Rachel Sheedy: That concludes today's Jump-Start Your Retirement Plan Live Discussion. If your question didn't get answered today, you've got a second chance to submit it. Another live discussion will take place on Tuesday, January 26, from 9 a.m. to 6 p.m. EST. Tune in then.

Maxine: I was recently told that it takes about ten years to recoup the taxes paid when you convert a traditional IRA to a Roth. Is this true? I am already retired. I am considering converting one or two small IRAs (about $30,000 to $40,000 each) to a Roth. I am not sure what tax bracket I will be in, as things have changed a lot since last year. But I think I will be taxed on over $66,000. What is your advice on Roth conversions and when is it appropriate and/or not appropriate?

Kris Johnson: Every situation is different and you should have this analyzed by an advisor or CPA in detail to get a definitive answer. Keep in mind that you are not required to convert an entire IRA account. It may be beneficial to convert smaller amounts such that you remain within an existing tax bracket.

It may be appropriate to convert if you have the assets in cash or taxable investment accounts to pay the tax liability. Also, if your lifestyle is such that you will not tap the converted Roth IRA for many years, it could be beneficial. Generally speaking, the more financially secure you are (i.e. the more you live below your means) the greater the benefit of converting to Roth.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Nina: I'm a widow, 55 years old and retired, with no plans to work again. I will not be depending solely on Social Security for retirement income. Is it best to begin drawing at a reduced amount at age 62, or should I wait until age 66 (and hope that the system is still solvent and payments aren't subject to a means test)?

Kris Johnson: This can be a tougher decision when a spouse is not involved. While this can only be answered definitively with a more detailed analysis, it may be worth taking SS earlier if it allows you to postpone income sources that would be taxable (IRAs or other pensions).

Another consideration is your self-assessment of health. Usually the break-even point is around age 78, i.e. if you live beyond this age, it would be prudent to wait, if you don't make it that far, taking it earlier would be beneficial (I realize this can't be known for sure when the decision needs to be made!).

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Mary: I am retired from a government job with the State of California. While I worked I contributed to the Deferred Compensation Plan (IRA). I haven't yet started taking withdrawals. In 2010, I want to roll over some of the money into a Roth, but I don't know where to start or who to talk with about this. What advice can you give me?

Kris Johnson: If you are sure a Roth conversion is right for you, any respectable independent brokerage firm can help you with the process - online brokerages or Vanguard if you can work online or over the phone; Fidelity or Schwab (and maybe Scottrade) in person. A NAPFA advisor if you'd like more comprehensive planning help.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Louie: I have a rollover IRA, which I funded from a previous employer's 401k when I left the company. I also have a Roth IRA and a Traditional IRA, which I made nondeductible contributions to. If I want to convert the rollover IRA and the Traditional IRA to a Roth IRA, will I need to pay any taxes?

Kris Johnson: You will need to pay taxes on the Rollover IRA and any growth in the nondeductible Traditional IRA.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Bill: Hello, I recently got a $29,000 payout from my former employer and want to "park it" somewhere for a few years. Should I look for a CD or a high-interest savings account from one of the online banks?

Kris Johnson: If you want or need immediate access to the $29K in case of emergency, I'd suggest a high-interest savings account. If you don't intend to touch it for several years and won't need to for emergencies, consider a short-term bond fund, which is slightly more risk, but should be rewarded with a better return over five years than savings accounts or CDs currently pay.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

gita: Hi, I work only part-time and don't make much. I don't have any portfolios whatsoever. My employer does not contribute to 401K. Still, is it a good idea to put money in it? Or, what else can i start investing in? Should i look into IRAs? I don't have any financial knowledge. Please help. Thanks in advance.

Kris Johnson: A Roth IRA is probably your best bet if you have no company match and a low income. Presumably low income means a low tax bracket, which makes the Roth IRA a more powerful savings vehicle over the long-run.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Terry West: My wife will be receiving half of the 200K from the sale of her deceased dad's primary residence, which she was listed along with her brother on the deed. What should we do with the 100k she will be receiving? What should we expect regarding taxes? Thank you.

Kris Johnson: There should be no significant issue related to taxes. Inheritance is not a taxable event for income taxes. Whether there is an estate tax issue depends on the particular situation, but only on estates in the $3.5 million + range if deceased in 2009.

What you should do depends on what you have in place already - emergency fund first, savings goals next (including paying off debt).

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Kate: I am concerned about home value. I got a recent real estate assessment and the value is over $100,000 less than what I paid 5 years ago. And now worth less than what I owe. I am living below my means and good about saving (401K plus a Roth), but worried about housing. I don't plan on moving soon. How worried should I be? Is it worthwhile to make extra payments with any extra funds?

Kris Johnson: If you don't intend to move anytime soon, I would not be overly concerned. Additional payments are not a bad idea assuming you are or have already addressed other key financial goals like emergency fund, retirement savings, and savings for other intermediate and long-term goals.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

RJ: I have an option of a traditional 401(K) or a Roth 401(K), and I would like to retire in 10 years. What issues should I look at to determine which option is better? Should I pay the taxes on today's earnings in exchange for tax free growth? Also is the match in a Roth account nontaxable as well?

Kris Johnson: The answer can only be answered definitively with a more detailed analysis. If you can max out either plan and pay all necessary taxes, the Roth option is often a good one. Presumably you have accumulated quite a bit over the years in your Traditional account, so Roth contributions would provide a good long-term hedge against higher tax rates. Much of the definitive answer depends on lifestyle in retirement.

Even if you contribute everything to the Roth 401(k), the match portion will go to the Traditional account.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Jason Daniel: Good morning: I am going to be able to use my 2009 Tax Return (in conjunction with the $8,000 First Time Home Buyer's Tax Credit) to get myself completely out of debt. Doing so will free up close to $400 a month. Which of the following would you suggest I use that money for? An emergency fund, opening a ROTH IRA or starting a 529 for my newborn daughter? Seperately, being active duty military, would you suggest opening a ROTH IRA or contributing to the Thirft Savings Plan? Thank you for your response.

Kris Johnson: I would target the items you mentioned in order. Once one is established or on the way, move to the next.

The Roth or Thrift Savings Plan is more of a tax question. The Roth IRA will give you more investment options, but the TSP is excellent from a cost and simplicity standpoint. If you are not concerned about paying taxes upfront, max the Roth then move to the TSP.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Jack: I have most of my portfolio in ETFs indexed to large cap, mid cap, and small cap US stocks, as well as ETFs indexed to EAFE and emerging markets, as well as about 5-10% in short term municipal bonds and TIPS. How important do you think it is to "diversify" into REITs, commodities and more bonds. I am 44 and am essentially a "buy-and-hold" investor.

Kris Johnson: I believe the other investments you mention would add some good diversification to your portfolio. We like to use long-short commodities rather than long-only, but REITs and bond funds with opportunistic strategies could lower volatility and potentially boost return. That said, if you can handle the volatility of your existing portfolio you should be in a good spot over the long run. You have clearly paid attention to costs which is very important.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Chip: Hi, I'm wondering what percent of my retirement money should be invested in bonds. I'm 47 and my wife is 46 years old. Roughly 95% of our assets are invested in equities and 5% in bonds. We don't panic when the market sells off. In fact, we view it as an opportunity to buy stocks at a discount. I know my bond holdings should probably be a bit higher but I still want a sizable portion of our assets in equities to outpace inflation. I realize bonds can smooth out the ride a bit. Thoughts? Thanks.

Kris Johnson: Very dependent on your particular situation. It sounds like you can tolerate the swings - and if you've made it through the past decade in this fashion, you're probably OK staying aggressive from an emotional point of view. However, you may want to look into adding more fixed income - say 20%-25% of your total portfolio. There are a number of well-managed but more aggressive bond funds that can reduce portfolio volatility relative to equities but still provide some solid returns.

There is much more to fixed income than CDs and US Treasuries.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

michelle: I'm expecting a tax rebate of about $2,000. My car has over 150,000 miles on it so I thought about putting that money down on a new car. I've also considered putting it towards a $5,000 unsecured loan I took out a couple of years ago to pay off credit-card debt. The last thing I would really like to do is open a ROTH IRA. I have no retirement plan at work, and I want to make sure I am going to be financially secure when I'm older. I'm 23 years old, my credit score is 747, and I only owe my mortgage, the unsecured loan, and student debt. What should I do with my tax rebate?

Kris Johnson: Establish an emergency fund. Put savings in a high interest (relative term) savings account. Once you have three months saved, pay down debt. Once debt is paid off (including any future car loan), expand the emergency savings to six months of expenses. Then start saving for other goals (pay off mortgage, retirement, education, big purchase, etc).

