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.

With so much information out there about IRAs, people have to decide for themselves which IRA is good fit. The following article goes through the basics in selecting an IRA.

Tips For Finding The Right IRA

by Mark P. Cussen

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

Since their inception in 1982, individual retirement accounts (IRAs) have grown to become one of the most popular retirement savings vehicles in America. Virtually every financial institution in the country offers this type of account, including banks, brokerage firms, independent investment advisers, life insurance companies and trust companies. However, knowing which type of account is right for you can be difficult unless you know exactly what it is that you need.

TUTORIAL:

Types of IRA Custodians
If you want to invest your IRA in CDs or other guaranteed instruments, then a bank or fixed annuity carrier is probably your best bet. If you prefer to invest in stocks or other securities such as mutual funds, then a brokerage firm or investment advisor will be able to meet your needs. Mutual fund companies also offer IRAs that invest directly in their own fund families. If you are content to invest with a single fund company, then this may be the most convenient option for you. There is probably no one “right” option for most people; many different institutions can do many of the same things. For example, most banks have investment consultants who can purchase mutual funds and other securities just like a conventional stockbroker or investment advisor, and many life insurance companies can offer IRAs that invest in mutual funds through a variable annuity contract.

Fees and Deductions
You should always find out whether or not your IRA charges an administrative fee of any kind. Many IRAs charge anywhere from $25 to $100 per year to cover administrative and custodial costs (this fee is often waived for customers with balances above a certain amount, such as $100,000 or $250,000). Of course, all IRA custodial fees can be written off on Schedule A of the 1040 form for those who are eligible to itemize deductions as a miscellaneous investment expense. Those who have created investment companies and make a business out of managing their investments can deduct these fees as an above-the-line business expense.

Custodial Services
Most IRA custodians will also now allow you to transfer money electronically to and from your account and will even calculate your required minimum distribution (RMD) for you and send it to you if necessary. Most custodians can send your RMDs on a monthly, quarterly or annual basis according to your wishes. However, most IRAs that are offered by institutions, such as banks, insurance and fund companies, will not allow you to buy certain types of investments, such as derivatives, oil and gas interests or real estate. If you want to do this, then you will have to use one of the self-directed IRA custodians that can facilitate this type of transaction. Therefore, in order to choose the type of IRA that’s right for you, you will need to have a clear idea of what types of investments you intend to purchase, what firms are willing to take custody of them and also the general level of fees that you are willing to pay for this.

Obviously, this is a fairly easy task in many cases. If you want to invest your IRA in CDs, then any bank will do. Just do some comparison shopping to see who has the best rates. Other times this is a more complex issue, especially for those who want to buy mutual funds or equities. A good deal of research may be necessary in order to determine the selection of investments that best meets your needs.

Traditional Vs. Roth IRA
One of the biggest decisions that IRA owners must make is whether to contribute to a traditional IRA that has deductible contributions and taxable distributions or a Roth IRA that has nondeductible contributions and tax-free distributions. In many cases, the Roth is the clear choice, especially for those in a lower tax bracket who will not benefit materially from the current deduction they get for their annual contributions. Roth IRAs also do not have mandatory minimum distributions that must begin at age 70.5.

The Bottom Line
There are several factors that can determine which type of IRA is right for you, including your tax bracket both now and at retirement, your investment objectives and time horizon, and the manner in which you plan to take your withdrawals. For more information on IRAs, download Pub. 590 from the IRS website at http://www.irs.gov/ or consult your financial advisor.

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 is from Charles Schwab’s magazine OnInvesting. The article discusses six mistakes to avoid IRA tax traps. Read on to learn how to avoid those costly mistakes.

IRA Tax Traps

To view the entire article, please visit oninvesting.schwab.com.

Americans hold a combined $5.2 trillion in assets in individual retirement arrangements (IRAs).  These accounts often provide tax benefits, which can make them a great way to build wealth for your retirement and your surviving loved ones.

Investors who contribute to a traditional IRA get an upfront tax benefit, if they qualify, by deferring taxes until they take withdrawals in the future. Others, if eligible, may open a Roth IRA and contribute after-tax money in exchange for tax-free distributions down the road.

Of course, tax rules are notoriously complex, so with these IRA tax benefits come tax pitfalls. On Investing caught up with Rande Spiegelman, Vice President of Financial Planning at the Schwab Center for Financial Research, to discuss common IRA misconceptions and the associated tax ramifications.

