Most people do not have the same job over the course of their career. When they switch jobs, they will most likely need to look into IRA Rollovers. In the article below, you will learn about IRA Rollovers and if they are something that might benefit you in the future.

IRA Rollovers

Article From: Money-Zine.com

In this article we are going to discuss IRA rollovers.  We’ll going to start off by briefly discussing why an IRA rollover might be necessary, as well as provide you with a definition of a rollover.  We’re then going to explain the difference between a rollover and a transfer, and finish up with some of the rollover rules you need to be aware of to prevent you from encountering any income tax penalties.

What is an IRA Rollover?

Lifetime employment is a thing of the past, and so there are two things you can be pretty sure of:

• You’ll reach a point where retirement planning becomes a priority.
• There is a good chance that you won’t finish your career with the same employer that you started your career with.

Additional Resources

IRA Rollover IRA Withdrawals IRA Contribution Limits IRA Contribution Limits 2004 and 2005

While some companies will allow you to keep anyretirement savings you have with them in their plan’s account until you reach retirement age, there is a very good chance you’ll lose some flexibility in how that money is invested.

You may also wish to consolidate your retirement plans so that you don’t need to worry about managing several accounts.  If that’s true, then one day you may need to make a decision concerning an IRA rollover.

IRA Rollover Defined

An IRA rollover is a tax-free distribution from one retirement account that is contributed to an IRA.  There are several kinds of retirement accounts that can be rolled-over into a traditional IRA, including another traditional IRA, an employer’s qualified plan such as a 401(k) plan, deferred compensation plans (section 457 plan), and a tax-sheltered annuity plan such as a 403(b).

You should always check with your plan administrator to make sure you can take a rollover from your account.

IRA Rollovers versus Transfers

There are two ways of moving money between financial institutions - performing a transfer or doing a rollover.  Most of the time, it is far easier to do a transfer than a rollover - especially if your existing plan will accommodate the request.

With a transfer you would make arrangements with another financial institution to receive funds from your current institution.  The receiving institution then sends a request to the disbursing institution requesting a transfer of funds.  This is usually accomplished via a physical check.

This type of transaction does not have to be reported to the IRS, and requires very little work on behalf of the account holder’s part.  Transfers are sometimes referred to as direct rollovers, and are not subject to the 20% IRS withholding tax - which we discuss later on.

With a rollover, the retirement funds are distributed from the disbursing institution directly to the former account holder.  This means a check is sent directly to an individual, not another institution.

Unlike a transfer, a rollover is reported to the IRS.  This is to ensure that the individual receiving this money abides by the rollover rules, and deposits the money into another qualifying retirement account in a timely manner.

60-Day Rollover Rule

In general, you have 60 days to make the rollover contribution after receiving the distribution from your traditional IRA or an employer’s qualifying plan such as a 401k or 403b.  The IRS might waive the 60-day requirement if you can demonstrate that a significant hardship or event occurred that was beyond your control.  If you want to try and get a waiver, a request for a ruling must be made and a $90 fee may apply.

Rollover Extensions

You can qualify for an extension of the 60-day rule if the deposit becomes frozen at any time during the 60 days.  There are two specific rules that extend the rollover timeline.  Both of these rules have to do with frozen deposits - deposits that are held with banks that become insolvent or bankrupt.If the distribution becomes a frozen deposit, then the time during which the money is frozen does not count towards the 60 day timeframe.  Also, the 60 days cannot expire less than 10 days after the deposit is no longer frozen.

Rollover Withholding

If an eligible rollover is paid directly to you, then the distribution may be subject to 20% withholding. This rule applies even if you are merely rolling it over into a traditional IRA.  To avoid any tax penalties, you need to rollover 100% of your account money withdrawn into the receiving account

Rollover Withholding Example

Let’s take a closer look at this withholding rule.  Let’s say that you have $10,000 in an account that you want to move to a new retirement account.  If the money is sent directly to you, then you’ll receive $8,000 (20% will be withheld).  To avoid any tax penalties, you will have to send $10,000 to the receiving account.  That means you need to make sure you have access to funds to make up for the 20% withheld.  In this example, that amount is $2,000.

You can avoid the 20% withholding by have the distribution set up as a direct rollover, or transfer, as mentioned above.  This means that the money goes directly from the withdrawal account to the receiving account.  Retirement plan administrators do this all the time, and they can help walk you through the process.

