There are now new rules for taking after tax money from qualified retirement plans (such as a 401K, 403b, or 457b accounts.) If you have any after tax contributions within your plan, they can now be rolled directly into a Roth IRA upon separation from service. In the past, most people either rolled all of their funds into an IRA and paid taxes pro-rata, based on the ratio of pretax to post tax contributions, or they had the option to take a separate check for the after tax funds and roll the balance of the funds into an IRA. Now the IRS has ruled that the after tax funds can be transferred into a Roth IRA where they can grow tax free (think of this like a tax free Roth conversion).
Clients will often review their quarterly investment statements and ask the following questions:
â€śI noticed that this particular fund or asset class was down.Â Why should I be invested in it if it just keeps going down?â€ť
â€śLarge cap stocks have done so well recently, why donâ€™t I just invest all of my money allocated to equities in large cap funds?â€ť
The recent love affair with US large caps is understandable.Â This asset class had spectacular performance in 2013, as well as the past 5 years.Â However, 10 and 15 year performance lagged other asset classes.Â See the chart below.
When it Comes to Finances, as Rodney Dangerfield Would Say, Women Still â€śDonâ€™t Get No Respectâ€ť.
For years I have been the â€śCFOâ€ť of my household.Â Â Over twenty plus years of marriage, I have paid the bills, done all of the investing, monitored the family budgetÂ and net worth, negotiated mortgages,Â and even have power of attorney for my husband, so that I can execute trades on behalf of him.Â We both have charities that are near and dear to our hearts, but we normally write a check for all of our donations from our joint account.Â Â Often, the thank you card we receive from the charity is addressed only to my husband.Â Â Ouch!
This monthâ€™s article in Financial Advisor magazineÂ â€śGetting Aheadâ€ť by Mitch AnthonyÂ struck a chord with me as I think our society often sends the wrong message about what it means to be successful.
Americans strive to do â€śbetter than the Jonesâ€™â€ť by earning enough money (and accumulating debt) to buy fancy McMansions, nice cars, and family vacations.Â But the never-ending pursuit of the trappings of wealth can get in the way of the truly important things in life such as relationships, job satisfaction, and extracurricular pursuits.Â Debt accumulation is often the end result of aspiring to acquire â€śstuff and thingsâ€ť so we can impress others and make ourselves feel like we have succeeded.Â Â Acquiring material possessions rarely leads to happiness.Â In addition to increased debt, it impairs our ability to provide adequate savings for retirement.Â Â In fact, research shows that the average American has very little saved for retirement.Â
Insurance, investing, estate plans….aspects of your financial life can be intimidating, but that does not mean that you should delay, deny, or disregard your situation. Â Instead, try to build your awareness by going through a quick audit to see if you are on track. Â In this radio interview with Jim Ludwick, on the Swim with Jim radio show we discuss the importance of annual financial audits.
Here are more details on how to conduct your own 10 minute financial audit.
A recent study conducted by Timothy Gubler and Lamar Pierce from the Olin Business School, Washington University in St. Louis shows that poor physical health is driven by the same psychological factors that determine whether or not you contribute to your retirement plan at work.Â Â See this related article in the NY Times:
In the study, employees who contributed regularly to their 401(k) plan were not only more likely to take steps to improve their health but also had a 27 percent improvement in their blood scores. â€śNon-contributors continued to suffer health declines,â€ť the paper said.