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

C. H.: For high income people, what other tax advantages can be used as tax shelters?

Kris Johnson: A very open ended question. In terms of investments, certain types of insurance products could be considered, though we rarely find a situation where we believe they are justified. We prefer taxable investment accounts (after all qualified options are maxed out).

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Robert Strauss: Your thoughts on including REITs (through mutual funds) as part of one's asset allocation for a retirement portfolio?

Kris Johnson: We include them in most client portfolios. A very volatile place to invest the last couple of years, but historically a lower correlation investment relative to traditional equities and fixed income. We generally recommend 2%-5% of the portfolio depending on risk level.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

steve: I am 58 years old, retired, with only interest and dividend income totaling less than $20K. How do I determine if I should move some funds from my IRA to a Roth IRA? Thank you.

Kris Johnson: There are many factors to consider, but one of the key ones is whether you are able to pay the taxes generated from the conversion with taxable assets (bank account cash or taxable investments). Also, the more you have saved relative to your lifestyle, the more beneficial a Roth IRA conversion typically is. A more detailed analysis of your specific situation is necessary for a definitive answer.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Jack: My wife is sending her 80-year-old mother money to help with her rent. Her only other income is Social Security. We have read that $13,000 a year would be exempt from gift tax. Does this have to be declared as income for federal income tax? Would this count against the Medicare Part D Extra Help income and resource limits, as well as Medicaid income and resource limits (Tennessee)?

Kris Johnson: I am not certain about the Medicare and Medicaid provisions, but personal gifts are not taxable for income tax purposes. As you noted, the giver of the gift may be subject to a gift tax for gifts in excess of $13,000 annually, but that is under estate law provisions.

I believe someone with Social Security Administration or Medicare would be the best to address those aspects. Alternatively, an elder-care attorney would likely be a good resource.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Aaron: My wife and I are both 28. We are trying to decide what we should do with her retirement plan. Her employer-match contribution to her 401k is maxed at 1.75% when we contribute 4% of her pay. Someone once told me that after that point it isn't worthwhile to continue to contribute to the 401k and that we should put any additional amount we can into an IRA or a ROTH. Is this correct? We can now contribute up to 10% of her paycheck and I just want to make sure she gets the most bang for her buck. Her 401k is with Vanguard and right now it is all in a total market index fund.

Kris Johnson: Everyone's situation is different, but my general rule is:

1. Contribute up to match in 401(k)s
2. Max Roth IRA
3. Contribute additional to 401(k)
4. Taxable investing

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Dave Keller: Last year withholding was decreased by the government. Is it back to normal for this year?

Kris Johnson: The withholding was decreased for a tax credit that is also in place for this year, but not future years. The lower withholding should still be in place, but is probably not as a big of a drop since we a have a full year to withhold rather than the partial year for last year.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Debra Hocking: Hello, May I add money this year to a Roth conversion that was converted many years ago? How is this separated in terms of the 5 year rule for tapping into account if need be???

Kris Johnson: I am not aware of any reason why you could not make a 2009 or 2010 contribution to a previously converted Roth IRA. My understanding is that the 5-year rule started with the tax year of your conversion -- including for any subsequent contributions. This should be verified with a CPA, but I am fairly confident in the accuracy of this statement.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Kenny: I have been contributing the max amount for a single to a Roth IRA for the past 11 yrs. I recently discovered that my adjusted gross income crossed over the max limit amount a couple years ago. Therefore, I was only eligible to contribute a portion of the $5,000 max, not the $5,000 I contributed. First, to recover from this error do I "simply" submit forms to remove the excess amounts I was not qualified to contribute? Second, is that money now considered income? Finally, where can I turn next with my excess income now that I make too much for a Roth IRA?

Kris Johnson: The logistics for correcting the error and specific potential penalties are best addressed by a CPA. However, you should be able to correct any error by removing contributions and earnings on those contributions for 2009 before April 15 of this year.

There are a number of options for where to go after. The best option is dependent on your specific situation, but I would generally advocate investing in a taxable brokerage account that gives a wide scope of investment options.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Larry: My question regards if it is worth converting my IRA to a Roth...I will probably retire in 10 yrs. The problem I see is that the conversion puts my tax bracket up to 33% even though spread out over 2 yrs, but when I retire I would not take too much out at once so probably be in 25% bracket.

Kris Johnson: Tough call. I have analyzed dozens of various real life scenarios for clients and the conclusion is different for all of them. If you are not likely to tap the converted Roth IRA money until late into retirement (i.e. you are not at significant risk of outliving your assets), it still may be beneficial to convert today. If you do you live a very modest lifestyle in retirement, it likely does not make sense to convert. A middle ground may be converting a smaller amount of the IRA such that you aren't pushed into a higher tax bracket (there is no requirement that you convert your entire IRA). It would not make sense to convert if you do not have taxable assets from which to pay the tax liability.

I'm sorry that a more detailed analysis need be run to give you a definitive answer.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Lucia: My former employer had a defined-benefit pension plan in which I was fully vested when I left. I am able to begin taking this pension at age 55 in a number of ways: lump sum or different distributions such as survivor benefits. I am worried about leaving the money in this plan as I don't know what will happen. I am interested in your advice as to whether I should take the lump sum out -- and if so, what might I do with it that would keep it safe and perhaps allow access to it in the event I retire early. I am VERY fortunate as I have this pension as well as military retirement and we have a government thrift savings account and some other mutual funds and IRA account. Thanks very much for your advice.

Kris Johnson: Given that you have other pension plans (and government pensions that likely include cost of living adjustments), it is probably not a bad idea to take the smaller pension as a lump sum and roll it to an IRA (to avoid any immediate tax liability).

If you do this, however, keep in mind that you could not access it without an additional 10% penalty if you take it before age 59 1/2 with the typical withdrawal method (there are some more complicated exceptions to this rule). You should also see what underlying pension growth assumptions are embedded i.e. what amount would you receive if you did not take it until a later age?

If you take the lump sum today, how you should invest it is dependent on your overall investment mix and willingness to accept volatility in investment value. It should not be considered by itself, but in the context of how all of your other investments are allocated.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Bill W.: When converting a Traditional IRA to a Roth IRA, do Rollover IRAs need to be included as a "Traditional" IRA when calculating the tax based on the deductible/non-deductible ratio? In other words, is a Rollover IRA considered to be a "Traditional" IRA or is it a third (and separate) type of IRA for tax purposes?

Kris Johnson: Yes. All IRAs need to be considered. A rollover IRA is really no different from any other Traditional IRA.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Rita Collins: Can I base my IRA contributions based upon the income received even if I did not receive a 1099 (less than $600 income)?

Kris Johnson: If you report the income as taxable to the IRS on your tax return, I see no reason why you could not make an IRA contribution based on this income. I would verify this with a CPA, but I'd be surprised by a different conclusion.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Paul: I'm 41 and currently invest 15% of my income, split between my non-matched company 401k and a Roth IRA. I have no debt other than my mortage and not having a mortgage would be a great feeling. Single, no kids. In the long run, would it be better to take extra money above that 15% and invest it, or prepay my mortgage? I'd really like to retire my mortgage before I retire. Thanks!

Kris Johnson: We view the mortgage prepayment decision as much subjective as financial. You have expressed a strong subjective desire to be completely debt free. I tend to agree with this view. It sounds like you are doing an excellent job saving for retirement, so I would send any additional savings beyond your current strategy to paying down the mortgage.

My answer presumes that you have an adequate, easily accessible emergency fund in place.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Lore: Currently I am drawing from my late husband's 'non-qualified' deferred compensation plan (invested in a mutual fund). Can this fund be transferred to my name without causing a taxable event?

Kris Johnson: Unfortunately I can't give you a definitive answer. The best source to find out more would be your late husband's employer (HR department). You should find out two things:

1. Can it be changed to your name

2. If not, what other investment options can you select that may be a better fit in your situation.

We generally recommend these plans be invested in a Stable Value or short-term bond fund when being paid out.

In terms of taxation, I expect that any of the income you receive is taxable to you (as it would have been to your late husband). Your husband would have had to select a specific withdrawal plan at the time he contributed to the account, but whether you must abide by this is dependent to some extent on the specific company plan.

Again, check with his employers HR department.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

david schoeve: My 401k plan will allow me to rollover some of my 401k to an IRA. I have a Roth but most of my retirement savings is in my 401k and I want to lower my taxable income in retirement. Is this a good idea and should I have a 50-50 balance between a 401k and a Roth? Thanks.

Kris Johnson: The optimal balance between Traditional and Roth IRAs or 401(k)s is dependent on the particular situation, but it is generally beneficial to have a decent amount of each if possible.

It is not clear to me from your question whether you have liquid assets - whether in bank accounts or investments outside of IRA and 401(k) - to pay for any taxes related to a moving/converting to your Roth IRA. Most scenarios I have run suggest it is not beneficial to convert to a Roth IRA unless you have the means outside of IRA and 401(k) accounts to pay the tax liability.

