25.0% (Federal Tax)
7.5% (State Tax)
10.0% (Penalty)
42.5% (Total Tax and Penalty)

Conveniently located in Central New York state, Ann Wolfson Associates is a financial planning and consulting firm dedicated to helping individuals, families and organizations reach their financial goals. If you have questions about this article or if you would like to become a client of Ann Wolfson Associates, please call (315)449-4730.

The information presented is general in nature and should not be considered legal or tax advice. You should consult your legal or tax advisor for information concerning your own specific tax situation.

• Stay invested in your previous employer’s plan if your balance meets plan’s minimum
• Invest your assets in the new employer’s plan
• Take your distribution in cash. Before taking cash think long and hard about penalties and taxes.
• Roll over assets to an IRA.

While making choices

• Look at the whole picture of your current plan.
• Understand all the requirements of a new plan.
• Be aware of any financial penalties in taking a cash distribution.

If you do a direct rollover

• You will have no exposure to taxes or penalties.
• Assets can potentially grow tax deferred.
• Consider only a new IRA that offers diversified choices.

By the number
The IRS requires an employer to withhold 20% federal tax from the money when an employee takes a 401(K) distribution in cash.

Most importantly consider your age. There is one benefit of leaving your 401(K) with a former employer and that is if you are close to retirement age but no 59.5 years and you need a distribution, many 401(K) plans allow for distributions at age 55 years without the IRA 10% penalty you would face after a rollover.

The information presented is general in nature and should not be considered legal or tax advice. You should consult your legal or tax advisor for information concerning you own specific tax situation.

You may think you will never spend it all but don’t underestimate how long you are likely to live.

*Payments are based on the claims paying ability of the issuing insurance company.

If there is any consolation to be taken from the past eighteen months, it is that most people pay more attention to their financial picture – not just their stock and bond investments, but savings and spending habits as well. However, most people do not have time to focus on their savings.

Let us take an objective look at how to improve your finances – you will be surprised at the results. Through simple measures you can make sure your finances are back on track.

Our second opinion will be practical – through inventory of your assets and liabilities, i.e. using some savings in a cash account that yields zero to repay certain types of debt. We will revisit your retirement goals, explaining the impact of inflation on your nest egg. We will help you save, save, save. We will help you to be smart about your different insurance plans.

People should look at finances the way companies do. You need to protect the value of your work. We wouldn’t let panic dictate investment choices. Last year’s losses had many people changing their asset allocation and diversification strategies. Regardless of what the market is doing, sticking to a strategy that matches your investment principles is important especially when it comes to risk.

Make sure you can find someone you can trust. Get a second opinion and keep asking questions. We are here to help. Your success is our success.

Conveniently located in Central New York state, Ann Wolfson Associates is a financial planning and consulting firm dedicated to helping individuals, families and organizations reach their financial goals. If you have questions about this article or if you would like to become a client of Ann Wolfson Associates, please call (315)449-4730.

Why contribute to a 403b when my employer provides a pension?

Few pension plans provide an amount equal to salary. Studies have indicated that we will need about 80-90% of our pre-retirement income to maintain our lifestyles.  Your 403b will provide a healthy supplement to your pension and a huge inflation hedge.

My Favorite Advantages:

Ease of pay roll deduction

It is painless and automatic.  You don’t have to think about it. Did you know that bear (down) markets may actually do wonders for retirement?  Look beyond the short term and invest appropriately for the long term.

Lowers your tax bill

403(b) plans are made on pretax basis, which can greatly reduce your tax bill. You can lower your federal and state taxes because your contributions are taken directly out of your paycheck before taxes are paid.  This has the potential to accumulate faster because you are not paying any taxes on the earnings in the account until you withdraw them (this advantage is called tax deferral). Contribute $150 to your plan per paycheck and you’ve reduced your tax bill by 33% (includes federal and state tax).  In effect, your $150 contribution costs you only $101 dollars.  Please note that your contributions do not reduce your wages thus your social security benefits will remain in tact.

There is another special tax credit for low income savers.  Eligible 403(B) participation will receive a tax credit of up to 50%  (up to $2,000).  For 2009 the full credit is available to joint filers whose adjusted gross income (AGI) is less then $53,000 and single filers whose AGI is under $26,500

Use it as a planning tool. Have a big tax year or offset college cost.

Annually you can contribute (2009) $16,500 with a catch-up for those who turn 50 years anytime during the year of $5,500.    There is another catch-up provision for those who have at 15 years or more service for the same employer.   So, let’s say you inherited money you can offset or you have a kid going to college.  The plan offers flexibility.

Before committing to a 403b option what questions should you ask?

Will I be penalized for pulling my money out?  This is the most important question you can ask.  How available is my money?

Generally, penalty free distributions cannot occur until the participant reaches 59.5 years of age unless they have separated from service in the year they are turning 55.

For retirement before 55, you are eligible for substantially equal periodic payments.

You become disabled.

Hardship withdrawals are allowed if under severe financial distress.  The participant must have no other resources available. A hardship withdrawal may be taken for un-reimbursed medical expenses, eviction or foreclosure on primary residence. Please note that for hardship withdrawal only contributions, not earnings, can be withdrawn.