Future Contributions and Rollover IRAs

There are some benefits of keeping a rollover IRA separate from any other IRAs you’ve been funding in the past, or would consider funding in the future.  That’s because once you make personal contributions to a rollover that is not from a company-sponsored plan then you will very likely lose the ability to move that rollover to a new company’s sponsored plan.

Rollover IRA Withdrawal Rules

The withdrawal rules for a rollover IRA are exactly the same as the rules for a traditional IRA.  The contributions and earnings are taxed when withdrawn after age 59 1/2.  Any withdrawals before the age 59 1/2 are taxable and subject to a 10% tax penalty.  Withdrawals from a rollover IRA must begin by the year after you reach 70 1/2.

For more information these types of distributions, including allowed exceptions to these rules, see our publication on IRA Withdrawals.

Roth IRA Rollovers

Finally, we’d like to mention that there really is no such thing as a Roth IRA rollover.  That’s because the IRS refers to the process of rolling-over a traditional IRA to a Roth IRA a conversion.  Unfortunately, the topic of converting a traditional IRA into a Roth IRA is far too complex to discuss here.

There are worksheets involved to figure out if you qualify; there are tax and withholding implications too.  Although we attempt to take fairly complex subject and explain them in plain English, this subject is best discussed with a tax professional.  For the ambitious readers out there, you can take a look at this 100 page publication put out by the IRS - Publication 590, which thoroughly discusses the topic of IRA conversions.

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.

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 Nicolas Valentin

Although saving for retirement is always important, the way you approach it will vary depending on your age. The following excerpt discusses how to best save for retirement in your 40s and 50s.   

Saving For Retirement At Any Age

by Scott Reeves.  To view the complete article visit Forbes.com

Investing In Your 40s

You’re Not Immortal
That sound you hear is time whistling in your ears. Ahead are the first foothills of middle age, not to mention a double chin, thinning hair and teenage kids who drive you nuts. But relax, Old Timer, because there’s still time for aggressive investments in your retirement portfolio.

Up The Allocation
By now, you’re established in your career and should consider setting aside 15% or 20% of your salary for retirement. You’re also an experienced investor and can make wise decisions with the help of your financial advisor. Set up a meeting. It’s time to get serious.

Pencil It Out
How do you want to spend your retirement? What will it cost? Crank up the spreadsheets and match your projected retirement income with estimated expenses. This is a good reality check. There’s still plenty of time to make needed adjustments.

Trappings Of Success
Yeah, yeah–a BMW, Lexus or Mercedes is nifty. But remember that the life cycle of a car involves boobs backing into it in parking lots, crazies crunching it in traffic and birds bombing it. Moral: Don’t let the trappings of success smother your retirement plans.

Update Plans
The numbers in the early draft of your retirement plan may have been yanked out of the air. You’ve now got years of experience to draw on. Update the plan and make needed adjustments.

Review Performance
Sit down with your adviser and review the performance of your investments. What did you do right? Wrong? What could you do better? Differently?

You Haven’t Started?
Duh! If you haven’t started planning for retirement, remember that it won’t get any easier with age. If you’re just starting, consider setting aside as much as possible. Talk to a financial adviser about where to put your money–don’t exceed your risk tolerance.

Investing In Your 50s

Switch On The Turbocharger
If the calendar doesn’t focus the mind, your eyes aren’t open. If you haven’t started saving and investing for retirement, it’s time to get busy. You probably won’t be able to retire at 65, but with careful planning and shrewd investments, you can call it a career in your 70s.

Check The Actuarial Tables
The average life span is increasing. What was a sufficient retirement plan in the past may not cover the additional years many are expected to live in the future. This means setting aside more money now.

Be Realistic
A late start limits your options. Focus on what can be done. Be realistic. Don’t expect too much. If you’ve been investing for years, check your portfolio and think what you can do with what you’ve set aside.

Get An Adviser
If you’re late to the game, meet with an adviser ASAP who specializes in retirement planning. Don’t panic. Make a plan. Set aside as much money as possible. If you don’t develop a plan and stick to it, you’ll have to develop a taste for dog food and ketchup in retirement.