Says Rande of IRAs and taxes: “IRAs are great, but can be a real tax trap for the unwary. If you run afoul of IRS rules surrounding your account—even by accident—the penalties can be severe, all the way up to the disqualification and taxation of your entire account.”

Here, On Investing lays out six of the most common mistakes investors make concerning contributions, investments and withdrawals—and ways to fix or avoid them.

MISTAKE 1
Contributing Too Much
If you contribute more than the law allows in any year—based on contribution or income limits for your filing status, or age limitations²—the IRS will penalize you 6% of the excess amount for each year in which you fail to take corrective action. If, for instance, you contributed $1,000 more than allowed, you would owe $60 each year until you corrected the mistake.

Solution: Withdraw the excess amount, plus any earnings specifically tied to it, by the due date (plus extension) of your tax return for the year the contribution was made. Alternatively, you could recharacterize the excess contribution as a contribution to another IRA type before the due date (plus extension). For example, if you’re over the limit for a Roth IRA because of income restrictions, you still might be eligible for a traditional, nondeductible IRA.

If you choose to withdraw the excess contribution, note that the tax treatment for that withdrawal depends on when the money is removed (before or after the filing of the return) and whether or not the contribution was originally deductible. Regardless, any interest or income attributable to the excess contribution will be subject to income tax and a 10% penalty if you’re under age 59½.

“In some cases, an investor might choose to leave the excess contribution alone,” Rande says. For example, the amount might be so small that the 6% penalty isn’t worth the hassle of withdrawal or recharacterization, and you can count the excess as a deemed contribution in the next year.

MISTAKE 2
Prohibited Investments
Self-directed IRA investors should be aware that rules prohibit investing in collectibles, including artwork, antiques, metals, gems, stamps and coins.

You can use your IRA to invest in certain gold, silver and platinum metal coins minted by the US Treasury Department, and also certain gold, silver, palladium and platinum bullion. But if you invest directly in collectibles, the amount invested will be considered distributed in the year invested, and will be subject to applicable tax and 10% early-withdrawal penalty if the investment took place before you reached age 59½.

Owning real estate directly in an IRA isn’t prohibited, but you could find yourself engaged in a prohibited transaction if you buy and sell individual properties and are not extremely careful.

Solution: Unfortunately, there isn’t anything you can do to fix the mistake retroactively, so this is one error you’ll want to get ahead of. If you plan to invest in precious metals or real estate through your IRA, consider a real estate investment trust (REIT), or a specialized mutual fund or exchange-traded fund (ETF) to avoid direct investment.

MISTAKE 3
Prohibited Transactions
Regardless of what you invest in, you need to avoid prohibited transactions, since they could cause your entire IRA to lose tax-deferred status. Prohibited IRA transactions include borrowing money from it, selling property to it, receiving unreasonable compensation for managing it, using it as security for a loan, and using IRA funds to buy property for personal present or future use.

If you engage in a prohibited transaction, your entire account loses its IRA status and becomes a regular (taxable) investment account. The account is treated as having made a taxable distribution of all of its assets to you based on fair market value on the first day of the year, plus additional excise taxes in some instances. “This is as bad as it sounds,” Rande says. “Engaging in a prohibited transaction could mean the end of your IRA.”

Solution: Read the fine print on your account and check out IRS Publication 590 to help avoid prohibited transactions. If you’re still unsure of what you can and can’t do, consult a financial planner to avoid this potentially costly error.

MISTAKE 4
Restricted Rollovers
You can make unlimited transfers of your IRA funds from one trustee (usually a brokerage or financial services firm) to another in any given year. It’s when you take receipt of the money yourself that you face a number of restrictions. First, you have 60 days to redeposit it into the same or another IRA before it counts as a taxable distribution (plus penalty if you’re under age 59½). And, critically, you only get to roll over your funds this way once per 12-month period, per IRA. If you deposit the funds into another IRA and then attempt another rollover with the same accounts in a 12-month period, the withdrawal is immediately taxable.

Solution: Rande says, “If you need to switch custodians, play it safe and stick to the direct trustee-to-trustee transfer method.”

