How To Retire Early and Wealthy

by Todd R. Tresidder
visit Financial Mentor to view the complete article

Retirement Planning Tip #5: Put Your Wealth Building On Auto-Pilot

The easiest, least painful way to save your way to wealth is automatically. Arrange you finances so that every month certain actions take place that automatically grow your assets without any decisions or extra effort on your part. This creates an enforced discipline to keep you on track. Below are a few examples:

1. Own Your Home
2. Rental Real Estate
3. Tax Deferred Retirement Plans: Maximize your contributions to your tax deferred retirement plans so that the money comes out of your paycheck automatically before you ever see it.
4. Automatic Savings Plans
5. Join An Investment Club: the social support, regular learning, and forced savings will assist putting your wealth building and financial intelligence on auto-pilot.
6. Subscribe to Educational Investment Newsletters

You can either choose to arrange your life so that growing your wealth and financial intelligence is an automatic habit, or you can let time slip away and allow procrastination to win the day.

Retirement Planning Tip #6: Responsibility For All Your Investment Result

Unless you are a trust fund baby or win the lottery, the way you will become wealthy is by owning full responsibility for every aspect of your wealth. This causes you to get into action and correct and adjust your plans until you reach your goal. You must build your wealth like an entrepreneur builds a business. “If it’s got to be, then it is up to me.”

You are solely responsible for organizing your life so that wealth accumulation is a habit. Nobody else will do it for you. You are the one that determines the priority of your spending habits and whether your lifestyle lags your income or not. You are the one who determines whether you start today or procrastinate until tomorrow. When you take the right actions with consistency it will get you the desired result. Early retirement and financial security becomes a question of “when” - not “if”.

Your financial bottom line is you make the decisions: you are responsible. You own the results. That is the only way to achieve true financial security.

Retirement Planning Tip #7: Commit What Is Necessary To Succeed

Successful retirement planning requires you to provide the necessary resources to reach the goal. Don’t set yourself up for failure by under-committing.

In short, you must set yourself up to win by designing your retirement plan consistent with the time, money, and energy required for success, and you must be willing to commit those resources to the process. Every person’s situation is different and successful retirement planning must reflect that. One size does not fit all.

Is your wealth plan uniquely fitted to you?

Retirement Planning Tip #8: Make Your Money Hard To Reach

A pile of savings that is easy and pain free to reach is an easy solution to life’s troubles. Your car breaks and you use your savings to buy a new one. You get laid off and use your savings to carry you through until the perfect job arrives. Life throws you curve balls and savings without barriers to protect them are an easy target for solution.

That is why I love the government sponsored retirement plans with all the difficult rules and penalties you must overcome to access your money prior to retiring. These obstacles provide a measure of discipline for those who inherently lack this life skill. Even if you have the discipline of a celibate monk the rules and penalties provide a formidable barrier for your inevitable moments of human weakness.

The rule is simple: when you build a nest egg, don’t raid it.

Retirement Planning Tip #9: Risk Management Is Essential

The mathematics of compounding wealth prove that avoiding large losses is equally as important to the growth of your wealth as pursuing large gains. They are mathematical flip-sides to the same coin - growing money. For that reason smart investment strategy manages risk of loss and volatility risk using a variety of tools including diversification, careful asset selection, valuation, and a sell discipline to create a defensive investment plan.

While it is essential to practice defensive investing through risk management it does not mean you should avoid risk altogether by hiding out in Treasury Bills or other so-called “safe assets”. You must have an aggressive, offensive investment strategy to build wealth because your objective is to grow your assets faster than inflation erodes them so that you increase purchasing power. Hiding out in safe investments won’t achieve that goal

Retirement Planning Tip #10: Use Your Common Sense

Investing is really about business. You can avoid most of the speculative manias and frauds that can rob your retirement plan of valuable principle by following this simple rule: the price you pay for any investment must make economic sense consistent with the earning capacity of the underlying business that you invest in. In other words, valuation matters - it is a primary risk management tool.

It is just business common sense to only pay for investment services that put more money in your pocket than they take out. They must be value added. For example, a broker or money manager’s fees can only be justified when his insights and services add more profit than they cost when compared to a passive index investment strategy that could be easily implemented on your own. Again, it is just business common sense. You need to get what you pay for.

Retirement Planning Tip #11: Basic Estate Planning

It is irresponsible to leave a burden for those you leave behind. The fact is you will die with 100% certainty. Your loved ones will be distraught over your passing, busy with their own lives, and will not want to clean up a messy financial legacy.

Get your affairs in order and make all the decisions about who gets what now. Depending on your particular circumstances this might include:

• Powers of Attorney
• Will
• Living Trust
• Life insurance
• Much more depending on your circumstances and desires

Retirement Planning Tip #12: Get A Life

There’s more to retirement planning than just money. What about relationships? What about your health? What activities engage your interest?

Money is just a lubricant to life, but it is not life. Happy retirees have fulfilling lives with the health and money to enjoy them. Make sure you have plenty to live for when your work no longer fills your days, and make sure you take care of your health so that you have the energy and vitality to pursue whatever brings you joy.

Protect and enhance your health by investing daily in proper nutrition, regular exercise, and preventative health care to reduce the risk of catastrophic illness. Get adequate sleep, avoid stress, and counteract the stress you do incur with proper exercise and recreation. We never realize the value of our health until we lose it.