So I have decided to payroll deduct into a 403b. How do I set up my plan?

The regulatory requirements affecting retirement plans for tax exempt organizations have changed dramatically in the last year.  From written plan documents to vendor and investment approval these changes have made many new demands for employers and employees alike.

Ask your employer for a list of the participating investment companies available to you.  This is known as a vendor list. Select several investment companies from the list and then most importantly research these choices with an eye toward performance and cost.  Next, determine the amount of $$$ you would like to contribute per paycheck.  Finally, return the necessary paperwork to your employer and you are on your way.

What are my Investment Options?

Fixed annuities are contracts with insurance companies that guarantee that you will receive a rate of interest during your accumulation phase.

Variable annuities are contracts with insurance companies under which you make a series of payments into a tax deferred account. In return, the insurer agrees to make periodic payments to you at some future date.  Make sure the variable annuity is worth the money you are paying.

Mutual funds are pools of money invested in many different securities that are managed according to set objectives. For example, you can choose an aggressive fund for growth or a more stable fund for stability.

Other Considerations

Can you change the amount you contribute?

Yes.

Can you stop contributing altogether?

Yes.

Are there loans on my plans?

Possibly though not all vendors oblige.

What are my options for my 403(b) if I switch jobs?

Move money into your new employers 403(b), roll it into an IRA, or leave it where it is. Or, take a lump sum. Although this is not wise because it will trigger all kinds of penalties.

What happens to my 403(b) in the event of a divorce?

A distribution to an alternate payee will be permitted if pursuant to a qualified domestic relations order (QDRO). The spouse can roll the proceeds into an IRA or qualified plan.

What happens to my plan in the event of death?

Death benefits get paid under a 403(b) plan depending on when death occurs and who is named as the designated beneficiaries.

How will my 403(b) be taxed?

In most cases distributions are taxable as ordinary income.  Assets can not be left in the plan indefinitely, you must begin withdrawals no later than April 1 of the year following the year you turn 70.5 years of age.

Can you contribute to a 403(b) and 401K

Yes, as long as your aggregate contributions may not exceed your elective deferral limit.

Can I contribute to a ROTH IRA

Yes, ROTH 403(b) contributions are after-tax dollars that will grow tax deferred.  Withdrawals will not be taxed

Remember that planning for retirement is an on going process. The earlier you get started the better off you will be.  Your best friend when investing is time.

Conveniently located in Central New York state, Ann Wolfson Associates is a financial planning and consulting firm dedicated to helping individuals, families and organizations reach their financial goals. If you have questions about this article or if you would like to become a client of Ann Wolfson Associates, please call (315)449-4730.

The longer you wait to begin receiving your social security, the greater your monthly payments will be. For example, if a person is eligible to receive $1000 at full retirement age, and they begin accepting payments at age 62, they will receive $750 per month. In contrast, if they wait until age 70, they will earn extra credit and their payments will be $1320 per month – that’s a pretty big increase. **

The timing of social security requires an analysis of many factors and differs from person to person and couple to couple. For example, a person in poor health may elect to receive payments as soon as possible. However, lifespans are on the rise and taxpayers with other assets may consider delaying the receipt of social security to maximize their payments into old age.

**Figures and calculations provided in this article are illustrations and examples and are not intended to be relied upon for any purpose. For detailed information about your actual social security benefits, which vary from person to person, you can contact the Social Security Administration. The following link to further information from the Social Security Administration website may also be useful to you: http://www.ssa.gov/pubs/10035.html

Conveniently located in Central New York state, Ann Wolfson Associates is a financial planning and consulting firm dedicated to helping individuals, families and organizations reach their financial goals. If you have questions about this article or if you would like to become a client of Ann Wolfson Associates, please call (315)449-4730.

For example, $100 a month in savings at 10% accumulates to almost $76,000 in 20 years. Over 40 years, that same $100 balloons to $632,000.

Do you have $100 in excess spending that you can cut out during a given month? For many people, there are various expenses that they can do without.

What about $500 per month? At 10%, that would accumulate almost $380,000 in 20 years. Over 40 years, it would grow to over $3 million.

If you are serious about planning ahead, you can build a substantial nest egg. The key is to stop waiting and to start saving. Work with your financial professional to invest your savings wisely and rest easy while your investments work for you.

Disclosure: The hypothetical examples provided are for illustrative purposes and are not intended to depict an actual investment or investment results.

Conveniently located in Central New York state, Ann Wolfson Associates is a financial planning and consulting firm dedicated to helping individuals, families and organizations reach their financial goals. If you have questions about this article or if you would like to become a client of Ann Wolfson Associates, please call (315)449-4730.

With a regular IRA, contributions are typically tax-deductible, but once you turn 70 and a half years of age, you must take out a certain amount from your IRA each year. Plus, all withdrawals from your IRA are subject to income tax. In contrast, withdrawals from a Roth IRA are tax-free – which is what makes the Roth IRA great for estate planning.