MISTAKE 5
Premature Withdrawals
If you take an unqualified withdrawal from your IRA before age 59½, you will incur a 10% federal early-withdrawal penalty plus ordinary income tax on any of the amount considered deductible contributions or earnings (state penalties may also apply). And even if you avoid the 10% federal penalty by taking a qualified distribution (such as to fund the purchase of your first home or to pay for higher education), you’ll still pay income tax. More importantly, you’ll have less money working for your retirement because you will lose out on some of the potential for compounded growth.

Solution: Seek out other sources for needed funds, such as personal savings or loans, first. Rande points out that investors should consider their retirement accounts as a last resort for anything but retirement. Remember, you can only contribute so much to IRAs annually, and may never be able to make up for lost ground.

MISTAKE 6
Missing Your Required Minimum Distributions
If you’re age 70½ or older, or if you’ve inherited an IRA from someone other than your spouse, you must take required minimum distributions (RMDs) from your IRA each year. Original owners of Roth IRAs are exempt from RMD rules. The penalty for failing to take your RMD is a 50% excise tax on the required distribution amount plus applicable ordinary income tax.

Solution: Make sure you take your RMDs on time. Investors must take their RMDs by December 31 each year. The one exception is the year you turn 70½, when you have the option of waiting until April 1 of the following year, though doing so means taking two distributions in one year and potentially increasing your annual income (and income tax rate).

The bottom line is, be careful. Before making any IRA decisions, do your homework, including consulting with your tax advisor. As Rande points out, “IRAs are powerful retirement tools that can help increase your wealth. But investors need to be aware of the tax traps and how to navigate around them.”

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 Department of Labor has come out with ten tips to better prepare for retirement. The following article is a summary of their tips.

Top 10 Ways to Prepare for Retirement

Please visit www.dol.gov to view the entire article.

Financial security in retirement doesn’t just happen. It takes planning and commitment and, yes, money. Putting money away for retirement is a habit we can all live with. Remember…Saving Matters!

1. Start saving, keep saving, and stick to your goals

If you are already saving, whether for retirement or another goal, keep going! You know that saving is a rewarding habit. If you’re not saving, it’s time to get started. Start small if you have to and try to increase the amount you save each month. The sooner you start saving, the more time your money has to grow. Make saving for retirement a priority. Devise a plan, stick to it, and set goals. Remember, it’s never too early or too late to start saving.

2. Know your retirement needs

Retirement is expensive. Experts estimate that you will need about 70 percent of your preretirement income – lower earners, 90 percent or more – to maintain your standard of living when you stop working. Take charge of your financial future. The key to a secure retirement is to plan ahead.

3. Contribute to your employer’s retirement savings plan

If your employer offers a retirement savings plan, such as a 401(k) plan, sign up and contribute all you can. Your taxes will be lower, your company may kick in more, and automatic deductions make it easy. Over time, compound interest and tax deferrals make a big difference in the amount you will accumulate. Find out about your plan. For example, how much would you need to contribute to get the full employer contribution and how long would you need to stay in the plan to get that money.

4. Learn about your employer’s pension plan

If your employer has a traditional pension plan, check to see if you are covered by the plan and understand how it works. Ask for an individual benefit statement to see what your benefit is worth. Before you change jobs, find out what will happen to your pension benefit. Learn what benefits you may have from a previous employer. Find out if you will be entitled to benefits from your spouse’s plan.

5. Consider basic investment principles

How you save can be as important as how much you save. Inflation and the type of investments you make play important roles in how much you’ll have saved at retirement. Know how your savings or pension plan is invested. Learn about your plan’s investment options and ask questions. Put your savings in different types of investments. By diversifying this way, you are more likely to reduce risk and improve return. Your investment mix may change over time depending on a number of factors such as your age, goals, and financial circumstances. Financial security and knowledge go hand in hand.

6. Don’t touch your retirement savings

If you withdraw your retirement savings now, you’ll lose principal and interest and you may lose tax benefits or have to pay withdrawal penalties. If you change jobs, leave your savings invested in your current retirement plan, or roll them over to an IRA or your new employer’s plan.

7. Ask your employer to start a plan

If your employer doesn’t offer a retirement plan, suggest that it start one. There are a number of retirement saving plan options available. Your employer may be able to set up a simplified plan that can help both you and your employer.

8. Put money into an Individual Retirement Account

You can put up to $5,000 a year into an Individual Retirement Account (IRA); you can contribute even more if you are 50 or older. You can also start with much less. IRAs also provide tax advantages.