Stay The Course
If you’ve been investing for years, review your plan and make needed adjustments. Now may be the time to start moving into less risky investments such as bonds and maybe some real estate. The closer you come to retirement, the more conservative your investments should become.

Redefine Your Needs
Some say you should have at least 70% of your income in retirement. Sounds reasonable, if you can live comfortably on 30% less. If you can’t or simply don’t want to cut way back, get busy on rustling up additional money for retirement.

The Non-Traditionalist
Retirement is changing. It’s no longer just a matter of moving to warmer climes to play golf. Many people are doing consulting or part-time work. The extra income and additional years in retirement may alter your plans. This is an opportunity. Check it out.

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

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.

photo by Avery Products

With less than 10 days until the tax deadline for 2009, its not too late to trim your tax bill. One way to do this is by making sure you have fully funded your IRA.

The IRS has provided the following tips for those contributing to an IRA. 

Ten Tips for Taxpayers Contributing to an Individual Retirement Plan

Taken from irs.gov

1. You may be able to deduct some or all of your contributions to your IRA. You may also be eligible for the Savers Credit formally known as the Retirement Savings Contributions Credit.

2. Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means contributions for 2009 must be made by April 15, 2010. Additionally, if you make a contribution between Jan. 1 and April 15, you should designate the year targeted for that contribution.

3. The funds in your IRA are generally not taxed until you receive distributions from that IRA.

4. Use the worksheets in the instructions for either Form 1040A or Form 1040 to figure your deduction for IRA contributions.

5. For 2009, the most that can be contributed to your traditional IRA is generally the smaller of the following amounts: $5,000 or $6,000 for taxpayers who are 50 or older or the amount of your taxable compensation for the year.

6. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit equal to a percentage of your contribution.

7. You must use either Form 1040A or Form 1040 to claim the Credit for Qualified Retirement Savings Contribution or if you deduct an IRA contribution.

8. You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA.

9. You must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment to contribute to an IRA. If you file a joint return, generally only one of you needs to have taxable compensation, however, see Spousal IRA Limits in IRS Publication 590, Individual Retirement Arrangements for additional rules.

10. Refer to IRS Publication 590, for more information on contributing to your IRA account.

If you have additional questions, or would like to make your 2009 IRA contribution, please contact an advisor at Paragon Wealth Management at 800-748-4451.

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 woodleywonderworks

One of the changes President Obama is proposing is automatically enroll workers into a retirement savings plan. The article below from www.financial-planning.com explains more.

Examining the Impact of Obama’s IRA Plan

Written by Ruthie Ackerman
Taken from Financial-Planning.com

With retirement savings dwindling President Obama has proposed as part of the 2011 budget proposal for workers to be automatically enrolled in individual retirement accounts.

The proposal would automatically deduct up to 3% of an employee’s salary straight from their paycheck and invest it in Roth IRAs, unless the employee chose to opt out, or chose to invest in a traditional IRA. This plan would be for employees who don’t have other types of pensions or retirement savings plans, about 80 million workers in all.

With the Auto IRA, employees would still have the opportunity to opt out of the program, but most don’t. The National Council of La Raza, the largest national Hispanic civil rights and advocacy organization in the United States, published a report in December revealing that when employees are automatically enrolled in retirement accounts, their savings rates jump to 80% from 20%.

This is especially important at a time when savings rates have tumbled. Last month Cogent Research released its 2010 Investor Brandscape report, which showed that the proportion of investors that hold a 401(k) plan has gone down significantly.

As of October, she said, only 59% of investors’ surveyed hold an employee-sponsored retirement account, down from 70% in October 2008. At the same time, younger investors are more likely to start their own businesses or freelance and aren’t necessarily working in traditional full-time jobs that offer employee-sponsored retirement plans. In addition, high unemployment is also cutting into contributions.

Employers with more than 10 employees, who have been in business for at least two years, would be required to participate in the automatic-IRA program.

David John, a senior fellow at the Heritage Foundation and managing director at the Retirement Security Project, said when he helped to write the proposal for the auto-IRA four years ago, he was open to auto-enrolling employees in either a traditional or Roth IRA. But “it turns out that the Roth is actually better for moderate and lower income workers because they may or may not have the sufficient tax liability to take full advantage of the deductibility of the traditional IRA,” John said in a phone interview on Tuesday.