In Summary:

Financial planning for retirement is simple to understand and hard to live. That is why so few succeed at it. It all boils down to prudent, routine management of your investments and personal finances - not exactly rocket science. The principles are not complex.

The only question now is “are you walking the talk?” You may know most or even all of these principles, but how many are you actually living right now? That is the key question.

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.

Building wealth for retirement requires a disciplined yet simple strategy.  The following article outlines 12 tips to build your portfolio and be able to retire early.

How To Retire Early and Wealthy

by Todd R. Tresidder
visit Financial Mentor to view the complete article

Believe it or not, building wealth for a secure, early retirement is actually very simple - in theory. The equation for financial success is a function of just three easy-to-understand principles:

1: The amount of money you invest.

2: The growth rate of your money.

3: The amount of time it has to grow.

Unfortunately, few people succeed in building wealth because it has little to do with understanding simple principles - and everything to do with taking effective action. The challenge is not in knowledge, but in translating that knowledge into meaningful results. Why? Building wealth requires you to overcome the following two hurdles:

First, you must translate the wealth building principles into actionable rules that will take you to your goal.

Second, you must actually live according to those rules.

You probably already know the three principles for compounding and building wealth. Most people do; yet, few people actually live according to them. To know and not do is to not know at all. This is critical. Most people fail to succeed financially because the rules are easy to understand but surprisingly hard to live by. Living them is the key - and also the problem.

As you read this article ask yourself, “Are my daily retirement planning practices honoring each and every one of these financial truths?’ Judging by results will tell you what you really know, and an honest assessment should be a little uncomfortable for most readers.

Retirement Planning Tip #1: Have A Plan

The first mistake most people make is they have no written plan to build financial security. You can’t put the formula for financial success to work for you if you have no plan to accomplish it. It may be a simple process, but it won’t happen randomly. You must make it happen by taking action. A written plan with goals provides the road map and is a necessary first step.

Financial success is a choice. It results from the many small decisions you make each and every day. Without a plan and goals to achieve wealth your life is like a sailboat without a rudder: it just spins in circles without definite direction. Plans and goals provide the necessary context to focus each and every decision in your life with purpose.

Retirement Planning Tip #2: Lifestyle Lags Income

Most people prefer the trappings and illusion of wealth over the freedom of actual wealth. They want to look wealthy rather than be wealthy. If you aren’t certain of this truth then just look around you at how many people are in debt compared to how many people are wealthy. Most people choose lifestyle over financial freedom and violate the first principle in the wealth building equation - accumulate assets. They spend instead.

The problem is you will never become rich by spending money. You must control your spending so that your lifestyle lags your income because this will create available capital for your investment activities.

Whether you own your business or work as an employee, you must think of each dollar as a little soldier on the battlefield of your wealth. Every time you spend that dollar on consumption instead of investment the soldier dies. However, when the soldier is invested he produces new soldiers and creates an ever growing army working for your financial security. The bigger your army the greater your financial security.

The rule is simple for principle #1 in our wealth building formula - save money and build assets. The sooner you begin and the more you save each month the sooner you will retire early and wealthy.

Every day you are making choices between lifestyle now and wealth accumulation for tomorrow. You can either invest those soldiers for freedom tomorrow or slaughter them for goodies today. This rule is simple to understand, but hard to live. Are you walking the talk?

Retirement Planning Tip #3: Invest In Your Financial Education

The second principle in wealth accumulation is the rate at which your capital grows. This is largely a function of your financial intelligence. You must learn before you can earn. It is possible to profit from any market condition if you know what you are doing (although, admittedly, some market environments are easier than others).

Every investment in your financial intelligence will pay dividends for a lifetime. I recommend that clients regularly contribute to their financial intelligence by taking courses, reading and research so that their financial intelligence grows faster than their wealth.

There is nothing more financially dangerous than an investor making a million dollars worth of decisions with a thousand dollars worth of financial intelligence. When it comes to investing, a little knowledge can be a dangerous thing, and a lot of knowledge can be a profitable thing. Get a lot of knowledge.

Retirement Planning Tip #4: Don’t Procrastinate - Start Today

The third variable in the wealth accumulation equation is the amount of time your wealth compounds and grows. If you wait just six years to get started and your assets grow at 12% annually you will have half as much money when you retire compared to starting today (assuming equal contributions over working lifetime). If you wait just twelve years you will have only a quarter as much. That’s a dramatic change in wealth for just a little procrastination.  Just getting this one idea into your bones early enough in life can change your financial future. It is that important.

The power of compounding is an invaluable wealth building tool because money grows geometrically instead of arithmetically - but only when you give it time to work. Procrastination kills time, and as a result it kills more plans for retirement security than all other culprits combined. It is wealth suicide on the installment plan. Every day you delay is another day where opportunity is thrown away.

Intermission

Up to this point we have summarized the tried and proven wealth building formula for most self-made millionaires as follows:

(1) Spend less than you earn and save the difference.

(2) Build your financial intelligence while building your wealth so that you can make wiser, more profitable decisions to grow your assets.

(3) Start early because time is the most important factor in compounding wealth.

To be continued…

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 from Wall Street Journal online

 The following article was taken from the Wall Street Journal online article on August 16, 2011. This article discusses some investing strategies that are used by one of the richest families in America: The Walton’s.

 Smart investing tips from Sam Walton

To view full article, please visit Wall Street Journal online.

After the stock market lost 20% of its value in October 1987, Sam Walton, then one of America’s richest men, was unfazed.