When you open an IRA, you have two options – a traditional IRA or a Roth IRA. The tax treatment of your contributions and withdrawals will depend on which option you select. Also, the after-tax value of your withdrawal will depend on inflation and the type of IRA you choose. IRAs can provide an easy way to save. You can set it up so that an amount is automatically deducted from your checking or savings account and deposited in the IRA.

9. Find out about your Social Security benefits

Social Security pays benefits that are on average equal to about 40 percent of what you earned before retirement. You may be able to estimate your benefit by using the retirement estimator on the Social Security Administration’s website.

10. Ask Questions

While these tips are meant to point you in the right direction, you’ll need more information.  Talk to your employer, your bank, your union, or a financial adviser. Ask questions and make sure you understand the answers. Get practical advice and act now.

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 outlines five mistakes to avoid to protect your retirement savings.

5 Ways To Lose Your Retirement Nest Egg

visit Investopedia to view the complete article

1. Making Ineligible Rollovers to Your IRAs
Rolling over funds you receive as distributions from your retirement account helps you to defer including these distributions in your income, and to ensure that any earnings on such amounts accrue on a tax-deferred (or tax free, for Roth IRAs) basis.

However, this is the case only if the amount is rollover eligible. Ineligible rollovers can result in severe penalties being owed to the IRS, and any taxable portion of the amount rolled over to your IRA must be included in your income for the year the distribution occurred.

2. Making Excess Contributions to Your IRA
IRA contributions are limited to the lesser of 100% of eligible compensation or the contribution limit for the year. Should you contribute more than the allowable limit to your IRA, you must remove this excess amount from your IRA by the applicable deadline. Similar to ineligible rollovers, failure to remove the excess amount by the deadline will result in you owing the IRS a penalty of 6% of the amount for each year it remains in your IRA.

3. Making Ineligible Roth Conversions
A Roth IRA conversion is viewed by many as a good financial planning move because earnings accrue on a tax-deferred basis, while distributions are tax-free if qualified. If you make an ineligible Roth conversion, it can be corrected as a recharacterization. Should you fail to recharacterize an ineligible conversion on a timely basis, the amount will be treated as ordinary income from your Traditional IRA and an excess contribution to your Roth IRA. Therefore, not only would you lose the tax-deferred status of your IRA assets, but you would also owe a 6% penalty for each year the excess contribution remains in the Roth IRA.

4. Failing to Distribute Your RMD
You must begin taking RMDs from your Traditional, SEP and SIMPLE IRAs, qualified plan, and 403(b) accounts the year you reach age 70.5, and must continue for each subsequent year. Exceptions apply to qualified plan accounts and 403(b) accounts if you are still employed and your employer allows you to defer beginning RMDs from such accounts until after you retire.

Failure to take your RMD by the applicable deadline will result in you owing the IRS an excess accumulation penalty of 50% of the RMD shortfall. While it is not required that this penalty be withdrawn from your retirement assets, you may have no choice but to use your retirement assets to pay it if you have no other financial resources. You may apply for a waiver of the penalty, but you are generally required to pay the penalty first and request the waiver thereafter.

5. Engaging in Prohibited Transactions
You are prohibited from using your IRAs in certain transactions. For example, your IRA cannot be used as security for a debt or to invest in collectibles. Engaging in these transactions could result in loss of tax-deferred status for the assets involved in the transaction and, in some cases, loss of tax-deferred status for the entire IRA. The following are a few examples:

Conclusion
Most taxpayers now find it natural to consult with investment advisors, tax professionals and attorneys; however, the same cannot be said for those who need assistance managing their retirement accounts. Few people seek assistance from a retirement planning professional for issues such as moving IRA assets and making IRA contributions, but they should. The number of individuals losing the tax-deferred status of their IRA assets and paying large penalties because they’ve misunderstood the portability rules and eligibility requirements for certain transactions is increasing at an alarming pace. Unless you are absolutely sure of the effect that a certain transaction will have on your IRA assets, you should consult with a financial professional who is well-versed in the rules and regulations of retirement plans. This is key to protecting and building your retirement nest egg.

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.

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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.

A continuation from last weeks article answering common questions about IRAs.