It may be beneficial to move some of your 401(k) assets to a Traditional IRA simply to have greater flexibility with your investment options, depending on the quality and cost of those available in your 401(k).

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Richard: Is it possible to convert an IRA to a Roth IRA before April 15th, 2010, and pay the conversion taxes on my 2009 return?

Kris Johnson: I don't believe so. Conversions will be taxed in the calendar year in which they take place.

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Leland Bridgman: Wife and I both have Traditional IRA's. Looking to sell existing paid for house and buy another. New house will cost more than proceeds from sale of old house. I will have to make up the difference from IRA withdrawal, probably all in one tax year. I expect this will put us in higher tax bracket for year of withdrawal. Are there any provisions for withdrawals to buy house. This will not be first time owners. Also because of my age, 66 would it make any sense to convert part of traditional to Roth if I have to pay those taxes with IRA money?

Kris Johnson: Even the first-time homebuyer provisions for IRA withdrawals do not allow you to avoid generating taxable income from the IRA withdrawal - they only allow you to avoid the 10% penalty for early withdrawal. Since you are older than age 59 1/2, you are not subject to the penalty. There are no provisions that I am aware of that allow you to avoid paying taxes on withdrawals from Traditional IRAs.

Converting to a Roth IRA would also generate taxable income upon conversion. In addition, if you do not already have a Roth IRA, you would not be able access the converted amounts until 5 years after conversion, so this would not be a beneficial strategy in any way.

The only tax-saving strategy I can think of in this situation is completely dependent on when you buy the more expensive home. If you are purchasing it in 2010, there is nothing you can do (though you may qualify for the tax credit of $6,500 if you have a contract before April 31st and you close on the new home before June 30). If you will not purchase the new home until 2011, you could withdraw some of the IRA money this year and some next year and perhaps remain in a lower bracket (depending how high tax rates go next year).

Kris Johnson is a senior financial advisor for Timothy Financial Counsel.

Rachel Sheedy: Kris Johnson of Timothy Financial Counsel will be taking your questions until 6 p.m. EST. Planners are also available by phone until 6 p.m. EST -- just call 888-919-2345.

Gelena: I have suggested that my parents, who are in their mid to late 50s, look into getting long-term health-care coverage. What options are available for funding this? They both plan to retire in the next 5-10 years.

Jerry Verseput: Gelena, it's good to hear you're looking out for your parents (and yourself as well). There are many different flavors of LTC insurance, with many different options. If it wasn't complicated enough, there are now annuities becoming available that have LTC riders as part of the annuity. Some options will have lower payments that continue for the lifetime of the owner, others may have higher initial payments that are cut in half at age 65, and others will have payments that stop altogether at 65. Your best bet is to talk to a LTC insurance broker that can choose among several different carriers.


Jerry Verseput is president of Veripax Financial Management.

Carol: I'm American and my husband is British. We're 35 and 36. We live and work in the U.S. right now, but we plan to move to England in 5 to 10 years, and we foresee retiring and living the rest of our lives there. My question is, what are the best retirement vehicles considering we'll be withdrawing the money in England? For example, are Roth IRAs still going to be untaxable when we start drawing on them, or will the UK be able to tax those distributions?

Also, we're expecting our first child. Does a tax-free college savings plan still make sense if they're going to grow up in England and possibly go to a non-U.S. college? Would we even be able to utilize that money if the child hits college age and we're living in the UK?

Jerry Verseput: Unfortunately, I am not an expert in international tax laws. These are great questions, and rather than guess or try to do the research in 5 minutes, I'll need to suggest that you talk to an advisor who has experience in international tax rules. The one thing I can say is that withdrawals from Roth IRAs are not taxable in the U.S. as of today. This does not guarantee that they won't be taxable in the future, regardless of where you live.


Jerry Verseput is president of Veripax Financial Management.

Nathan: I have several accounts including a taxable one, a Roth IRA, a Traditional IRA, a Simple IRA at work, I own my own company and earn over 100K in addition I have no debt. My question is should I and if so why should I convert the Traditional IRA to a Roth? It would bring my 2010 earning over 250K causing a big tax liability. I feel if I leave the Traditional IRA alone and use the dollars I save on taxes and invest them I would be better off.

Jerry Verseput: Nathan, the conversion question is a good one, and depends a lot on your goals. At the very least, I advocate having several "buckets" of income to choose from in retirement. Ideally, a taxable bucket (Traditional IRA), a tax-free bucket (Roth IRA), and something in-between (taxable account with long-term gains). A tax-free source of income will allow you to avoid a higher tax bracket if you have some retirement years where you require more income than others. The question of whether to convert or not then depends on how much is currently in your existing Roth, whether you think this is enough to provide tax diversification in retirement, and what assumptions you make about future taxes, income levels, government action, etc. In general, if you need to pay taxes with funds inside your IRA, the numbers don't work out very well.


Jerry Verseput is president of Veripax Financial Management.

Karen: I am about to start working for an employer that doesn't have a 401K plan (or any retirement savings vehicle). I already put $5,000 into a Roth IRA every year and would like to find something to put another $5,000 into each year. I read in a Kiplinger's article that I might want to look into ETFs or Index funds for tax or low-fee advantages. Do you have an opinion on which would be better? I don't know much about either one. Thank you for your time and expertise.

Jerry Verseput: Karen, ETFs and index funds tend to be very tax-efficient because they don't do a lot of trading inside the funds. They may produce some dividends and they may realize some capital gains due to periodic rebalancing, but typically the tax implications are minimal. Exchange Traded Funds and index-based mutual funds are very similar, but if you plan to invest yourself and make periodic additions, I would recommend an index-based mutual fund. With mutual funds, you can select to have dividends automatically reinvested. With ETFs, dividends are not automatically reinvested and buying more shares results in a transaction fee.


There are many index-based mutual funds to choose from. For long-term investing that doesn't need much babysitting, you could look at an S&P 500 index fund or a Total Market index fund. Good luck.


Jerry Verseput is president of Veripax Financial Management.

Angie: My husband and I are both 25 years old and would like to start planning now for retirement. Problem is...neither one of us knows what we are doing. I recently have been reading that you should invest 15% of current income in a retirement fund. Neither one of us have a work sponsored retirement fund or 401(k) either. Is 15 percent a proper goal at 25? should we invest more since we don't have a work sponsored fund? And...what should we invest in? I have read about the Target Retirement accounts and those seem pretty easy since they automatically adjust as we get older. Do you have better suggestions?

Jerry Verseput: Angie, it's great to hear that you and your husband are thinking about this now. 15% is a great goal, and will most likely put you in a great position for retirement if you can keep that up. Putting away more than 15% would depend on your cash flow position and future goals. Remember, money that you put into a Traditional IRA is stuck there (in most cases) until retirement. At your age, holding investments inside of a Roth IRA could be a good strategy. The money will grow tax-free, and you can withdraw your original investment without penalty or taxes if needed.


Target Retirement accounts, or target-date funds, are meant to be a one-stop investment and they are growing in popularity. These funds actually invest in several other funds to create a diversified portfolio, and the fund will automatically become more conservative as you approach the "target date." For those who don't want to think about investing much, these can be a good investment vehicle. Vanguard, Fidelity and T. Rowe Price all have very popular target-date funds.


Jerry Verseput is president of Veripax Financial Management.

Kim: I converted a SEP IRA to a ROTH IRA in the same mutual fund in 2009 and paid the taxes by having them taken from the conversion amount. I was told later that this is considered a penalty by the IRS for "early withdrawal." Is this true? Should I repay the tax monies by putting it back into the ROTH account?

Jerry Verseput: Kim, the rules regarding ROTH conversions are fairly complicated (and constantly changing). I would recommend talking to a competent tax professional.


Jerry Verseput is president of Veripax Financial Management.

Jack: I've always heard the rule that when you retire, you should plan on using no more than 4% of your nest egg each year. But I've never understood whether this includes interest and dividends. If I have a nest egg of $1 million, which includes investments that garner about $20,000 a year in interest and dividends, can I spend $40,000 (4% of $1 million) or $60,000 (4% plus the interest and dividends)? Thank you.

Jerry Verseput: Jack, the annual percentage for retirement income is purely a rule of thumb, and is interpreted differently by different planners. Several factors may affect the answer, including how the portfolio is constructed, the amount of other income sources, your personal risk tolerance, and whether you have the option of scaling back your income requirement if needed. A financial planner can help run through the scenarios.


Jerry Verseput is president of Veripax Financial Management.

Bob: What would you say is the lowest risk, highest yield investments you can make today? We have some money that we would like to invest from the sale of our house. We are in our 50s.