In less than a week, the value of his Wal-Mart stores stock had dropped almost $3 billion, reducing his wealth to a mere $4.8 billion. It’s paper anyway,” he told the Associated Press. “It was paper when we started and it’s paper afterward.”

Given the wrenching swings of the past two weeks, many of us may wish we could be so sanguine about our own losses. But even without a few extra billion dollars in the bank, there are useful lessons to be gleaned from the way the Waltons and other ultrarich families cope with investments and market volatility.

Just like us, the rich want to maintain their lifestyle, preserve wealth and hyave money for their heirs or philanthropy. And when it comes to investing, there are several ways the rest of us should take a cue from them:

The very wealthy have a plan. Sam Walton’s plan started in the early 1950s, when, on the advice of his father-in-law, he set up a family partnership, made up of him, his wife, Helen, and their four children, to own his two variety stores. By doing that, he began planning his estate and building family wealth years before he opened the first Wal-Mart in 1962.

Nowadays, most very wealthy people have a team of advisers and an investing strategy in place that should work even when the worst imaginary case becomes real. Small investors, too, should have a comfortable investment process that works in good times and bad.

A financial adviser can be invaluable in helping you with this, but so can a trusted family member or friend who will help you stick to your plan when you start to doubt it.

The very wealthy live below their means. Walton, who died in 1992, was famously frugal, driving an old pickup truck and flying coach. Many very wealthy people spend much more extravagantly, but even so, “most of our ultrawealthy clients have a lifestyle that is well below their means,” says Craig Rawlins, president of Harris myCFO Investment Advisory Services, which serves wealthy families.

When you don’t spend everything, he says, “you have a better opportunity to weather this volatility because you know there’s a cushion there.”

The very wealthy focus on risk, not return. Larry Palmer, managing director, private wealth management, at Morgan Stanley Smith Barney, said he has never had a client says, “My objective is to have my family wealth beat the S&P 500.” Rather, he says, clients focus on what kinds of risks they are taking with their portfolio.

The Walton family weatlh long has been tied to its Wal-Mart stock, now valued at $83.6 billion. But Sam also bought the tiny Bank of Bentonville in 1961, and it is now part of the family-owned Arvest Bank, an $11.5 billion banking company. Walton Enterprises also owns a chain of small newspapers that, along with other interests, offer diversification and push the family’s estimated combined wealth close to $100 billion.

Small investors need to similarly manage their portfolios, making sure that their holdings of stock and other volatile investments aren’t so great that they are putting more at risk than they intended to.

The very wealthy hang on. The super-rich don’t sell because they are fearful-though some may be selling right now for investment reasons, such as cutting the tax bite on holdings with big gains. The Walton family ownerships of Wal-Mart stock hasn’t changed since late 2002, when some shares were transferred to charitable funds.

In that sense, Sam was spot on. Though the Walton family’s Wal-Mart shares have dropped by more than $10 billion since mid-May, until the stock is actually sold, the losses really are nothing more than paper.

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

The following article discusses when a non-deductible IRA contribution makes sense for investors depending on their individual situations and goals.

Does a Non-Deductible IRA Make Sense For Your Situation?

To view full article, visit Figuide

If you find yourself in the position of having too high of an income to make a deductible contribution to your IRA for the year ($110,000 for joint filers in 2011, $66,000 for Single and Head of Household), you may be wondering if it’s a good idea to make a non-deductible contribution to your IRA.

There are two opposing camps on this issue, and the deciding factor is how you’re intending to use the funds in the near term.

When It’s a Good Idea

If you’re intending to convert your IRA to a Roth and your income is too high to just make the contribution directly to the Roth account, the non-deductible IRA may be the right choice for you. This way you’re effectively working around the income limitations of the Roth contribution ($179,000 for joint filers in 2011 or $122,000 for single or head of household filers).

You also have more funds available in your IRA account, which provides you with the ability to take advantage of economies of scale - certain mutual funds have higher minimum purchase amounts, for example. Since the money is in an IRA you don’t have to track holding periods, non-qualified dividends versus qualified dividends, and your paperwork is reduced.

In addition, depending upon your state laws your money may be protected against creditors since it’s part of an IRA.

When It’s a Bad Idea

If you’re not planning to convert this IRA to Roth, you’re effectively increasing the tax cost of your investment gains (under today’s law). Since withdrawals of investment gains from your IRA are taxed at ordinary income tax rates (up to 35% under today’s rates), you’re effectively giving yourself a tax increase over the capital gains rate which is 15% maximum these days.

Instead of making a non-deductible contribution to your IRA, you could just make your investment in a taxable account. Then within this account you could make investments geared toward long-term gains rather than income or dividends, therefore deferring tax until you sell the investment. And when you do sell the investment it will be taxed at the currently much lower capital gains rate versus the ordinary income tax rate (which would be applied if you made your contribution in the IRA).

Conclusion

So- depending on what you’re planning to do with the account, a non-deductible contribution could be a good idea or a bad idea. You will have to make that call. Hopefully the information above will help you with your decision.

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

The following article discusses what a custodial IRA is and how it can be beneficial in helping your children learn about investing. The knowing what a custodial IRA is, your can help your children start a nest-egg of their own for retirement.

The Benefits of Custodial IRAs for Your Children

To view full article, please visit Military Money.

Would you like to help your children accumulate more than $1 million in tax-free retirement assets with a relatively small investment?