Nine Frequently Asked Questions About IRAs

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Question: I am 74-year-old single male. I currently have a traditional IRA that is worth approximately $170,000. My main purpose is to give this to my children upon my death. Would it be better to leave it in the traditional IRA or convert it to a Roth IRA?
Answer: Converting to a Roth is probably the way to go. You will no longer have to take mandatory distributions. You will save your children the trouble of paying federal income tax on your IRA after your death. And you will reduce your taxable estate by the amount of the tax bill on your Roth conversion. (Because you are over 59 1/2, you can use your IRA assets to pay the tax, penalty-free. Or you can pay the tax from your other assets, preserving the value of your IRA.)

Once you die, a Roth IRA is treated like any other IRA. That means that if your spouse is your beneficiary, she can treat the Roth IRA as her own. So no minimum withdrawals are required as long as she lives. If your beneficiary is not your spouse, the following rules apply.

If your children are named as your IRA beneficiaries, they can start to liquidate the IRA beginning on Dec. 31 following the year of your death. That liquidation must be completed over a period based on their life expectancies. Your children would also have the option to leave the money in the account, and liquidate it by December 31 of the fifth year after your death.

Another thing to keep in mind is that earnings must be in the Roth for at least five years before they can be withdrawn tax-free. So, if the Roth IRA is not five years old, beneficiaries taking withdrawals need to follow the ordering rules for Roth IRAs. That means the first withdrawals will come from annual after-tax contributions. The next layer comes from contributions of converted traditional IRA money first the taxable amount, then from the nontaxable amount (if any). The last layer comes from Roth IRA earnings.

Question: Can I roll over only the nondeductible contribution portion of my traditional IRA to a Roth IRA and thereby avoid the taxes that would be due on a rollover of my IRA earnings?
Answer: No. “You can’t just take out the cream,” says Ed Slott, a CPA in Rockville Centre, N.Y., and publisher of the newsletter. If you choose to do a partial conversion, every dollar you convert will be treated as a “blended” dollar. For example, if 20% of your current IRA assets consists of nondeductible contributions and the remainder is deductible contributions and earnings, you will owe income tax on 80 cents of each dollar you convert to Roth IRA status. Note: If you have multiple IRAs, you must add the assets together when calculating what portion of your partial conversion will be taxable.

Question: My spouse and I are both self-employed and have each been contributing to a SEP IRA. Can we convert this SEP IRA to a Roth IRA?
Answer:Yes. The tax regulations allow you to directly convert a SEP account into a Roth IRA. However, after the conversion, you can’t continue making deductible SEP contributions to what is now a Roth IRA. So, you’ll have to set up a new SEP account if you want to make further deductible pay-ins.

Question: If I convert from a traditional IRA to a Roth, is the gain considered ordinary income or a long-term capital gain?
Answer: The gain in your IRA is taxed as ordinary income. So, your federal income tax rate can be as high as 35%.

Question: I am single and retired with an AGI well under $110,000 but no earned income for 2012. Can I contribute to a Roth IRA for this year?
Answer: Unfortunately not. Annual contributions to Roth IRAs, just like traditional IRAs, can only be made for years when you have earned income. However, you can convert your traditional IRA into a Roth if you are willing to pay the upfront tax hit. There is no earned income requirement for conversions, there is no longer any restriction on Roth conversions for those with high incomes.

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.

For 2012, you can contribute up to $5,000 annually to your IRAs ($6,000 if you are 50 or older by the end of the year), assuming you have at least $5,000 ($6,000) in earned income for the year. The following articles provides additional information on the contribution limits for your IRA.

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Regardless of the type of IRA you choose, the Federal government imposes annual contribution limits. The chart below shows the maximum dollar amount individuals are allowed to deposit into their IRA each year. After 2010, the contribution limit will raise in increments of $500 depending upon the level of inflation.

Deposits into your IRA do not have to be made at the same time. (For example: a 35 year old woman could deposit $416.67 into her IRA each month. At the end of the year, it would add up to the maximum $5,000.)

Due to the tax advantages of investing through an IRA, it is normally best to try and make the maximum annual contribution. The use-it-or-lose-it nature of contributions makes this all the more important (e.g., If you deposit $3,000 in 2009, you can’t deposit $7,000 in 2010 [the $5,000 + the $2,000 you didn't deposit the prior year]. You cannot contribute more than the total allowable amount during any fiscal year.)

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.