Retirement planning

U.S. households worth $1 million or more have seen their assets decline 30 percent during the financial crisis, according to a new report.

Patty Duke and her look-alike cousin from her old TV series are back, this time helping seniors apply for Social Security benefits online.

The Internal Revenue Service recently gave 403(b) plan sponsors an extra year to comply with new requirements.

It looks as though many Americans are cashing in their 401(k)s prematurely. So says Take Charge America, one of the nation’s largest non-profit financial education, credit counseling, and debt management companies-- based upon a recent survey. According to Take Charge America, more than one-third of the individuals polled said they would consider meeting current financial obligations through their 401(k) and retirement savings. Of course, add to this that pursuant to a recent AARP study, more than 10 percent of people 50-70 years of age had already retired and are going back to work because of the economy. “The age at which Americans can retire will continue to increase as many individuals look for quick fix solutions for current financial woes,” says Mike Sullivan, director of education for Take Charge America. The company offers certified credit counselors to provide financial advice for those dealing with the financial crisis and Sullivan has some good advice to navigate retirement planning: 1) Don’t Consider Cashing Out a 401(k) Early. He says this is almost always a bad idea because the individual is slapped with large penalties and taxes. He notes that if the person is under 59 ½, there is likely to be a 10 percent penalty plus taxes owed on the funds. “The government requires that 20 percent of the amount payable is automatically withheld on the taxable portion of the withdrawal and that could mean a total of 30 percent of the investment paid in taxes and penalties.” 2) Don’t Retire, Hold onto the Paycheck. Sullivan adds that postponing retirement can provide larger benefits. In fact, he notes that the government is now looking at age 67 as the new retirement age although many people are targeting 69 or 70. 3) Take Care of Health. Sullivan points out that staying healthy helps avoid medical costs and though its sounds simple, he says that keeping weight in check by eating less and avoiding fats and sweets can pay dividends in the future. Plus, exercise regularly and vigorously, and avoid alcohol and tobacco. 4) Change the Lifestyle. Although he admits it may seem drastic, Sullivan says that the best response to credit issues is to stop charging, put away credit cards, and get on a budget. He concludes that it is tempting to look at the 401(k) as a resource to alleviate current financial burdens but that changes in lifestyle, including spending habits, taking care of health, and eliminating excess expenditures can help secure financial independence “without jeopardizing” the future. Take Charge America can be reached at (888) 822-9193. Their Web site is www.takechargeamerica.org.

The Financial Accounting Standards Board has released a staff position officially deferring the effective date of FASB Interpretation 48, "Accounting for Uncertainty in Income Taxes," for nonpublic pass-through entities and nonprofit organizations, and released guidance on accounting for the assets in postretirement plans.

A group of 61 members of Congress has written to President Bush asking him to suspend rules that require senior citizens to withdraw money from their severely depleted retirement accounts by the end of the year.

WebCPA's financial crisis survey is gauging the reactions of accountants and their clients to the financial crisis.

There are possible tax strategies that are particularly suited to the times that we are in. Here are two that I keep seeing, with the latest in a press release from a major tax publisher. According to analysts with the Tax & Accounting business of Thomson Reuters, C corporations may secure a refund of overpaid estimated taxes, or use projected current-year NOL to offset taxes owed for the previous year.