Kris Johnson: As you probably know, the lower your risk, the lower your potential return of the long-run and vice-versa. This is a very difficult environment in which to invest without much risk, but your best bet may be a corporate bond fund - whether a low-cost index fund in the Vanguard lineup or choices from active bond fund managers.

suzanne: I keep reading that we have until April 15th to add to a Roth for 2009. Do we really have until April 15th or just until we file our taxes? For example if I file my taxes next week can I still add to my 2009 Roth until April 15th? Thanks for your help.

Jerry Verseput: Hi Suzanne, Contributions for 2009 can be made to an IRA (Roth or Traditional) until April 15. If you file your taxes next week (which will avoid the post office lines) and you want to claim the deduction, you would need to file an amended return. So it would be a hassle, but it can be done.


Jerry Verseput is president of Veripax Financial Management.

Rachel Sheedy: Jerry Verseput of Veripax Financial Management is answering questions for the next hour and a half. Remember, you can call 888-919-2345 to ask a question via phone.

Jennifer: I have $3,000 saved for my 2010 Roth IRA contribution. I also have a Trad. IRA of $2,000 that I would like to rollover to a Roth (I heard 2010 was a good year to do this?). If my contribution limit is $5,000, what should I do?

Donald Askey: Jennifer, Roth IRAs come with two doors: one for contributing and one for converting. Assuming you are young (less than 40 years old), then you should convert the $2,000 traditional IRA for sure and pay the taxes from funds outside the IRA.


You remain eligible to make a $5,000 contribution to your Roth. If you already have the $3,000 set aside, I'd use it for 2009, called a prior-year contribution. That way if you get some more money in 2010 (and all the way till April 2011) you are still eligible to make the full $5,000 contribution for 2010. If you make the $3,000 contribution now and call it a current-year contribution, you limit your options in 2010. The Roth is not tax deductible, so it doesn't matter tax-wise whether you contribute your $3,000 for 2009 or for 2010.


But the converted and contributed dollars into the Roth follow separate rules of entry and though the funds will end up be comingling inside the Roth after the dollars pass through their respective doors, understand your converted dollars do not limit your contributed dollars.


Donald Askey is president and senior adviser at Provident Advisory Group.

Daniel: I have about $10,000 in a traditional IRA and I'm considering transferring it into a Roth IRA. I'm estimating the tax on that transfer to be about $2,500 which I can fund from other sources. I think, though, that it would be better to simply use the $2,500 to start a new Roth IRA and fund it rather than transfer the traditional IRA. I plan to retire in about 27 years. What do you think?

Donald Askey: Daniel, you have a 27-year horizon to retirement and then, if you are healthy, you could have another 40-year horizon in retirement.


Short answer to your question: Convert in 2010 (the lower the market the lower the tax cost to you), pay the taxes from outside the IRA, and settle the tax lien on your IRA at today's tax rates.


Longer answer to your question: Imagine an ideal world 27 years from now in which you have three buckets to draw from for your retirement: a Roth bucket (you get 100 cents on the dollar withdrawn), a taxable bucket (at today's tax rates you might get 80 cents on the dollar, assuming most of it is invested in appreciating or growth assets), and a traditional IRA bucket (from which you might get 70 cents on the dollar withdrawn). That is a world in which you have a lot of flexibility. At the polar opposite extreme you might put all of savings in tax-deferred accounts (IRAs and 401[k]s) throughout your whole working life and end up with what amounts to a tax bomb.


Be careful not to be seduced into believing that when we retire we are in a lower tax bracket. Your tax bracket is a proxy for your standard of living and for all of the folks I've ushered into retirement none has wanted to reduce his or her standard of living, at least not for the first 10 to 20 years of retirement.


Also, a point on the Roth. There are two doors into the Roth. One by conversion and one by contribution. In 2010 everybody qualifies for the conversion and at your age I think it's a no-brainer, especially since you can handle settlement of the tax lien outside of the IRA itself. The contribution door is limited (unless you participate in a 401[k] at work with a Roth provision). The limitation on contributions to a Roth are $5,000 in 2009 and may be further limited by household income and participation in an employer-based plan.


So the contribution door is not an appropriate alternative to the conversion door for you. But, Daniel, if you qualify to contribute to the Roth you can do both: convert and contribute. If you can't qualify today to contribute, someday you may be able to and you'll have a Roth already in place.


Donald Askey is president and senior adviser at Provident Advisory Group.

Josh: Can you explain rebalancing a portfolio? How often to do it? How to do it correctly? Do you sell a fund or buy more shares of another fund to rebalance or both?

Donald Askey: Great question, Josh. I also wish there were a sound-bite answer to your question. It is an important and valuable question, but there are so many variables.


Let's assume you've arrived at an overall allocation that is appropriate for your goals and your tolerance for risk (market volatility and loss of value). And let's assume you are going to stick to that for a couple of years and nothing, like loss of a job and forced early retirement, is going to alter the allocation you've set.


Let's also assume you are talking about a retirement account and not a taxable account. Call it an IRA. Otherwise, we could get hung up on realized tax losses and gains. Let's pretend the issue of taxes is neutral to your rebalancing strategy for this discussion. Let's further assume you are invested in open-ended mutual funds and not in individual stocks. Let's also assume you do not have to deal with any transaction fees or trading costs when buying and selling your funds.


For a well-diversified portfolio you may have 10 to 15 mutual-fund positions. At the beginning of the allocation process you picked those funds to have a certain percentage weight in your overall portfolio. For example, the XYZ Fund has a 10% allocation. If you only rebalance once a year or once every two years (there is no rule or standard here), then after some time, say, one year, the XYZ Fund may carry a weight of 12% in your overall portfolio. You could decide a 2% variation is acceptable and let it be till it got to 13%. Whether 2% or 3%, you'd want to sell that percentage and use the proceeds to buy more in a fund whose weight had dropped from the original target allocation.


Unless your portfolio is on a platform that can automatically rebalance, you will have to go through the trouble of this "manual" rebalancing process. Remember that to stay the course you've charted and to avoid unexpected volatility, the rebalancing process is the discipline of selling winners and buying losers. Set a frequency, say once a year, and stick to it.


Donald Askey is president and senior adviser at Provident Advisory Group.

Rita Collins: What exactly is considered earned income for an IRA contribution?

Donald Askey: Rita, to qualify for an IRA contribution earned income includes the figure on your W-2, if you are employed, on your 1099, if you are a self-employed contractor, and on your Schedule C if you are self-employed. There are dollar and age limits to your IRA contribution: not to exceed $5,000 in 2009 if you are under age 50 and not to exceed $6,000 if you are older. There are also some income limitations on the deductibility of your contribution. If you participate in an employer-based retirement plan, such as a 401(k), deductibility of your IRA contribution would also be limited or eliminated.


Donald Askey is president and senior adviser at Provident Advisory Group.

Rachel Sheedy: Donald Askey of Provident Advisory Group will be taking questions for the next hour. We're getting a lot of great questions; planners will answer as many questions as time permits. Remember, planners are also available by phone until 6 p.m. EST -- just call 888-919-2345.

dave: is it ok to have all of your investments with one broker like schwab or vanguard or should i split them up between 2 or 3 of them?

Heather: Great question! You used the term “broker” which means they are working for their employer not you. I would make sure whoever you are working with that they are held to a fiduciary standard?

There is nothing wrong with working with one person if they are a fiduciary but in the end if you feel more comfortable working with two separate firms you should do that because it is your money but make sure each advisor is aware of what the other is doing.

Robert: My question pertains to a mortgage pay off. I am married, 64 years of age, and a conservative investor. Our IRAs total $1 million and we own our primary home. We have $200,000 worth of real estate in addition, but we also owe $200,000 on a second home. 80% of that mortgage is at 6.25% and a line of credit for the remaining 20% is at 3.75%. Should I take $200,000 from our IRA and pay it off? I do itemize deductions on our taxes and we were in the 28% tax bracket but this year (2010) we are retired with less income. Thank you so much!!

Heather: A 6% mortgage after taxes is really 4.3% so my question to you would be are you making more than 4.3% on your money? I hope so -- and in most cases it doesn't make sense to pay off your mortgage. I'd have your advisor run some numbers for you and also you could look at refinancing because current rates are less than you are currently paying.

Nancy: Hello,
I am 47, have three children (15, 12, and 10) who live with me. Recovering from a bad divorce which liquidated my IRA to pay my ex-husband off, I want to know what is the best way to start investing small. Background: I own my house, have no credit card debt, have excellent credit, have a small emergency fund, pay into my work Simple IRA and have a Roth IRA that I will fund fully this year when I get my tax return back (I had too much money taken out last year, that is fixed for this year). Do I open a discount brokerage account and, if so, what kind of funds should I look for? I really don't have the money right now for a fee-only planner so I really would appreciate some good advice. Thanks so much!