The reality, he said, is for most families who earn around $35,000, they don’t owe much tax anyway so they don’t get much benefit from the traditional IRA given the fact that when they withdraw they would have to pay income tax on that money. On the other hand, he said, if they take a Roth when they retire they end up with tax-free income.

John said the auto-IRA isn’t only for new savers, but also for rollover savers who have lost their jobs and taken new jobs at smaller companies. The proposal would allow them to rollover their 401(k) into an auto-IRA and continue to save. Freelancers would also have the opportunity to enroll if they were part of an independent group which sponsored an auto-IRA program.

“For better or worse the traditional pension system is disappearing,” he said. “Unless you’re a career minimum wage worker social security doesn’t provide a level of income that’s sufficient. So either we can make it easier for people to save for retirement from the day they start to work until the day they retire or we’ll have millions of Americans who are poverty stricken in retirement.”

David Wray, president of the Profit Sharing/401k Council of America, a Chicago-based association of providers of 401(k)s and other profit-sharing plans, said in an interview in December that auto-enrollment only works when the participant views the plan as aligned with their own goals. Just having a default, auto-enrollment retirement savings plan is not sufficient. If it’s not coupled with “an aggressive education effort where the company goes and explains to participants in advance how important it is to save and why it is in their best interest,” Wray said.

When participants don’t understand why they should enroll, or in some cases, don’t even know they are enrolled in retirement savings plans, the result can be ineffective and costly.

Nonetheless, Obama has made auto-IRA and retirement savings an important focus of his administration and even mentioned it in his State of the Union address.

photo by Mike Baird

If you are thinking about a tax delayed savings plan, there are some things to consider. Below is an article taken from the Money Wise Blog with some information about tax delayed savings. Feel free to leave comments or questions.

Tax Delayed Savings
Written by Money Wise Blog

As you approach your golden years, you may be wondering about the various advantages and disadvantages of tax delayed savings plans. Although the idea not to pay taxes on their savings may seem attractive, there are fees to consider.

Another difficulty lies in determining which tax delayed savings plans your family is entitled to receive. Before you decide, you should carefully examine all options to determine which screen saver you.

There are many types of tax delayed savings. The most common is 401k. 401k employee pension plan offers a high maximum contribution limit and the ability to maintain interest over time. Just follow the 401k withdrawal rules and I understand that you have to pay taxes on the lump sum you take.

If you leave your place of work to the appropriate age for retirement, you will need to pay taxes and a penalty at the time - or roll your money into a IRA.

Individual retirement accounts (IRA or, for short), allows you to make thousands of dollars for your retirement, even though less than 401k. You do not have to pay taxes on income only after age 59 1 / 2.

You can see all the different types of MDR to see what you are entitled to, including: marital Pension IRA Deductible IRA or Roth IRA. In both 401ks and Franchise MRK, you only pay taxes when you begin withdrawing retirement.

Most people are not encouraged to go with their employers sponsoring retirement savings plan, if the company agrees to match your contributions.

Further, analysts recommend that you get into the money into your account IRA Roth; but you still pay taxes on your contributions, as usual, you can withdraw money at any time without penalty and your withdrawal will be tax-free from age 59 1/2 .

Tax delayed repayment of trust funds, consisting of various bonds, stocks and cash, are a good, low-maintenance place to invest your money.

To understand the difference between savings and taxed delayed tax savings, let’s look at some specific figures. If your monthly retirement savings contribution is $250, in 20 years you could save $81,897 after taxes.

Investing in a tax delayed savings plan, you would save $106,753, even after tax lump! Are you interested in the establishment must provide a significant cushion for your retirement.

You can jump for joy, that Uncle Sam’s cut you break. This, of course the generous thing, but as with anything, there are potential pitfalls. You may find that the administration, management, insurance and annual maintenance fees of records exceed the tax delayed savings you would get - especially if you are tempted to use your funds before you turn 60.

Many early retirees have been saddled with 10% fine or get stuck paying hefty tax when they prefer to take all their money in a lump-sum retirement benefits.

If you worry about your money and take advantage of any protection plan at your disposal, you can feel that hard FDIC does not cover tax delayed retirement, leaving you to pay for a separate defense.

Financial representative can help you determine if the tax delayed savings may be very suitable for your lifestyle. If you have some financial planning for retirement now, you can pave the way to your golden years with ease.