There is no question that in today’s economic climate, lots of people have lots of different questions. In my own family and among my own friends, I hear the same recurring questions being asked. So, here with the help of my friends in the financial planning/services community, are some answers you might consider telling your clients. Naturally, there might be a difference of opinion but here goes: Are bank accounts, IRAs, and 401(k)s insured? The Federal Deposit Insurance Corporation (FDIC) has raised the limit for individual bank deposits from $100,000 to $250,000. Joint accounts held by a husband and wife would be covered up to $500,000. Unfortunately, defined contribution plans such as 401(k)s are not protected against market losses. But federal protections are present in the event the employer or the company managing the account goes under. In fact, under the Employee Retirement Income Security Act, the amount on the 401(k) account cannot be claimed by creditors of failed companies. How about money market funds? The government now temporarily insures money market funds against losses for the next year. A brokerage account, which may include mutual funds, stocks, or bonds, is not protected against market fluctuations. However, the account is protected against fraud and that’s where the Securities Insurance Protection Corporation (SIPC) comes into play. It insures the account up to $500,000. It’s important then to make sure that the brokerage is SIPC-insured. Don’t stay in the market? People talk about bailing out. Experts advise it is usually best to stay the course, because a highly diversified portfolio generally reflects the amount of risk that the individual has been comfortable with as well as goals. Many advisors are recommending that one just hangs in there and avoids panic selling. Of course, there are some who simply can’t ride out the storm, so where do they put their money? Experts claim that the safest investments are certificates of deposit and money market funds, particularly those that invest in Treasury bills. However consider the tradeoff. The safest investments generally produce the lowest returns. Buying annuities, or charitable gift annuities from a charity or university, which do come with tax breaks, may be an alternative for investors who are looking to reduce their stock exposure and who want an income stream for life. What about those annuities? Many leading experts in financial circles advise that because variable annuities fluctuate with the market, they do provide an opportunity to take advantage of a market boom. Conversely, they may not protect from a down market unless a guaranteed minimum withdrawal benefit had been purchased, which affords a guaranteed income stream regardless of the performance of the investment accounts. However, there is a downside here: it costs more and most insurers restrict the investment choices. Some experts suggest transferring a variable annuity to a fixed annuity where the principal is guaranteed and withdrawals of up to 10 percent of the account value are permitted each year without a penalty. But, keep in mind that this may incur heavy penalties for just switching from one to another. Is it better to use a credit card or a debit card for purchases? Much depends on the individual’s situation but it doesn’t take being a brain surgeon to realize that a credit card should only be used if the full balance can be paid off each month. That way, it’s really borrowing someone else’s money to finance a monthly purchase and at no interest. Of course, if there already exists a heavy balance, then obviously, that shouldn’t be added to; therefore, consider using the debit card to keep the debt load down. Finally, keep in mind that savings itself should be handled based on age and years until retirement. The most important factors are the post-retirement income and the value of the overall investments in determining how to allocate a portfolio. Diversified investments focusing more on capital preservation and income generation, and less on riskier growth stocks, are usually considered the best bets. Older investors may opt for the safety of money market funds.

It's hard to believe we can write another column about pensions and the bad GAAP applied to them, but here we are again, beating the same old drum. In addition, there is a new drum in the Pension Protection Act of 2006.While we're putting this column together, the market is continuing its sliding and bouncing, and the government is doling out money left and right (and in between) to bail out insurers, mega-banks, regional banks, investment banks, depositors, money funds, brokerage houses, and who knows what else.

Government officials now expect 401(k) plan sponsors to conduct periodic due diligence reviews. With respect to their 401(k) or other retirement plans, the problem is that most sponsors (owners) do not have the in-house resources to do so.This is not something that 401(k) plans historically did. On the heels of the recent mutual fund scandals, though, Labor Department officials indicated that sponsors had a duty to periodically investigate plans and benchmark funds and fees.

On Thursday, Congress passed a waiver of the minimum distribution rule for 2009, but not for 2008, for employer-provided qualified retirement plans and individual retirement accounts and annuities in H.R. 7327, the Worker, Retiree, and Employer Recovery Act of 2008. President Bush is expected to quickly sign it.The Treasury Department is studying whether to provide relief with regard to 2008 minimum distributions.

The Internal Revenue Service has given schools and tax-exempt organizations more time to finish writing their retirement plans.

Has your firm recently lost accountants to retirement? Maybe it’s time to tap into those firm alumni for extra help during busy season.

This live, one-hour seminar, the first in a series covering aspects of our current economic crisis, is essential for all accountants who offer financial planning services. It will feature practical, hands-on insight and information you can put to work for your firm immediately.

Baby Boomers planning for retirement need to stick to a budget, according to one tax expert.

“As the economic slump deepens, more companies are expected to join General Motors in suspending matches of contributions to their employees' 401(k) retirement accounts. “GM last week became only the latest on a list of well-known companies trying to conserve cash to weather the downturn by halting 401(k) account matches. Also among them are Goodyear, Frontier Airlines, commercial real estate firm Cushman & Wakefield, broadcast group Entercom and rental car agency Dollar Thrifty Automotive Group. “ The above was from USA Today of October 28, 2008 and indicates a very interesting new, possible growing trend that will probably increase and become especially attractive to companies hardest hit in these tough economic times. The ramifications, if this becomes widespread, are extremely significant, and this is true even on the firm level, whether it involves business clients currently matching 401(k) employee contributions or individuals saving for retirement. Beside costs and retirement savings, there is the obvious concern of the impact on attracting and retaining talent, and the need for development of special compensation packages for key employees. It also indicates that businesses will be making some very tough decisions as a result of this extended, and continued financial and economic crisis. Some firms are already creating internal financial crisis teams. This is a time to be proactive and respond, not a time to wait and react. What is your firm doing?

The Internal Revenue Service announced cost-of-living adjustments on the dollar limitations for pension plans and other items in tax year 2009, even as Social Security benefits are expected to rise next year.

Presidential candidate Sen. John McCain, R-Ariz., and his rival Sen. Barack Obama, D-Ill., have proposed differing tax and retirement plan measures to deal with the economic downturn.

For taxpayers that converted a traditional IRA to a Roth IRA in 2007, October 15 is the last chance they have for redemption, according to Mike Martin of Mike Martin and Associates.