Heather: Congrats on maxing out your work options. If you want to start small with an after tax account until you get it built up and can hire a fee only planner you could look at setting up an online account with Vanguard or something similar and they will help you pick some mutual funds to invest in. Once you have about $250,000 you’ll want to look at moving out of mutual funds into an individual stock portfolio. At that time certainly look at hiring a fee only planner.

Matthew: I'm a married male 33 years old and have been contributing to Roth IRA for a number of years now. Our combined income is about 65,000 and I have been saving about 4000. My wife has a 403 b through her work and we have other investment accounts. I was talking to someone who asked why do I contribute to Roth instead of a traditional and my response was the tax free withdrawals. He made the statement that if you take the tax savings of the traditional and reinvest that you would be better off. I ran some figures based on last years income tax return and it appears that he is not far off in his assesment. If you invest the tax savings, it would seem you get to save more now which with compounding would be better. Of course, this depends on your assumptions. Is this resonable or am I way off base? Is there any talk of ever taxing Roth withdrawals? Can you contribute to both a Roth and traditional? I'm not sure if that is enough facts to make a call but any help would be appreciated.

Thank you.

Heather: You are not far off base. Generally I look at maxing out tax deferred vehicles first then using after tax savings in addition to that. Your CPA can certainly help you with some quick calculations when you have your taxes done this year and let you know what is the most beneficial to you.

Carol: I have a traditional IRA in a balanced fund. Would it be a time to take one-half of that and put it in an income fund? Thank you.

Heather: Do you have the "right" amount in stocks for your situation?


I always start with that question because this is ALWAYS the first place to start. All other decisions flow from the underlying question of "what is your desired asset allocation" – i.e., what percentage should you have invested in stocks?


So what is the "right" amount invested in stocks? The "right" amount would be the maximum amount possible that a severe market downturn does not affect your day-to-day lifestyle and does not cause you to become SO uncomfortable with your declining values that you feel compelled to sell out of stocks. Look, none of us likes it when the market goes down. We all feel a certain sense of anxiety at the notion that our paper wealth is declining. But if you are young, you are living comfortably off your earned income and the money you are investing is for retirement many years down the road, you can afford to be heavily invested in stocks; you are not affected at all today by the market decline and you can wait for a recovery. If you are older and distributions from your investments are an important part of the money you need to live every day, then you can’t afford to have as much in stocks.


The other part -- when do I have too much in stocks such that I will just become TOO uncomfortable with a big market decline -- is a bit less objective to assess and difficult to grasp. Just as people tend to have the wrong instincts about their investments -- they instinctively want to sell when the market goes down and buy when the market goes up -- they have a tendency to understate their tolerance for risk when the market is declining and overstate it when the market is advancing. If you thought you had the right stock allocation for your risk tolerance (which is quite different from never having carefully looked at the question), but you now find yourself terribly uncomfortable and obsessing about the current market, perhaps you have overstated your true tolerance for risk. In that case, there would be two suggestions:

a. Selectively look for chances to decrease your market exposure.

b. Remember 10 years from now when the market is roaring and you are wondering why you are stuck in a portfolio that seems to be going not very far very fast, that you made the decision to be more conservative to reduce the downside risk.


If you haven't had an assessment of or given serious consideration to your stock allocations, that needs to be done. If you need help with that, seek it. Don't be selling stocks unless your allocation is just way off base for your true risk appetite as we have come to learn about it in this market, and even in that case do so only selectively. If your manager -- even if that manager is you -- has been doing nothing in this period, that is not investment management. That is fate. Get someone who knows what they are doing and who will watch out for your best interests to help you.

John Tesoriero: Hello, I am currently unemployed and have been for some time. Would like to know if it is wise that I have been investing, and still am, at the rate of 50.00/month in the T Rowe Price 2040 fund (non-ira) fund. For some time. I am single, with no dependents, and have approx. $12k in it. But I have no other investments...is this wise? Thank you much.

Heather: I am unable to comment on that particular fund but I am not a big fan of "target date funds" and think that there may be a better way for you to diversify your money. I am pleased to hear that you are still saving, that is great! You could certainly talk with your planner and see if they have some recommendations for you.

Gail: My husband and I are 62, not yet retired but hope to in the next few years. What is your feeling about CDs that are tied to the stock market to preserve capital (insured) and yet hopefully make a better return than straight CDs? Our planner is recommending 1/3 of our retirement funds be in these.

Heather: Without knowing more about your whole retirement plans, available assets and your risk tolerance it is hard for me to answer your question with a definite yes or no on if these indexed CDs make sense for you. I would recommend getting a second opinion with a fee-only planner and they can make sure you are going down the correct path with your current advisor and give you the peace of mind you are searching for.

Doug: Since Coverdell savings accounts allow money to be used for education expenses related to private high schools, may money in a 529 be rolled over to a Coverdell account?

Heather: To qualify for the max $2,000 contribution, your AGI must be less than $95,000 for single filers and $190,000 for married couples.


According to the tax law that created them, Coverdells are scheduled to be repealed as of 12/31/2010 unless Congress acts to either extend or remove the sunset provisions. If the law sunsets, the maximum contribution will revert to $500, the "income phaseout" for married couples will be reduced, elementary and secondary school expenses will no longer be qualified, and coordination with section 529 plans and education tax credits will be affected.

david: I am trying to determine, like many others, when I can retire. What should I be looking for? What numbers do I use?

Heather: Retirement distributions can be tricky and a strategy should be determined with a financial advisor and a CPA. Do not do this on your own.


While there is no one correct answer, to ensure funds last for decades, it is usually recommended that no more than 4% of the balance be withdrawn each year. Thus, if you need to generate $50,000 of retirement income after Social Security and other pension benefits, you’ll need to save $1,250,000 by retirement age. That is a conservative number meant to ensure you never outlive your retirement funds.

Dutch: I will be leaving my job at a pharmaceutical company after 23y of service (age 62). I am wondering whether I should take my pension as monthly payments or as a lump sum with the intent to purchase an annuity several years down the road?

Heather: My stereotypical answer without knowing more about your particular situation is to recommend taking a lump sum and reinvest the money. I would advise that there are certainly situations where this would not make sense. I would work with a financial planner to do some quick calculations for you so you can make the best decision possible.


On a side note: In most cases, annuities do not make sense and I would warn you against your thought process of purchasing one.

Larry: I am converting both my 401k and 403b to an IRA (combined value $140,000). What are the ups and downs of then converting the IRA to a Roth IRA in 2010? We have no plans for the investment outside of contribution to our estate.

Heather: First I would encourage you to do the math. There are lots of Roth calculators out there, but most leave something to be desired. And in the state I work in they are going to impose state taxes on the rollover money as of now and I would be concerned about it if you would be forced into the AMT so I recommend working with a CPA about how much of this you should really roll from a tax standpoint.


In the meantime, let's go over some of the nuances that make Roth IRAs what they are.
One of the most underappreciated benefits of Roth IRAs is that there are no minimum distribution requirements during the Roth holder's.


Anyone may convert a traditional IRA to a Roth beginning in 2010. The $100,000 income limitation does not apply. As an additional enticement, the income is reported over two years, beginning with the 2011 tax year. So if you do a conversion in 2010 you would report half the income on your 2011 return (paying the taxes by April 15, 2012) and the second half on his 2012 return (paying the taxes by April 15, 2013). The conversion itself would be reported in 2010 using Form 8606, but none of the income is reported for that year unless the client opts out of this special rule.


The best time to convert to a Roth is when the account is down in value.


It is perfectly acceptable to convert part of the account. You may want to hedge your tax bets in retirement and may prefer to hold assets in both traditional and Roth IRAs. A partial conversion reduces the tax hit now and hedges against the possibility that the conversion was a mistake that won't be recognized until it's too late to recharacterize (for example, if the client ends up being in a much lower tax bracket in retirement). A partial conversion also leaves the door open to converting the remaining amount should the account fall in value or should other circumstances change.


The important thing to know about partial conversions is that if any part of the account is made up of nondeductible contributions, you can't cherry-pick the nontaxable part. Rather, the converted amount must maintain the same ratio of taxable and nontaxable contributions as found in all the IRAs in the aggregate, including traditional, SEP, and SIMPLE IRAs. For example, if all IRAs are worth $100,000, and $25,000 is made up of after-tax contributions, 25% of any amount converted -- regardless of which account it is taken from -- will be considered nontaxable.


Assets in 401(k) and 403(b) plans may now be converted directly to a Roth without stopping for a traditional IRA rollover first. The assets must be available for distribution, which means old 401(k)s from former jobs are the most likely pool of assets to tap. The rules for converting 401(k) and 403(b) assets are different than for IRAs. Each account stands on its own for the purpose of determining the nontaxable portion. So if you have multiple 401(k) accounts with several former employers and want to convert just one account, the proportion of taxable to nontaxable money will be whatever it is for that account without regard for the others.


