost as compared to the video rental stores, which will help you a lot in saving. Moreover, you can also borrow books of your interest instead of buying them from bookstores.

Getting rid of the TV cable connection can be very useful in different ways. First, it will be a way to save. Secondly, people think that TV cable is one of the major ways to get cheap entertainment, and to remain informed about the happenings of the outside world. In fact, without cable TV, you can give more time to your family, and can spend holidays with them. Moreover, you can do some constructive household project to keep yourself busy . Thirdly, when there is no cable TV, one will have free mind with respect to its bill payment.

The struggling class of the society is usually the one who cannot pay their bills on time. Late payment of the bill will lead to credit payments, which will keep increasing your debt, this may lead to worsen financial standing then before. Thus, one should pay the bills on time to stay out of trouble.

By limiting the spending on luxury, you would have more money in the pocket at the end of each month. Moderation is what is required in the first place. Do not go for brand names; purchase what looks good on you. Do not waste your money on cigarettes and tobacco stuff. This will not do well but will only damage your health.

A Roth IRA (individual retirement account) is one of the most exiting retirement planning opportunities currently available. Tax-free growth is a Roth IRA’s most important benefit. Roth IRA considerations include:

Who Should Open a Roth IRA

A Roth IRA is particularly attractive to

• those not eligible to receive a 401(k) employer matching contribution
• those able to save more for retirement than the amount that their employer matches

With opportunities for tax-advantaged growth limited, a Roth IRA is a great way to become financially independent by retirement.

How and Where to Open a Roth IRA

You can open a Roth IRA at nearly any bank or brokerage house, either in-person or online. Opening a Roth IRA is a very simple process, typically with help readily available. Often, there are just a few forms for you to complete. Bring your Social Security number with you as well as the Social Security numbers and addresses of any potential beneficiaries of your account.

Earned Income and a Roth IRA

The amount you are permitted to contribute to a Roth IRA is limited to your earned income. Earned income includes wages and self-employment earnings, but does not include interest or dividends. If you are married, your combined contribution limit is restricted to the total of your combined earned income.

Contribution Limits for Roth IRAs

For the year 2008, the most you can contribute to a Roth IRA is $5,000. If you are 50 or over, you may contribute a total of $6,000. If you have earned income, you can contribute to both a traditional IRA and a Roth IRA, but the combination of your contributions cannot exceed $5,000 ($6,000 if 50 or over).

Roth IRA Contribution Deadline

Each Roth IRA contribution relates to a specific calendar year. You can make a contribution from January 1 of that year until the filing deadline of your tax return.

No Tax Deduction for Roth IRA Contributions

No tax deduction is available for a Roth IRA contribution. (Many individuals receive a tax deduction for their traditional IRA contributions, however.)

Earn Tax-Free Growth from a Roth IRA

The money you contribute to your Roth IRA grows tax-free. You do not have to pay any taxes on the earnings in the account. In fact, you do not even report the income to the IRS. Even in retirement, when you ideally first access your Roth IRA money, you do not owe taxes on the distribution. If you take your Roth IRA money prior to retirement, however, taxes may be due.

Income Limitations and Roth IRAs

Eligibility to contribute to a Roth IRA is restricted by your filing status and modified adjusted gross income. The Roth IRA income limitations change each year.

No Required Distributions from Roth IRAs

Unlike 401(k) plans and traditional IRAs, there is no age at which you must begin to distribute money from your Roth IRA. As a result, Roth IRAs are an excellent tool to pass along wealth to your children or grandchildren.