With a Roth IRA, you are not required to withdraw at any age. The entirety of a Roth IRA can be left to your heirs and the assets will not be subject to income tax for your heirs.

This is a good time for many people to convert from a regular IRA to a Roth IRA as many IRAs may have lost value due to market conditions. Contributions to a Roth IRA are taxed as they are contributed. Therefore, converting your IRA at a low point can reduce your tax burden.

Since withdrawals from a Roth IRA are tax-free, you won’t need to worry about tax rates in existence at the time funds are withdrawn from a Roth IRA in the future.

Under the new legislation passed by Congress, taxpayers can convert existing IRA or 401(k) accounts to Roth IRAs in 2010 and delay paying tax on the converted assets until 2011 and 2012 (50% of the tax due each year). If you have made non-deductible contributions to your IRA prior to converting it to a Roth IRA, you may not even owe tax on those contributions.

Also, you do not need to convert your entire IRA or 401(k) at once. You can convert to a Roth IRA over time. You can even undo a Roth IRA conversion without penalty until October 15th of the year in which you converted the assets.

After converting to a Roth IRA, you can contribute additional money into the Roth IRA each year, unless your income is above a certain threshold ($120,000.00 for single taxpayers and $176,000.00 for married taxpayers). If you exceed the threshold, you can contribute money to a conventional IRA and then convert those assets into your Roth IRA.

Roth IRAs have been a great tool for retirement planning, but they are now becoming a fantastic tool for estate planning. Talk to your financial professional to get all the details.

Disclosures: Roth IRA earnings withdrawn prior to the end of the five-year aging period and prior to reaching age 59.5 will be subject to a 10% early withdrawal penalty unless used to meet qualified expenses. A distribution from a Roth IRA is tax-free and penalty-free provided that the five-year aging requirement has been satisfied and one of the following conditions is met: age 59.5, death, disability, qualified first-time home purchase.

Conveniently located in Central New York state, Ann Wolfson Associates is a financial planning and consulting firm dedicated to helping individuals, families and organizations reach their financial goals. If you have questions about this article or if you would like to become a client of Ann Wolfson Associates, please call (315)449-4730.

Wolfson asks clients to view their working years as years where time was sacrificed for work as opposed to retirement years where she asks clients to see time as theirs entirely. “In retirement, time is yours. Late meetings, missed events, and short vacations are things of the past. Imagine yourself with all the time you did not have control over during your working years. That’s what we’re talking about. What do we want to optimize your finances and investments for? Your time.”

Wolfson works with her clients to take a hard look at the freedom of retirement. “Often, I have clients list their intended retirement activities, the costs of each activity, and the priority of each activity. Some activities are more important than others, and some activities are not always realistic.”

Through these exercises, Wolfson helps clients to analyze and plan ahead with financial decisions that optimize their retirement plans.

Wolfson also asks clients to take a hard look at health care and its costs. “The ‘What If’ scenarios are hard to think about, but ultimately, you feel a sense of security having planned ahead. Some clients want to be in more expensive nursing homes, and some want to stay at home with home aides if they need them. This is the side of retirement that people do not always want to think about. We sometimes call it post-retirement planning.”

Wolfson recommends that anyone faced with retirement in the future talk with their financial professional to start charting a course to meet their retirement goals.

Conveniently located in Central New York state, Ann Wolfson Associates is a financial planning and consulting firm dedicated to helping individuals, families and organizations reach their financial goals. If you have questions about this article or if you would like to become a client of Ann Wolfson Associates, please call (315)449-4730.

“Retirement planning is as much about lifestyle planning as it is about financial planning” says Ann Wolfson of Ann Wolfson Associates. And as a long time financial planner, Ann Wolfson has seen her fair share of retirements go right – and wrong.

Ann Wolfson recommends that clients actively put themselves in a retirement mindset for a period of time and treat it as a serious exercise. “It’s sort of a retirement boot camp,” explains Wolfson. Over a period of weeks or months, she works with clients to ascertain their basic needs, their desires, and their retirement dreams.

“For some clients, it’s a wake-up call to find that they haven’t really been saving enough or in the right way. For others, it’s a sudden realization that their current spending habits are out of sync with the assets they may have in retirement. Regardless of the situation, there are many tools at my disposal to help my clients achieve financial and retirement happiness,” says Wolfson, continuing, “the best plan is to think ahead and make some decisions now.”

Some of the exercises and evaluations that Ann Wolfson puts her clients through involve spending habits, net worth reality checks, insurance audits, goal determinations, savings optimizers, tax planning, charitable giving, and estate planning.

Ann Wolfson sums it up, “For most of us, retirement is a reality that will arrive whether we are ready or not. The retirement boot camp exercises are tough work for some of my clients, but it helps them to start getting real about retirement. Ultimately, security and confidence come from facing the future and planning ahead.”

Conveniently located in Central New York state, Ann Wolfson Associates is a financial planning and consulting firm dedicated to helping individuals, families and organizations reach their financial goals. If you have questions about this article or if you would like to become a client of Ann Wolfson Associates, please call (315)449-4730.