The rule against cherry-picking still applies to that one account, however. So if you have $100,000 in a 401(k), and $20,000 of it is after-tax money, you can't direct only the $20,000 to a Roth for a nontaxable conversion. If you convert any portion of the account, 80% will be taxable and 20% will be nontaxable. However, there is a way to get around this rule. You should really work together with a CPA and Financial advisor and should not handle this on your own.


Make sure you talk to your CPA. They can help you with tax advice.

Rachel Sheedy: Heather Summers of Vigil Trust & Financial Advocacy is now taking your questions. Call 888-919-2345 to ask a question via phone.

Harry: Can 403b funds be transferred to a new or existing Roth as regular IRAs now can? Also, my wife has both deductible (pre-taxed) and already taxed funds in a regular IRA; would it be better to convert the pre-taxed or the already taxed funds to a Roth IRA? Thanks....

Brian: Dear Harry, Thanks for your questions: 1. Your 403(b) plan probably permits transfer to a Roth IRA. Please check with your 403(b) plan administrator, but be aware that doing so would increase your taxable income. 2. Your wife cannot selectively convert deducted and non-deducted parts of an IRA. The non-deducted contributions in an IRA is treated like cream in a coffee--once you mix it, you can't separate the parts. (I know, bummer.) So, please check with your Form 8606 that you filed with your tax returns to record the nondeductible contributions. That form will tell you how much of your IRA was not deducted! Please check with your tax advisor. Good luck.

Kevin: My wife and I don't know what retirement vehicles to use. We each have a Traditional and Roth IRAs. My work offers no retirement plan, but my wife gets a 401k from hers. Since we make more than the income limits for contributing to Roth IRAs, which vehicles should we maximize?

Brian: Dear Kevin, You and your wife are doing well to save. Good job!


I suggest that you check with your tax and/or financial planner. The key questions are:

* If you want to reduce your income taxes, the 401(k) is probably preferred. And you should maximize your contributions.

* If you want greater investment choices, then your wife's 401(k) might have limited investment choices. The IRA contribution might not be deductible, but you have greater investment choices. Also, you can save money in an account that is not tax-deferred. You would pay tax on your invesment's income outside of an IRA or 401(k).
Good luck

Rita Collins: What exactly is considered earned income for 401k? Is it only income that earns a W-2? Or, is there some other definition? Thanks.

Brian: Dear Rita, Great question! For a 401(k), you can only contribute via payroll deduction, so yes, only income on a Form W-2. Check with your retirement department to determine what you can contribute. Good luck! p.s. For an IRA contribution or the earned income tax credit, earned income has more expansive definitions.

Tim: I have a large savings sum sitting in my ING savings account. I am looking to get a better investment rate. I've checked CDs and unless I lock up the money for long term, I can't get good rates. What are some ideas to look at for good rate of return? Thanks, Tim

Brian: Dear Tim, Thanks for your question. Short-term CDs do not pay very well right now; in fact they rarely have. So this is the classic trade-off of whether you need short-term access to the money at the expense of higher potential returns or whether you can tolerate the risk of a long-term investment (long-term CDs or otherwise) for the potential higher return. So you should review your financial situation to see what is most appropriate. You can consult with a financial planner to assist with this decision. Good luck!

Wayne: I have a retirement pension through work that includes a Deferred Profit Sharing Plan and a Retirement Plan. Under what conditions is it appropriate to choose annuity payments over a lump sum payment when you leave the company? Should you ever take part out as an annuity and the other out as a lump sum (ie take Deferred Profit Sharing out as lump sum and Retirement Plan out as annuity or vice versa)?

Brian: Dear Wayne, This is a great question!


The questions are:

* How much income do you need? If the annuity payments would exceed the income that you need, you might want to only do a partial annuity.

* Do you have a big expense right now for a part of your plan assets?

* What would you do with a lump sum? If you would spend it unwisely, then that's not a good idea.

If you could invest it in a better way than your employer's plan, then you could roll to an IRA. If you think that it could be invested to provide you with sufficient income without annuitizing, you might consider that route. Good luck!

nancy adams: I just recently retired at the age of 55. My husband still works, so we were able to do this financially. My question is should I convert my 403B to an IRA account? Also should I be more conservative than the 70% stocks/30% bonds split since I won't be contributing to it? It's invested in mutual funds with Vanguard. We don't plan on using the funds until we are in our mid 60s (hopefully). Thank you, Nancy

Brian: Dear Nancy, Congratulations on your retirement!


Regarding your 403(b), ask these questions:
1. Check to make sure that your former employer permits you to leave your money in your 403(b). If not, then you should roll to an IRA.

2. Next, do you prefer the investments in your 403(b) or would you prefer different investment choices that your IRA would permit? (Please note that small IRA balances may cost you account fees at some financial institutions but larger IRA balances typically do not.)


So if you prefer more/different/better investment choices for your 403(b), you should roll it to an IRA.


As for your investment allocation, I definitely recommend that you check with a financial/retirement planner. The question is, "When do you plan to withdraw the money?" If you plan to withdraw the money soon, is your portfolio mix too volatile? If your husband's work and any pensions will more than cover your expenses, then perhaps your portfolio can tolerate fluctuations. Good luck!

Bull: My IRAs and 401ks are held in some of the larger Mutuals, Fidelity, Vanguard, Amer Century. When I turn 701/2, do do I have to pool all those funds (IRA and 401K) to arrive at a distribution amount? Can I take 1 fund at a time and draw it down to zero and the start drawing down another fund over my remaining life span? My ratio of 401Kand IRA to Roth is about 10 to 1. I did about 12k in rollover conversions IRA to Roth in each of the last 2 years.

Brian: Dear Bull,

Thanks for your question. First of all, please check with your tax advisor. However, the current law permits you to combine your IRA balances for the purpose of calculating required minimum distributions and then withdraw that amount from the IRA of your choice if you prefer. For 401(k)s, you must, under current law, take a any required minimum distribution from that 401(k) itself (i.e. no mixing with IRAs or other 401(k)s).

Hank: I am within 5 years of retirement and a TSP investor. I am currently about 85% invested in Govt bonds and 15% in international stocks. Should I be more heavily invested in stocks.

Brian: Dear Hank,

Thanks for your question. I definitely recommend that you check with a financial/retirement planner. The question is, "When do you plan to withdraw the money?" If you plan to withdraw the money soon, is your portfolio mix too volatile? If your pension will more than cover your expenses, then perhaps your portfolio can tolerate more flunctuations.

You're right in that stocks should be for longer term money. If your financial plan shows that you would not need to withdraw from the stock portion for a long time, you can increase your stock allocation.


Good luck!
-Brian, a NAPFA-registered financial advisor

Bruce: My wife and I are ready to retire and we have savings distributed among a variety of accounts: IRAs, SEP IRA, 401(k)s, and non-tax deferred savings. We want to plan for disbursements from these accounts, minimizing taxes and maximizing their value. We don't need advice on where to invest our money; we need advice on how to optimally withdraw it. Thank you.

Brian: Dear Bruce, Congratulations to you and your wife. I strongly suggest that you check with your tax advisor. The non-tax-deferred savings would clearly have the least impact, but you should work with your tax advisor on how best to optimize your taxes over years. You may decide to take some from non-tax-deferred and some from deferred savings depending upon your tax situation year-by-year. (Yep, with my clients, we look at this annually because things change every year and we don't trust "cruise-control" in terms of taxes!) Good luck!

Josh: Is now a good time to invest in the market? It just dumped like 300 points in the last couple days. Will it continue to drop?

Brian: Dear Josh, Thanks for your question. I don't really believe in anyone who can predict investment markets with certainty--and I do not profess to do so either--but I think that the better questions to ask are:

* Is your investment portfolio well-diversified? If so, then your portfolio shouldn't bear the full brunt of such market declines.

* When do you need the money? If you need the money soon, then short-term fluctuations should indeed bother you. However, if you do not expect to need the money for years/decades, then the short-term bumps should not be so concerning.

* What are your investment alternatives and do you like them more?


Please check with your financial advisor if you have one and also do a "gut-check" with the questions above. Good luck!

Kevin M: I am 30 and currently employed full-time and contribute the maximum to my 401(k) each year. I also have a side business going on. I would like to use the income I generate from my side business for retirement savings. I have an incorporated LLC. I have heard that I can use a Simple IRA to save an additional $10,500 pretax for my side business. Is this correct?

Brian: Dear Kevin, Great job saving! Yes, you can create a plan for your LLC. However, there may be rules about your contributions into your LLCs plan and your employer's 401(k) plan. So you should definitely speak with your tax or financial advisor about what plan is best for your situation and your LLC. Let your tax or financial advisor know about the other owners, if any, in your LLC and whether or not you have employees. Then your advisor should be able to advise you. Maybe the best answer, for example, would be to establish a 401(k) for your LLC. Good luck!

