Don't be like this guy

Congratulations! You made the choice to rollover your 401K! The last thing you want is to lose more than half of it to taxes. Watch out for these pitfalls:

1. The Same Property Rule – If you take a rollover distribution from your 401K in a certain asset class, you need to reinvest into the new retirement vehicle the same amount and type of asset. For example, if your 401K is distributed to you in cash, you must roll cash into the new account. You cannot take the cash and buy a mutual fund and then put the fund shares in the IRA.
2. The 60 Day rule – Once you take the rollover distribution, you have only 60-days to invest that money in a qualified retirement account. If you miss this deadline, the IRS will be at your door. 60 days may seem like a lot of time, but the Employee Benefits Research Institute reports that 60% of people who take an early distribution do not get it into another qualified account within the time limit.
3. The 12-Month Rule – You are only allowed to do one rollover from or to an IRA within a twelve month period. The exception to the rule is a conversion from a traditional IRA to a Roth IRA.

A 401K Rollover can be complicated to do on your own, especially as most Americans will only have to do it once or twice in their lives. You may want to check out our information on IRAs and 401Ks. Many people don’t even realized that they can own a gold IRA.

Are you leaving your job? One loose end to tie up is handling your 401K. You generally have three options.

• Cashing out – take the money and run. Or more likely, cash out and possibly be penalized by taxes and fees. If you are under 59 1/2, the penalty alone will be 10% of the total.
• Let it sit. Some people even forget they have old 401Ks! If you do let it sit, log in every year and readjust your fund allocations so that your level of risk and exposure is balanced to your comfort level.
• Roll it over into an IRA. This is probably your best option!

IRAs have many, many advantages to 401Ks. For example, in a 401K your investment opportunities are extremely limited. You may only be allowed to invest in a select number of funds, and even then there are tons of hidden fees.

With an IRA you can have the security of a precious metals in your retirement account. You can invest in stocks, cash, mutual funds, gold, and even real estate in an IRA. Gold in an IRA is one of the best ways to prepare for retirement by providing you a safe inflation hedge as well as high returns. You can’t hold gold in a 401K but you can in an IRA.

IRAs have more relaxed withdrawl rules for both emergencies and major financial decisions than a 401K would. For example, a first time home buyer can take a withdrawal to put towards the cost of a down payment from their IRA without penalties (there could be some tax payments involved, consult your accountant if you’re considering this), but 401Ks do not offer the same advantages.

Today Bill Bonner of the Daily Reckoning asks, “What’s the smart money doing?” We have heard that unemployment is still up, have been cautioned that prime foreclosures are on the rise, and even President Obama is worried about a double dip recession. Yet the stock market is going full speed ahead with a 10-point increase in the price to earnings ratio, meaning that stocks are essentially becoming more expensive.  Why do investors have such confidence? Bonner looks at what the different classes of investors are doing for an answer.

The Dow is now up more than 50% from its March low…and has regained more than 50% of what it lost. Are the insiders taking advantage of this dip to get bigger stakes in their own companies? No… They’re selling 18 times as many shares as they’re buying. Go figure.

The insiders know that their businesses are not really in good shape. They’ve been able to maintain profit margins by cutting staff. But sales are down. And they don’t see where additional sales will come from.

Meanwhile, investors have been hallucinating about a real recovery. They’ve bid up the price of shares as though they expected a stunning period of growth. Generally, earnings have held steady…but stock prices have gone up.

This has brought a 10-point increase in the P/E ratio, to greater than 27.

What would justify such an ambitious P/E? Only growth. Where might growth come from? We don’t know. David Rosenberg says stocks are priced as if investors expected profits to double next year. But it usually takes profits 5 years to double. And then, only when they have a reason to double – such as higher sales and lower costs.

This leads us to believe that exposure is quite high in the stock market. Companies can only minimize their operations budgets by so much, only lay off so many employees before they become non-functional. Gold remains our favorite store of wealth as well as a handy way to pick up great returns. Your retirement account is not limited to the stock market, either.  You can rollover a 401k, Roth IRA, or traditional IRA into a precious metals backed retirement vehicle. More and more investors are switching to a gold IRA as the writing on the wall becomes clear.

Fidelity released a report that the average 401K has rebounded several thousand dollars from this time last year. However, the LA Times points out that the average is still 13.3% below the peak reached in 2007.

Although financial markets have rebounded sharply this year, the Fidelity figure doesn’t mean that the investments in the typical account more than recouped what was lost in the meltdown. The totals include all employee and employer contributions to the accounts, so the money coming in would have offset some of the prior losses.

Now, when even President Obama is warning of a double-dip recession, are you willing to take another chance with your 401K in the market? Gold has gained 29% this year while investors are still struggling to recoup their losses in the stock market and mutual funds. Look into a gold IRA or gold 401K today!

In passing the Emergency Economic Stabilization Act of 2008, Congress approved a special option for IRA owners that are at least 70 1/2 years old to transfer up to $100,000 to charity tax free. This feature applies to individual IRA holders, so a married couple (if they meet age requirements) could move $200,000 out of their taxable estate by the end of the year. You still have about 6 weeks to take advantage of this provision!

Some things to keep in mind before you act

-You can’t transfer out IRA funds to an account and write a check to the charity. This will eliminate the tax-free benefits because you will be realizing the IRA funds as income. The check must be directly from the IRA to the charity.

-You can’t receive anything in exchange for the donation from the charity. So these funds can’t be used to purchase an item in a charitable auction, and you cannot accept a thank you gift for the donation.

-The deduction can come from either a traditional IRA or a Roth IRA. And of course it can come from a gold IRA, too!