You can do exactly that with a highly effective but often overlooked financial strategy: Open a Roth IRA for your child!

The Rules

A child can open an IRA (traditional or Roth) only if he or she has legitimate “earned income” through self-employment or W-2 wages. This money can come from typical jobs such as cutting grass, delivering newspapers, bagging groceries or working at a fast-food restaurant.  A child that performs real work or duties in a family business- data entry, filing, cleaning the office-also qualifies. (It is a good idea to pay any children working for the family business periodically- say, monthly- by check and to keep a time sheet.)

A child, regardless of age, can use this income to fund an IRA subject to the lesser of $5,000 or 100 percent of earned income. As with all IRAs, you have until April 15 of the following year to put the money into the account.

Some children may be reluctant to turn over their hard-earned babysitting or life guarding money to mom and dad to fund an investment they won’t be able to use for many years. Fortunately, parents and grandparents can give kids some or all of the IRA funding money as gifts, allowing the children to keep and/or spend what they make. Any money gifted in this manner must be aggregated with any other gifts and are subject to the $11,000 annual gift exclusion.

If the child is a minor, the account must be set up as a “custodial IRA” with the child’s social security number on the account but an adult parent or guardian shown as the custodian. Once the child turns 18, the custodial feature may be removed.

The Benefits

How powerful is this savings tool? Let’s look at two examples:

Example #1: Johnny, age 13, has a part-time paper route and earns $1,400 per year. His parents open a custodial Roth IRA for Johnny and fund it through gifts limited to the amount of his earned income each year. If Johnny keeps the paper route until age 18 (five years of funding), continues to earn $1,400 per year and never puts another dime into the Roth IRA, it will grow to $305,787 by the time he turns age 65(assuming an eight percent annual rate of return). Not bad for a total investment amount of only $7,000!

Example #2: Sarah, age 15, works for her mother, a real estate agent. She helps her mother with data entry and promotional fliers. Her mother can pay her what she would reasonably pay an outside employee for the same duties (say, $15 per hour). Sarah works 300 hours each year until age 18, earning $4,500 per year. Sarah contributes $2,000 to a custodial Roth IRA and her mother matches that with a $2,000 gift for the total of $4,000 per year. In four years, she will accumulate $18,024 in her Roth IRA (assuming an annual eight percent average annual rate of return). If Sarah continues to work for her mother through college (an additional four years) and make additional contributions, the account will grow to $42,546. If she stopes and lets the money grow tax-free until age 65, she will have amassed $1,164,341. If she continues to contribute $4,000 per year after college until age 65, she will have a whopping $2,482,673-all available tax-free!

The Caveats

First, remember that the money must come from legitimate earned income, so it will be difficult for a very young child to qualify unless he or she is a child actor or model.

Second, some financial institutions are unfamiliar with these rules and may be hesistant to open a custodial IRA or ask for verifiable W-2 income. If the bank, brokerage house or mutual fund company seems reluctant, as to speak with a manager to resolve the issue. If they still refuse, take your business to another institution, since there are plenty that will help you.

Third, since the time frame is so long on this investment, use a growth-oriented stock mutual funds for maximum long-term appreciation.

Roth IRAs for working children are an immensely powerful wealth-building tool and an excellent way to teach kids about money and investing. If your situation qualifies, open one today!

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

The following article discusses what a Roth IRA is and how it can be your best option for your retirement savings account.

What is a Roth IRA?

The view full article, please visit YourRothIRAGuide.com

Saving for retirement is something most people don’t want to think about when they are in their twenty’s but that is the perfect time to begin the process. The more money an individual can save for retirement, the more financially secure the golden years will be. There are mechanisms in place to help plan and save for retirement and the Roth IRA is one of them.

A Roth IRA account is an Individual Retirement Arrangement allowed under the United States tax law and named for its legislative sponsor Senator William Roth, late of Delaware. The Roth IRA has existed since 1998. A Roth IRA is subject to the same rules as a traditional IRA but with some exceptions.

A Roth IRA account can simply be a savings and/or investment account or an annuity and it must be designated as a Roth IRA when it is opened. Contributions to a Roth IRA account must be made from money earned through employment efforts. The effort can be self employment or employment through a legal business. The income can be wages, tips, salaries, bonuses, and professional fees. The Roth account holder will be required to pay taxes on contributions. The benefit is no taxes are required to be paid on earnings or on the principal that is withdrawn from the account at any time. Investments in a Roth IRA can be used for a variety of investments such as stocks, bonds or certificates of deposit. The investor must not exceed established income requirements to contribute to a Roth IRA account, the fund owner must not exceed maximum income criteria. The limits change year to year. A Roth IRA account holder can contribute up to a specified amount between 02 January and the tax deadline of 15 April of the following year. For 2011, the maximum contribution is $5,000. The contribution limit changes with inflation and account holders age 50 or older have the ability of making additional catch up contributions. For 2011, that is $1,000. You will not be able to contribute to a Roth IRA if your income exceeds the income limit. You will be able to continue contributions when your income decreases or the limit is raised.

If one spouse has a Roth IRA account, the other can contribute to the account provided the couple files a joint tax return. Anyone at any age can open a Roth IRA account. Minors can establish and contribute to a Roth IRA provided the minor has verifiable income.

Contributions can be made to a Roth IRA account as well as a 401(k) or 402(b) plan without any contribution effect on either account. A traditional IRA converted to a Roth IRA account can still reveive the current contributions during the year of conversion.