John: Last year we converted my wife's traditional IRA to a Roth which she contributed to in between 401k plans. She had a 401k plan that was discontinued after 9/11/01 and is still a 401k administered by a bank and she pays fees. A new 401K plan has been set up and she contributed to it, but it was discontinued last June and my wife switched it to a traditional IRA and put it in CDs. This plan is over $45,000. We would like to roll it into a Roth IRA. Can we set up a separate Roth for this or should we roll it into her current Roth?

Brian: Dear John, Thanks for your question and kudos to your wife for being able to save! You can roll new Roth IRA money into the existing Roth if you prefer. You may also create a separate Roth IRA if you prefer. The choice is yours. However, check with your tax advisor to see if there are different tax treatments for a new vs. existing Roth IRA in your case. Remember that Roth conversions increase your taxable income. Good luck!

Tom: Hi, My employer does not provide any matching to my 401k contributions. Is there a better alternative to for me to explore in order to continue with the forced savings and reap the tax benefits? I also have a rollover traditional IRA which I currently do not fund. Thanks, Tom

Brian: Dear Tom, Thanks for your question! Actually, I see two questions:


1. The tax benefits for 401(k) contributions and deductible IRA contributions are the same. (Please please please check with your tax and/or financial adviser to confirm that your IRA contributions would be DEDUCTIBLE.)


2. The 401(k) may represent the best "forced savings" because you make contribution via payroll deduction. With the IRA, you would have to write a check(s) or establish a direct deposit/debit of your own.


As an addendum to #2 above, with an IRA, you have to choose your investments whereas the 401(k) already has a menu. That can be good or inconvenient, depending on your preference.


Good luck!

Mary: We are gearing up to enter retirement and want to get rid of credit cards that we have not used in a couple of years. We would like to cancel these cards, but we keep reading that canceling credit cards will negatively affect our credit score. We don't know how badly the score will be impacted, but in addition to maybe wanting a loan in the future, with insurance companies, etc. using credit scores to determine rates, we don't know what to do. If we cancelled the 3 cards we are thinking about, we will still have 3, and a couple of these go back over 10 years. What should we do?

Brian: Dear Mary, This is a great question. Yes, if you cancel cards, your credit score would--for a while--probably be affected negatively.



One question to ask is how soon do you think that you want to apply for a loan? If you do not expect to apply for a loan for a long time, perhaps you don't need to worry. If you think that you might want to apply for a loan soon, check with your lender and pose the question to them--ask what they would think of the account closures.



Also, you can check with a credit counselor at a credit counseling agency that is a member of the non-profit National Foundation for Credit Counseling (NFCC). Please don't consult with any credit counselor who isn't a member of the NFCC.



Good luck!

Barbara: Can you use part of a 401K to purchase an immediate annuity without tax consequences? Is it better to purchase an annunity or to purchase about 10 dividend paying stocks? Thank you.

Brian:

Dear Barbara, Thanks for your question.



First of all, the annuity question: The purchase is without tax consequences. However, as the annuity is paying you, you would pay tax on each payment. So your tax depends on your tax situation and the level of payment.



As far as the dividend-paying stocks, that depends on the performance of the stocks, your and your investment advisor's skill, etc. But remember that withdrawal from a 401(k) or a rollover IRA is what triggers the tax consequence.



In each case, please confirm with your tax and financial advisor(s).



Good luck!

Sawaddi: Hi: I have a question about an employer's matching contributions to a 401K plan. My employer promises to match up to 3 percent. Are there any deadlines for the employer to contribute his matching contribution to my account? What are the rules as far as time limits for this? In the past, my contribution was taken out of each of my paychecks. However, my employer matches this in one lump sum in January of the following year. Thank you.

Brian:

Dear Sawaddi, Thanks for your question. Your employer can match your contribution in the following year--potentially up to the time that your employer files the tax returns for the business. Thus, matching in the following January is not unusual.



Please note that this matching is consistent across all employees. I would suspect that your employer's own account isn't matched until yours is or later.

Mark: When a mutual fund is a "blend" of growth and value, do we try to break it down to percentages of growth and value for purposes of asset allocation? Or, in light of the difficulty in even determining what is growth and what is value, do we just split it in two? Or should we not bother to break down our asset allocation by growth vs value?

Brian:

Dear Mark, Thanks for your question. It depends on the mutual fund. Some are right down the middle. Some "lean" more toward growth or value. Does your mutual fund have the flexibility to move between growth and value.

So there may not be a right answer. If you and/or your financial advisor know the fund well, either think about where the fund is "leaning" now, if it leans, or think about where it tends to go.

Jason Daniel: I am 25 years old, active duty military, and am looking to open a Retirement Account. Would you suggest contributing to the Thrift Savings Plan or opening up a Roth IRA?

Brian:

Dear Jason, This is a great question. Roth IRAs have been so topical (i.e. in the news) lately! First of all, thank you for your service to our country. My own brother-in-law is serving right now. He enjoys it (recently re-enlisted) but it was not an easy decision because he expects to be deployed in Afghanistan.

We applaud that you are able to save. Here are some pros and cons between the Thrift Savings Plan (TSP) and Roth IRA:

TSP:

* Reduces your income taxes. However, if your deployment classifies your pay to be "combat pay." You would owe no tax on the money.

* Your investment choices are limited to a finite menu.

* The TSP is more convenient because you would/can only contribute to it via payroll deduction.

* There is no cost to contributing to a TSP.

* Your permitted annual contributions are very high. (Check with your retirement people; you might be able to contribute over $16,000.)

* When you withdraw, you pay tax.

* If you withdraw before age 59 1/2 in many cases, you would pay a penalty.

Roth IRA:

* Does not reduce your income taxes (unless your taxable income is low, in which case you can receive a tax credit on the first $2,000 that you contribute).

* Roth IRA investments are more flexible in that your investment choices are very broad--you and/or your financial advisor get choose rather that your investment choices being limited to a finite menu.

* You can contribute for 2009 (yes, the year just passed) up to $5,000 on or before April 15, 2010, if you earned $5,000 for 2009.

* You can contribute for 2010 (yes, this year) up to $5,000 on or before April 15, 2011, if you earned $5,000 for 2010.

* You can withdraw your contributions without tax or penalty under current law.

* You can withdraw any amount after age 59 1/2 without tax or penalty under current law.

So this is a question involving how you prefer to be taxed (i.e. save taxes now or withdraw tax-free later) and investment flexibility (i.e. limited to the TSP's menu or make your own choices). Please check with your tax advisor (and they probably have specialists on base right now) and/or your financial advisor.

Remember: If you have $5,000 and can contribute to a Roth IRA for 2009, you can consider doing that. Then for 2010, you can decide among:

* Enrolling in the TSP

* Contributing to a Roth IRA for 2010

* Some of both (i.e. enroll in the TSP and then early next year ponder putting money into a Roth for 2010.

Joy Hasson: My husband and I will retire this year or next. He is 68 and I am 57. We have 450K in our 401K and want to know if it would be advantageous to convert this to a Roth IRA. We do not need to touch this money for retirement due to our pensions. We would like this money to go to our kids and grandkids when we are gone. Should we convert?

Brian:

Dear Joy, This is a great question, and very topical (i.e. in the news) lately. We applaud that you and your husband have been so successful at saving money. Here are a few things to keep in mind as you think about possibly converting money into a Roth IRA:

* Your employer(s) might not permit you to convert to a Roth IRA prior to your officially leaving your employer, so please check with your retirement/benefits department.

* Conversion will increase your taxes. We recommend that you consult your tax advisor. For example: (1) If you retire in 2011 having worked most of the year, might it be preferable to wait until 2012 to convert because of a lower tax rate? (2) What will be your tax rate year-to-year? It might be smart to convert only a portion of your 401(k) annually to keep your taxes lower. (3) How will you pay the tax? Do you have other savings from which to pay the tax? (4) Where does your tax advisor see tax rates going in the future for you.

* If your medical expenses increase substantially or if you require long-term-care services, will you have enough money to pay for these? Most parents do not prefer to rely upon their children to support these costs. Again, converting your 401(k) may drain your savings as you pay the tax.

So please consider these and consult with your tax and financial advisors before converting. You might find that a strategy would be to convert a portion of your 401(k) annually as you are comfortable with the tax cost.