-This is a great way to reduce the size of your estate and avoid estate taxes if your IRA is significantly large.

- As always,  consult with your tax/financial advisers to determine if a Charitable Gift Annuity is right for you. We can offer only our observations about the issue and we do not provide tax advice.

44 million Americans have pensions. These are guaranteed by the federal agency known as the Pension Benefit Guaranty Corporation (PBGC). The PBGC has found itself in hot water deficit territory like many federal agencies. In the last six months, their deficit has doubled, hitting $22 billion.

From a recent report from the PBGC:

The Pension Benefit Guaranty Corporation (PBGC) ended fiscal year 2009 with an overall deficit of $22 billion, according to the agency’s Annual Management Report submitted to Congress today. The result compares with the $11.2 billion deficit recorded at the previous fiscal year-end on September 30, 2008.

The Annual Management Report classified 27 large pension plans with total underfunding of $1.64 billion as probable losses on the PBGC balance sheet. The report also shows that the agency’s potential exposure to future pension losses from financially weak companies increased to about $168 billion from the $47 billion booked in fiscal year 2008.

“Exposure to possible future terminations means that we could face much higher deficits in the future,” said Acting Director Vincent K. Snowbarger. “We won’t fail to meet our obligations to retirees, but ultimately we will need a long-term solution to stabilize the pension insurance program.”

It is reassuring that the PBGC intends to honor their obligations. Though to do so, they may need a bailout, too! If you have a pension, hopefully you have some additional funds saved for retirement. Diversification is extremely important and relying on one income stream is like the proverbial “putting all your eggs in one basket” scenario. A gold IRA is one way you can put a portion of your wealth in gold coins or other precious metals in the safety of a designated retirement vehicle.

Another dismal report – 530,000 lost their jobs last week. If you are one of them, I am deeply sorry for your situation and the hardship you and your family may be experiencing. Or maybe you are one of the 5,797,000 people who are still continuing their claims. Or maybe you fall into the category of the tens of thousands of “discouraged workers” whose benefits ran out and have simply given up looking for a job after sending out so many rejected resumes.

So what now for your 401K? A recent study shows that half of workers cash out their 401K when changing jobs. That is certainly one option, and there are three other things you can do with it. Let’s examine your options.

-Cashing out. In this scenario, you will lose the most money to taxes. By law, your employer is required to take 20 percent of the balance off in taxes. Then, you could be slapped with a 10 percent withdrawal penalty. Should you be in a tax bracket above 20 percent, you could get slapped with even thousands of dollars more in income tax.

-Don’t touch it. You can leave the account just like it is with your old company. A lot of people who do this forget they even have it. If you do leave it with your former employer, remember to check your asset allocations at least once a year (or quarterly, if the market is particularly volatile) to determine if you need to rebalance any funds.

-Roll it over to a new 401K. If you find new employment, and your company is offering a 401K, you can rollover your old 401K into that plan.

-Roll it over into an IRA. This is one way to back your retirement savings with gold or precious metals. An IRA can be a self-directed form of savings. In your 401K, you were most likely limited to some funds chosen by your employer. With a self-directed IRA, you can hold everything from a gold coin to government bonds to stocks, and, this is the wildest part, you can even own real estate. It’s probably the easiest way to diversify your retirement savings while still receiving tax benefits.

There are a lot of reasons to open a gold IRA or gold 401K. Today we’ll focus on the advantages of opening a gold Roth IRA.

• Your earnings compound longer! - Differing from 401Ks and traditional IRAs, a Roth Ira with gold has no required withdrawal age, allowing you to extend the period of your portfolio growth. You must begin making taxable withdrawals at 70 years of age with a traditional IRA.
• Your earnings have tax free compounding! - Traditional IRAs and 401Ks experience tax-deferred growth compounding. Funding your Roth IRA with gold allows you to compound earnings tax-free every year.
• Your earnings are tax-free! - You will not have to pay taxes on a single gold coin in your Roth IRA. Contributions and earnings to a Roth IRA is not taxed when being withdrawn.
• Reductions in Estate Tax! - Leaving gold to your heirs through a Roth IRA can be a tax-free transfer of wealth. They will be taxed when receiving a traditional IRA.
• You can withdraw early! - If your emergency fund is all tapped out and you need to break into your Roth IRA, you can withdraw any of the principal that you contributed. As gold is one of the most liquid asset classes, it can be traded virtually everywhere in the world at any time, it will be easy to make the conversion for your withdrawal. With a traditional IRA, you’ll have to pay penalty fees.

US Representatives Judy Biggert and Mark Kirk of Illinois have authored the 401 (Kids) Family Savings Act of 2009 to allow relatives to open a 401 (Kids) Savings Account that can be funded with $2,000 every year per child. The act is moving through Congress and has not been passed yet.

The 401 (Kids) account would operate like a Roth IRA, in which money would be contributed after taxes, and then would accumulate in the account tax-free. The funds could then be used for expenses like education, retirement, or a home down payment.

Kirk praised the benefits of the idea: “A 401(Kids) account would give parents personal control and ownership of an account they could build seamlessly, even if they moved.”

Should the bill be passed, hopefully the principle of personal control would extend to allowing account holders to invest in any asset class they choose. Currently, you can fund your 401K and IRA with gold. Diversification is key in these tough economic times when the average 401K has lost about 24% in the last five years because of the stock market’s poor performance. Most portfolio managers advise allocating 10 to 35% of your portfolio with precious metals. Educating your children about cautious investing and diversification can begin at an early age, and a gold IRA or gold 401K is one way to just that.