A Roth IRA account can be opened with any Roth IRA providers and they might be a bank, mutual fund companies, brokerage firms or insurance companies. Be sure to compare fee’s providers charge before choosing a Roth IRA account provider.

Facts about IRAs

The following article discusses what IRAs are and the difference between the different types of IRA accounts that are available to investors.

To view the full article, visit Monster Money

Individual retirement accounts (IRAs) were established by the federal government and given special tax treatment primarily to encourage people to save for retirement. With an IRA, you can set aside a certain amount of money every year in a special account managed by a bank or other financial institution, or by a mutual fund, life insurance company or stockbroker. IRA accounts can be invested according to your choice of investment options. Your money grows tax-deferred, and in some cases, even tax-free. While this article explains some of the different types of IRAs, you should consult with your own tax or financial adviser to see if a particular type of IRA is right for you.

Traditional IRAs

A traditional IRA is a personal savings account that gives you tax advantages for saving for retirement. Contributions to a traditional IRA may be tax-deductible, either in whole or in part, depending on your modified adjusted gross income — a figure used by the Internal Revenue Service (IRS) that’s arrived at by first deducting some adjustments from your total income and then adding certain items back.

You can contribute to a traditional IRA for each year you receive compensation and have not reached age 70½. For any year in which you do not work, contributions cannot be made to your IRA unless you receive alimony or file a joint return with a spouse who has compensation.

There is a limit to how much you can contribute each year. For tax years 2005 through 2007, you can make contributions to a traditional IRA of up to whichever amount is smaller: (a) your taxable compensation for the year or (b) $4,000. In 2008, the $4,000 limit will be raised to $5,000. In addition, if you are 50 or over at the end of a tax year, you may contribute an extra catch-up amount — an additional $1,000 in 2006 and beyond.

You are not required to make a contribution to only one type of IRA during the year. If you qualify, you can divide your permissible contributions between a traditional IRA and Roth IRA.

There is no upper limit on how much you can earn and still contribute to a traditional IRA. But there are some rules that limit how much you can deduct. Information regarding employer retirement plans and other rules for IRAs can be found in IRS Publication 590, “Individual Retirement Arrangements (IRAs).”

The investment earnings in your IRA account won’t be taxed until you withdraw them. In most cases, IRA account holders withdraw their money upon or after retirement, when they are in a lower tax bracket than at the time the money was invested.

You can withdraw or use your traditional IRA assets at any time, but those withdrawals will be treated as income for tax purposes. Moreover, you may be subject to an additional 10 percent penalty tax if you make withdrawals prior to age 59½ unless there are special circumstances, such as death, a disability, certain higher education expenses or a qualifying first-time home purchase.

With a traditional IRA, you must start withdrawing money from your IRA by April 1 of the year following the year in which you reach age 70½, and each year you must withdraw a required minimum distribution or face a penalty. The IRS provides formulas for figuring out this required amount based on varying circumstances.

One of the benefits of IRAs is that it is easy to move retirement savings from one account to another without tax penalties. IRA funds can be moved in the following ways:

• Rollovers: With a rollover, you receive assets from your IRA (or other qualified retirement plan) and then deposit those assets in another IRA (or other qualified retirement plan). If you receive a lump sum payout from a company pension plan, perhaps because you are leaving that company, you can avoid paying taxes on the lump sum by rolling it over into an IRA — but you must do so within 60 days of receiving the funds unless you receive a waiver. A qualified employer-sponsored retirement plan may, at your request, make a “direct rollover” by distributing your plan assets directly into another plan in which you participate or another IRA you’ve set up. You may make only one rollover from any single traditional IRA to another traditional IRA in any 12-month period, but there’s no limit on your ability to roll over amounts from or to other traditional IRAs in any given time period.
• Conversions: You can move (”convert”) amounts from a traditional IRA into a Roth IRA, depending on your tax filing status and modified adjusted gross income for the year. This is discussed further under Roth IRAs below.
• Transfer from One Custodian to Another: You can transfer your IRA to another institution, perhaps to take advantage of a better deal or a promising mutual fund. To switch institutions, simply request a direct IRA-to-IRA transfer from one institution to the other. A transfer is not the same as a rollover. With a rollover, you take receipt of your funds before depositing them in another account. With a transfer, you never receive money; instead, the money goes directly from one IRA account into another. So the 60-day period doesn’t apply. Also, because this is not a rollover, it’s not subject to the 12-month waiting period required between rollovers.
• Transfers Related to a Divorce: An interest in a traditional IRA may be transferred as part of a divorce settlement. This type of transfer is generally tax-free.

Roth IRAs

A Roth IRA operates differently from a traditional IRA. Key differences include:

• Contributions to a Roth IRA Are Not Tax-Deductible: The distributions (including earnings on your contributions) are not included in income and are potentially tax-free. Because your contributions to a Roth IRA are not deductible and have already been taxed as income, you can withdraw your contributions, tax-free, at any time within certain limits — just as you can withdraw money from your bank account without paying taxes on it. The earnings on your contributions, however, are treated a little differently. Withdrawals of earnings from a Roth IRA can generally be made anytime, free of tax or penalty, if it has been five taxable years since you first opened the Roth IRA and if the withdrawals are made: After age 59½, on account of death or disability or for a qualified first-time home purchase up to $10,000 (lifetime maximum). If a withdrawal does not meet these requirements, it may be taxable and may also be subject to a 10 percent penalty if made before age 59½.
• Withdrawals Are Not Required: Unlike the traditional IRA, you may leave assets in a Roth IRA for as long as you live. You may allow your assets to continue to accumulate tax-free and/or be passed to heirs tax-free. Contributions can be made to a Roth IRA as long as you are earning income, even after you reach age 70½.