Rachel Sheedy: Brian Pon of Financial Connections Group will be taking questions for the next hour and a half. Remember, planners are also available by phone until 6 p.m. EST -- just call 888-919-2345.

m whitaker: I am 82 years old still working but ready for retirement. Worked 27 years part-time for the school district, saved about 48thousand in an annuity. Will receive about $1039,from the job $1066, social security. I owe $53,000, on my home and $25,000, on a car. I am really afraid I wont be able to make it and I don't wish to lose my home. What is your best advice or strategy on survival here? Will appreciate any suggestion you can give me.

Brian: With your retirement benefits, you have some good options. So I suggest that you check with a financial planner or a certified credit counselor at a credit counseling agency that is a member of the non-profit National Foundation for Credit Counseling (NFCC). (Please don't consult with any credit counselor who isn't a member of the NFCC.) The planner or credit counselor will be able to review your expenses and projected retirement benefits to see what your situation suggests. Good luck!

kim: Hi. I have a traditional IRA. I want to redeem and transfer the proceeds from my IRA to purchase stock. Do I need to transfer the proceeds to a "stock fund" or is there a way to transfer the proceeds from my IRA's redeemed shares to purchase stock directly w/out incurring a penalty and/or including the money as income? Thanks, Kim

Donald Dempsey: I may need more information to answer that question. Any brokerage firm will allow you to buy individual stocks in an IRA. If the money is with a bank or credit union in a CD then you would open a new account at say Schwab, Scottrade or Fidelity and submit transfer paperwork to move the IRA funds directly to them. If you are talking about investing directly through DRIP plans, I would reconsider. First the DRIP plans need to offer an IRA and you would want to consider the cost and minimums. Plus many require one share to start the program so this may not work at all. This may be more trouble and cost more in fees than just going to one brokerage firm where trades are often less than $12. Finally, you should of course consider the risk of buying a small group of stocks. Many studies would suggest you need at least 20 companies to be well diversified.

Timothy: I have a substantial amount of money parked in an ING savings account, currently pulling 1.55% annual interest rate. I want to do something else with the money to pull a better rate of return and not have to lock up the investment for long periods of time. What do you recommend? I was thinking about bond mutual funds, etc. Thanks

Donald Dempsey: Timothy, It really depends on what your needs and time frame are for that money. If you need that money within a few years I would keep it where it is as rates on safe and liquid investments are lower almost anywhere else you may go. If you don't mind some risk, then you could consider some short term bond funds or bond ETFs. Vanguard has a great lineup of low cost funds and ETFs. The safer short term funds are only yielding between 1.0-3.5% depending on whether they are government or corporate bonds so you may not even improve on the 1.55% you are getting now. The money is not locked up but you are taking market risk. I would stay away from longer term bonds and high risk funds.

Rachel Sheedy: The phone hotline is up and running...call 888-919-2345 to reach a NAPFA planner.

Mike G.: I have recently changed jobs and have the opportunity to rollover my 401K into an IRA or to another 401K with my new employer. Which is the best choice? Thank you.

Donald Dempsey: It really depends on the plan your new company offers, the size of the 401k and how much time if any you want to dedicate to making some investment choices. If the new plan is through an insurance company or brokerage firm the fees in the 401k are likely to be fairly high in which case I would look to roll the funds into an IRA with a firm like Vanguard, T. Rowe Price or Schwab. If the new plan is with a firm like Fidelity or Vanguard directly then the internal cost may be very low and the convenience of having it all in one place may be worth it. I guess you can tell I'm putting a big focus on fees. Tax wise there is no difference. You can always visit www.napfa.org to talk with a Fee Only Advisor about your personal situation.

Ari: Hello, I'm 28 years old in a bit of a panic over credit-card debt. I currently have 3 credit cards and a total balance of approx $13,000. I'm paying about $200 a month in finance charges alone and find it difficult to get over the minimum payments (which seem to make no dent in the debt, understandably so). Unfortunately, I only have approximately $16,000 in my 401k plan. I've been told it may not be a good idea to take a 401k loan in order to pay off the debt, but I've already stopped using the credit cards and can't think of other options (other than cutting out all non-necessities which I've already started to do). Do you have any other suggestions for someone in my situation? I would really love to be out of debt within the next 5 years. Also, my net income is approximately $70,000. Thank you very much for any guidance, Ari

Donald Dempsey: I just ran a basic calculation and on average it looks like you are paying about 18% interest. Borrowing on your 401k can be risky for two reasons: you jeopardize your retirement and if you lose your job how will you pay back the loan. Are you adding to your 401k now? If so one quick thing you could do is lower your contribution to the minimum needed to get the match (if they have a match). At your age you do have time to make up your retirement savings so I would not rule out taking a small loan. If there are no other funding options and your job is secure take out a small loan to pay off the highest rate card. This will help you accelerate your payments toward the others. Your income seems pretty solid but not knowing your fixed expenses it is hard to know how to further reduce your spending. Can you move the cards to companies charging lower rates? You might consider some budgeting help with www.mint.com. Mint, which is free, will help you track income and expenses and may find some opportunities to make changes. You may have to make bigger changes like downsizing cars, some part time work, or taking on a roommate.

Federico M Velez: If I use a loan from my 401(k) to pay off my mortgage, will the interest, paid to myself, be tax deductible?

Donald Dempsey: Federico, I'm not a CPA so you may want to doublecheck with one, but I have never heard of that tax deduction and would be "very" surprised if that were the case. Obviously I do not know your full situation, but you may want to be careful about that strategy for other reasons. If you lose your job how will you pay back the loan because if you can't then it is a taxable distribution at the worst possible time. Also, you are cashing out and possibly jeopardizing your retirement. Hopefully your interest rate is low enough on the mortgage that it makes sense just to keep paying. One option that could work is to reduce how much you are putting into your 401k down to what you need to contribute to get a full match if there is one. Then use the extra cash flow toward the mortgage. This way you are not on the hook to pay back the loan and your 401k has a chance to participate in any further market gains.

Ernesto H.: I am new to investing in ETFs, and am wondering if it is wise to use dollar-cost averaging strategy while holding these types of investments?

Donald Dempsey: Ernesto, If the question relates to market timing I would not treat ETFs any different than I would a mutual fund, they are likely to move with the market in a similar fashion. If you are moving money from mutual funds or stocks into ETFs I would just go ahead and make the swap. One big issue that you might be asking about is trading cost. As an example, let's assume you have 10 ETFs that you want to buy and you were going to put 10% into each one. What you might consider doing is picking one or two ETFs at a time and making the full allocation, and then next month or time you invest pick another two. Certainly investing at a discount firm like Schwab, Fidelity or Vanguard will be critical to keeping your cost down vs a full commission firm. Schwab is offering free trades into their line-up of eight new ETFs, which may help especially if the size of the trades is small.

Donna Marie Ferrer: We have an ARM Home Equity Loan @ 2.99 APR - when is the best time to convert to a fixed rate?

Donald Dempsey: Donna, That is a great rate on a home equity line. Right now, if your credit is good, you could probably find a fixed rate HE for about 5-7% depending on your loan to value and length of loan. Most experts don't feel rates are likely to rise in 2010 but if the economy picks up your ARM rate could quickly move up 2-3% a year. You really just need to run some calculations assuming the 2.99% rate, then change it to 5%, and finally 7% or higher vs locking in a 5-6% loan. If you can pay that loan off in 2-3 years I would likely recommend you just keep it as is. I have a similar variable home equity and have not locked it in because I feel it will be paid off by 12/2011. If it is going to take you 5+ years to pay it off I would look to convert at the first sign that rates are going higher.

Norman: I'm almost 64. How do I decide when to begin taking Social Security? I plan to work full time for 3 to 4 more years, part-time after that (I have my own business). I've built up some debt due to the recession, and was thinking of starting Social Security at 65 or 66. The good news - it will help pay down my debt; the bad - less income if I start early. Thank you.

Donald Dempsey: Norman, Since you are still working at a minimum I would wait until your normal retirement age (NRA) of 66 so that you don't lose some of the benefits to taxes. What you might consider is talking to an accountant to see how taking benefits would impact your taxes. There is a also a website, www.dinkytown.net, that has some great calculators and you may also look at form SSA-1099 from the IRS to determine the taxation of SS benefits. For each year you start early or delay the Social Security benefit will change by about 8% forever. If you can make payments toward the debt with your current income and the debt interest rates are not too high, I would opt for that even if it meant not adding to savings or retirement accounts. You can lock in a low interest rate on the debt given today's low rates.

Rachel Sheedy: The phone line is currently experiencing some issues. Please use this number, 800-366-2732, in the interim to speak with a NAPFA planner about your retirement-planning questions.

Rachel Sheedy: Hi, I'm Rachel Sheedy, editor of Kiplinger.com's Retirement page, and today I'll be moderating our Jump-Start Your Retirement Plan Live Discussion. Planners will be online until 6 p.m. EST to take your questions -- they will answer as many questions as time allows. Let's get started. First up is Donald Dempsey of Dempsey Investment Management.