Money Matters – An IRA May Be in Your Future!

 Most Americans who are not self-employed, rarely invest in an Individual Retirement Account, yet more people are winding up with these tax-sheltered retirement accounts. This is because of rollover IRA’s – those IRA’s funded from other retirement accounts, such as workplace 401(k)s, 403(b)s, etc. are thriving due to employees changing employment with one company to go work for another or people simply retiring.
So even if you have never contributed to an IRA and don’t plan to, there may come a day where understanding the basics on how IRA’s work will become invaluable information.  Case in point – a client of mine just before she sought out my financial advice had quit one job, to take another, and had to move her 401(K).  She had luckily amassed quite an amount of money without any help or advice from her plan administrator. She knew of no other place to put these funds, sought no financial advice and transferred the funds to her new 401(k) which does not have the investment options she would have had with an IRA that she had control of and the expenses were greater.  There is a short period-of-time where one can change their mind and re-place their investment but she had exceeded that allotted time.
The key feature that unites IRA’s is some type of federal income tax benefit. At minimum, your investments grow tax-deferred until the money’s withdrawn.  With the Traditional IRA, you can deduct your contributions.  With a ROTH IRA, you don’t get a front-end deduction but the gains are tax free. Obviously, there are limits to the amount you can contribute, income you make, access to a 401(k) etc., and these rules can be confusing.  I addressed this in more detail in a previous article that appeared in The Magazine of Santa Clarita.  If you would like a copy just email me and it will be on its way to you. It is amazing to me how few people nationally contribute to their IRA’s on a yearly basis – best method I have found for my clients is that they set up auto-debits.  The adage, “out of sight – out of mind” really works when it comes to one’s retirement.  My recommendations to clients have always been take 10% of your income and put it away for retirement and an emergency cash fund and learn to live off 90% of your income.  Statistics tell us that 3-times more people contribute to their ROTH IRA’s than Traditional.  The reason for this discrepancy I think is that ROTH offers some key benefits, the big one being that you are not forced to take withdrawals once you reach age 70 ½ years old.  By contrast withdrawals from a Traditional IRA are taxable as ordinary income and could negatively impact your social security benefits.
So, what are roll-over IRA’s? They are tax sheltered vehicles into which you can move your 401(k) and other retirement programs if you leave your job or want to consolidate your IRA’s with one investment house. Most importantly, investors are capped as to what they can contribute on a yearly basis but roll-overs have no cap limits, i.e., investors can roll-over unlimited sums as the amount may reflect many years of participation in the workplace.  The average roll-over for 401(k) averages at just over $28,500 per the latest statistics.
If you have questions about a 401(k) that needs to be rolled-over, please give me a call as I would be more than happy to help.  For more information, please call Douglas J. Sedam at 1-866-549-3900, 661-295-2400 #1 or email: Doug.Sedam@ThePaseoGroup.com.  You may also learn more at www.ThePaseoGroup.com.
Securities and Investment Advisory Services offered through Financial West Group which is a member FINRA/SIPC. OSJ Office: 4510 E. Thousand Oaks Boulevard, Westlake Village, CA 91362, Phone: 1-866-502-8929 The Paseo Financial Group, Inc. and Financial West Group are unaffiliated companies. The Paseo Financial Group, Inc. encompasses the following companies: The Home Loan Pros – Residential, Investment, & Commercial Real Estate Mortgages; Oak Tree Realty – Residential, Investment, & Commercial Real Estate Sales; and The Financial Services Pros – Investments, Insurance, & Retirement Planning.