Here is more information about Roth IRAs:

A Roth IRA is generally available only if your adjusted gross income is less than $160,000 for joint filers or $110,000 for single filers. Check with your financial or tax adviser to see if you are eligible.

In general, if you contribute only to a Roth IRA, your contribution limits are the same as for a traditional IRA. This includes “catch-up” contributions for those 50 or older. However, if your modified adjusted gross income is above a certain amount, your contribution limit is gradually reduced. The amount you can contribute each year to a Roth IRA may also be limited if you contribute to both a Roth IRA and a traditional IRA.

A traditional IRA or other retirement account can, under most circumstances, be converted, partially or entirely, to a Roth IRA, if your modified adjusted gross income is less than $100,000 in the year of conversion. If you are married, you may convert to a Roth IRA only if you file taxes jointly. The converted amount (excluding nondeductible contributions) is subject to income tax in the year of the Roth IRA conversion. You can also roll over a Roth IRA into another Roth IRA.

Choosing Between a Traditional and Roth IRA

If you are eligible for both traditional and Roth IRAs, how do you choose between the two options? Or how do you decide how to apportion your retirement savings between the two? Here are some questions to consider:

• How long do you expect to keep earning money? If you’ll be working beyond age 70½, you will have to begin withdrawing from a traditional IRA and paying tax on those withdrawals while still paying income tax on your compensation.
• What tax bracket do you expect to be in when you start withdrawing money? If you expect to be in a lower tax bracket than you are now, a traditional IRA enables you to save money up front by deducting your contributions and put off paying some taxes until later.
• Do you plan to use up your IRA assets during your lifetime or leave them to your heirs? A Roth IRA can be used for estate planning, to build up assets for those who will inherit. While a traditional IRA can be inherited, your heirs and beneficiaries would probably gain more from a Roth IRA. Without mandatory withdrawals, your account can keep accumulating income, tax-free, until your death, when it will pass to the person you’ve designated.

IRA contributions may normally be invested in mutual funds, annuities, CDs, stocks or bonds. Which investment selection is most appropriate for you depends on your personal objectives and the amount of risk you wish to take. But one certainty applies to all types of investments: The sooner you invest, the larger your IRA will grow and the sooner you’ll be on your way to a comfortable retirement. Talk with your tax or financial adviser about choosing the plan that’s right for you.

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.

 

You’ll need to ‘early-bird special’ in these expensive places

The following article discusses the Top Ten worst tax places to live during your retirement

 To view full article, visit AdvisorOne

Some states offer attractive tax benefits for retirees, others don’t. Kiplinger runs through the worst (or “tax hells,” as the magazine bluntly states). Many are in the Northeast United States (wait, what?). If your clients are looking for a nice—cheap—place to “perform their second act,” they’d do well to avoid the following:

#1:  Vermont

The state continually re-elects the only socialist in Congress, so what did you think would happen? There are no exemptions for retirement income in the Green Mountain State, except for Railroad Retirement benefits (which are exempt in every state). The magazine reports out-of-state pensions are fully taxed. It imposes a 9% tax on prepared foods, restaurant meals and lodging, and levies a 10% sales tax on alcoholic beverages (for shame) served in restaurants.

#2: Minnesota

We were hoping to make fun of their accents, but alas, Kiplinger wisely sticks to weather. Minnesota offers retirees cold comfort on the tax front. Social Security income is taxed to the same extent it is taxed on your federal return. Pensions are taxable regardless of where your pension was earned. Income-tax rates are high, and sales taxes can reach 9.53% in some cities

# 3: Nebraska

After switching from the Big 12 to the Big 10 (those that matter will know what it means), we thought Nebraska could go no lower. We were wrong. The magazine reports there are no tax breaks for Social Security benefits and military pensions in the Cornhusker State. Real estate is assessed at 100% of fair market value. Nebraska imposes an inheritance tax on all transfers of property and annuities.

#4: Oregon

First, says Kiplinger, the upside: There’s no state sales tax in the Beaver State. But it shares the distinction with Hawaii of imposing the highest tax rate in the nation on taxable income of $250,000 or more. Oregon has an inheritance tax that applies even to intangible personal property located anywhere, such as investments and bank accounts.

#5: California

Honestly, is anyone surprised? If so, maybe dispensing financial advice isn’t the profession for you. The Golden State has lost its luster for many retirees (understatement). Although Social Security benefits are exempt from state income taxes, all other forms of retirement income are fully taxed. Californians pay some of the highest income taxes in the U.S., with the top rate of 9.55% kicking in at $46,767 of taxable.

#6: Maine

New Hampshire’s wacky libertarianism hasn’t crossed the border. Income in excess of $20,150 per year is taxed at a steep 8.5% rate. Residents of the Pine Tree State pay a 5% sales tax statewide on everything except food and prescription drugs.

#7: Iowa:

Kiplinger likes its puns. According to the mag, the Hawkeye State offers no feathered nest for retirees. Although it allows single retirees to exclude up to $6,000 of retirement-plan distributions from state income taxes, and married couples can exclude up to $12,000, the rest is taxed at rates as high as 8.98%. Iowa taxes a portion of residents’ Social Security benefits, too, although it is in the process of phasing out the Social Security tax, which is scheduled to disappear in 2014.

#8: Wisconsin

The Dairy State exempts Social Security benefits and military-related pensions from its state income taxes, but it taxes most other pension and annuity income the same way the federal government does. Out-of-state government pensions are fully taxed.

#9: New Jersey

Its nickname may be the Garden State, but New Jersey is no Eden for retirees (ugh—again, Kiplinger’s, not us). The Tax Foundation says New Jersey’s combined state and local tax burden is the highest in the nation, thanks in part to sky-high property taxes. We’re waiting on the results of the “Christie Effect.”

 #10: Connecticut

Although some residents of the Constitution State can exclude their Social Security benefits from state income taxes, the exclusion applies only if their adjusted gross income is $50,000 or less ($60,000 or less for married couples). All out-of-state government and civil-service retirement pensions are fully taxed.

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 the perfect time to reassess your retirement investment strategy based on your age and goals despite the the volatility we’ve seen in the stock market the past few years. The following article outlines why.

Make A Plan For The Long Haul

visit Consumer Reports to view the complete article

Many of our parents and their parents never faced the question of how to invest their retirement savings. Dad and/or Mom might have had a secure pension, so they probably didn’t have to worry about the stock market. But pensions are fading away. Today’s workers are among the first to be forced not only to decide how much money to put away but also where to invest it.

Nor is “retirement-savings management” likely to be something you learned in school. With little financial education, the typical American worker must now make decisions that would have been left to a licensed professional just a few decades ago. Is it any wonder we are saving too little and often picking the wrong investments?

Not that the pros are infallible either. The Congressional Budget Office estimated in October that private pension funds had lost 15 percent of their value over the previous year, and even government pension plans showed signs of potentially being underfunded. But when it comes to retirement plans in which the worker controls the investment, the picture was worse. The Urban Institute found that 401(k)s and IRAs fell 40 percent in value from September 2007 to March 2009.

Stocks don’t seem like a good idea when your 401(k) statement only reminds you that you could have had one heck of a vacation if you hadn’t bothered chasing employers’ matching contributions or IRA tax deductions. But it remains more of a risk not to put at least some of your retirement money in the stock market. Stocks are pieces of ownership of a company, and compared with bonds (which are loans to a company), they have greater potential for growth. Of course, they also carry greater risk. But over time the returns on stocks tend to even out remarkably and easily surpass those of bonds, despite the latter’s greater stability.

Wharton economist Jeremy Siegel looked at all the possible stock-market returns for the two centuries ending in 2001. He found that stocks are very volatile, but only in the short term. In any one year, their returns have varied from 66 percent gains to 38.6 percent losses. But if you invested in stocks for five years at any time in the previous 200 years, the possible outcomes would have narrowed from a 26.7 percent annualized gain to an 11 percent loss.

The longer the time frame, Seigel found, the more sense stocks make. Over any 30 years, stocks always made money. It might have been as little as 2.6 percent annually or as much as 10.6 percent. But that was generally better than bonds, which gained only up to 7.4 percent in their best 30-year period and lost 2 percent in their worst.

Probably the biggest tragedy in this financial crisis is that some people in or near retirement saw a substantial chunk of their life savings vanish as the stock market sank. Of course, people at that stage of life shouldn’t have the bulk of their savings in stocks. As you get closer to retirement, it’s smart to move a greater portion of your assets into more stable investments, such as bond mutual funds, money-market funds, or life-cycle funds (sometimes called target-date retirement funds), which automatically shift assets to less risky types of investments over time.

The second-biggest tragedy involves all of the young people now terrified of stocks-just as many of their counterparts were after the Great Depression. That fear is understandable, says Zac Bissonnette, who writes for AOL Money & Finance and the Daily Beast Web site. “No matter what the statistics say about usual stock-market returns, this generation has never had them,” he observes. “If I’m 20 or 30, that hasn’t been my experience.”

What this all means is that many people are investing in a way that is exactly the opposite of what they should be doing. Some young people are being too timid, and some older folks too bold. According to the Employee Benefit Research Institute (EBRI), from January to March of this year, 401(k) retirement accounts owned by 25- to 35-year-olds lost only 4 to 5 percent, but those owned by 55- to 64-year-old workers lost between 6 and 11 percent. In other words, many young people who should have their money in risky assets are trying to play it safe. And many of those near retirement might be taking more chances than they should.

Too many investors also move their money around based on their emotions and what they predict the stock market is going to do in the short term. As a result, they often end up buying after the market has gone up and selling after it has taken a tumble. By studying when money flows in and out of mutual funds, Dalbar, a financial-research firm in Boston, has shown that investors’ best intentions often end up backfiring. In 2008 the S&P 500 lost a staggering 37.7 percent. Employing all kinds of hunches, schemes, and tips, the average stock fund investor managed to do even worse, losing 41.6 percent.

But there is hope. Dalbar found that one type of investor beat the average investor by more than 90 percent by using the familiar investing strategy called dollar-cost averaging. Here’s how it works: You put the same amount in your retirement account each month no matter what. That way if the Dow is very low, at, say, 7,000, you’ll end up with twice as many shares as when it’s very high, like 14,000. The slow and steady investor will usually beat everyone, but even that can take some nerve in times like these.

Of course, there is no cookie-cutter formula for retirement investing. How you should invest your 401(k) or IRA money depends on, among other things, how close you are to 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. 

As retirement changes, so must your investment strategy. Here’s how to get it right.

Investing strategies for retirement

by Michael Sivy, MONEY Magazine

You’ve probably given a lot of thought to what your dream retirement will look like. But here’s what you really need to think about: How are you going to pay for it?

Time for some quick math. For starters, let’s figure you’ll need annual income for basic living expenses of $45,000 or so on top of a combined Social Security and pension benefit of $25,000. And let’s plug in another $5,000 a year for the rewards you so richly deserve after a long career — you know, Europe one year, a killer home theater system the next. And oh, there’s that 1965 Corvette Sting Ray you’ve coveted since you were a teenager.

Add it all up and you need, gulp, about $1.2 million. Before you reach for the anti-anxiety pills, take a deep breath. Truth is, even as corporate and government largesse decline, you’ve got more tools at your disposal than ever to pull it off.

This story lays out a three-part strategy for getting there: You’re going to invest differently (read: more aggressively); you’re going to tap other assets, including that incredibly valuable one called your brain; and you’re going to stay flexible — cutting back when times (read: the markets) are tough, spending a bit more when they’re flush — just as you have all your adult life.

No false promises here: To live the dream retirement, you need to get real.

Harness the power of stocks

Your first step in turning your retirement vision into reality is to invest more aggressively. The accepted wisdom of subtracting your age from 100 and investing that percentage of your portfolio in stocks may have cut it for the “Leave It to Beaver” crowd. But in a “Desperate Housewives” world — where you could easily spend 30 years or more in retirement — you need the growth power of stocks to bulk up your savings and make sure your money lasts a lifetime.

Many investment firms have yet to factor this new reality into their investing strategies, but some are beginning to do so. In the retirement portfolios it recommends for investors in their forties, T. Rowe Price now devotes more than 80 percent of assets to stocks. And it stashes 55 percent of assets in stocks in its funds designed for people in their sixties who are retiring today.

Relying that much on stocks may seem risky. But it’s actually more prudent than a timid approach. If the market turns in just average performance over the long sweep of a career and retirement combined, a more aggressive approach not only delivers a larger retirement stash by the time you’re ready to retire but also lets you squeeze a couple of extra years of income from your portfolio. The results will be even better for the aggressive portfolio if the market performs anything like it has over the past 20 years.

Ah, but what if the markets perform poorly? Well, the more aggressive strategy comes out ahead there too. True, it falls behind slightly during the working years. But once withdrawals begin, stocks’ superior growth potential eventually wins out, with the result that the aggressive portfolio lasts five more years than its conservative counterpart.

The reason is that over the long haul, stocks provide more inflation protection than bonds, which increases the longevity of your savings and helps you maintain your standard of living. Of course, you don’t want to overdo it.  

Tap other assets

Chances are, though, smarter investing alone won’t cover the full tab. You’re going to have to turn to other assets.

One of the biggest is your earning power. Whether for enjoyment or for the cash, most people say they plan to work in some capacity after they retire. Those earnings, whether from a new retirement career, part-time work or even a new business, can add up to a sizable asset.

Let’s say, for example, a married couple both retire from their career jobs at 62 but work part time over the next 10 years, earning $25,000 a year each. That annual income would be the equivalent of having an extra $300,000 or more tucked away in savings at retirement. (Of course, working may complicate the issue of when to take Social Security.)

Taking a job after retirement has other advantages too. With a regular paycheck, you don’t have to draw as much from your investments for living expenses, which gives your savings a chance to grow and lowers the risk of your portfolio running dry. You may also be able to get employer-paid medical insurance for yourself and perhaps your spouse — an attractive perk, especially if you’re retiring early and must wait several years for Medicare to kick in.

Another major asset that can greatly improve your retirement prospects is your home. With house prices up more than 50 percent over the past five years alone, you may be sitting on a home-equity cushion worth more than $100,000.

Your home probably isn’t the first asset you’ll want to tap, but it’s good to know that reserve is there, and that you can get to it in a variety of ways: Trading down to less expensive digs, borrowing with a home-equity line of credit or taking out a reverse mortgage that will let you stay in your home even as you collect monthly payments for life.

Adopt a flexible spending plan

After you’ve gotten the most out of the assets you own, you must turn your attention to the other key tool at your disposal: managing your spending. Once you begin tapping your portfolio at retirement, keeping a flexible attitude about spending is the single most effective thing you can do to stay on track toward your retirement dream.

For example, financial advisers recommend that when you retire you limit your initial withdrawal to 4 percent of your portfolio’s value, then increase that dollar amount annually for inflation so you don’t run out of money. That 4 percent isn’t a guess; in simulations that put portfolios through thousands of different market scenarios, 4 percent is the amount that provides reasonable assurance your savings will last at least 30 years.

But this sort of analysis doesn’t account for the fact that in real life you’re not locked into a fixed withdrawal rate. You can make adjustments.

And, indeed, assuming you’re amenable to some fine-tuning — spending more when your portfolio has had a few good years and reducing your spending by 5 to 10 percent when your investments perform poorly — you may be able to increase your withdrawal rate to 4.5 percent or even 5 percent without significantly raising the risk of running out of money.

Like the rest of life, retirement doesn’t come with guarantees. But if you approach your planning with the determination to save, the discipline to stick to a sound investment strategy and the resolve to remain flexible, you’ll have given yourself a great shot at living your dream 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.