Wednesday, January 04, 2017

retirement

  • 年金---當你開始提領退休金時, 整筆退休金有部分, 1/4, 會以現金支付, 剩下的部分會成為一筆免稅資金, 由指定的經理人協助進行投資, 在你去世之前的每一年, 讓你提領一筆金額---此為年金的概念
  • 投入退休金的資金, 在投資獲利上, 享有免稅的福利
  • 退休金給付,以你最後在職的薪水為計算基準
  • u need to have all 3 types of investment plans for retirement: 1. 401 (k) provided by employer, 2. Roth IRA (better than traditional IRA), 3. a separate emergency saving account
  • Summary for retirement investing --- see gmail note
  • delay as long as the government allows u before withdrawing any of the funds (IRS, 401k, ISA)
  • delay withdraws from ur social security account
action plan stage, step by step
1.fund ur 401 (k) enough to qualify for the maximum employer match
2.pay off high-rate credit card debt
3.max out ur Roth IRA (or the traditional IRA u intend to convert) and boost ur emergency cash saving
  • in 2007, u can invest up to $ 4000 in an IRA, if u are under 55; if u are over 50, u can invest $ 5000
  • 50-50 split: whatever extra money u have to invest each month should be divided between the emergency savings account and the Roth IRA
4.save up for a home: if u are renting and it is ur goal to own a home, create a new separate saving account just for ur down payment, and send extra money into the account each month

5. increase ur 401 (k) contribution: if u have no credit card debt, ur emergency fund is in place, u are under 45 years old, and u are maxing our on ur IRA, u should use extra money to add more to ur 401 (k). investing enough to qualify for the maximum employer match; in 2007, if u are under 50, u can invest up to $ 15500; if u are over 50, u are allowed to invest up to $ 20,500

6. put money into a college fund

  • ideally, u will be able to invest in both 401 (k) with the company match and the Roth IRA, u are indeed allowed to do both
  • if u have a 401 (k) at work, but the boss doesn't offer a company match, then ur first priority is to fund ur Roth
401 (k)
retirement plans offered by ur employer
  • 401(k) plan---corporations offer 401 (k)
  • 403 (b) --- nonprofit (school or hospital); tax-sheltered annunities (TSA) are a type of 403 (b), sometimes called tax-deterred annunities; employees of public schools, tax-exempt charities, self-employed miniters, members of Indian tribal governments are eligible to invest in TSA 
  • 403 (b) known as a tax-sheltered annuity (TSA) --- public employees
  • thrift savings plan (TSP) --- military or civil servants
  • despite different names, these retirement plans work in a similar fashion
  • once u invest in a 401 (k), u basically don't want to touch the money until u are at least 59.5 years old; if u make a withdrawal before then, u will owe income tax on all the money that u withdraw, plus a 10 % early-withdrawal penalty
  • ur employer designate how much of ur paycheck (up to set maximums) goes into ur retirement account
  • in 2007, u can invest up to 15,500 in ur 401 (k); if u are over 55 years old, u are permitted an additional catch-up contribution of 5,000 for a total of 20,500; the contribution limits in 2008 and beyond will be increased to account for inflation
  • never take a loan from ur 401 (k) plan or cashed out ur money before ur retirement (see below for more details)
  • don't touch ur money before u reach retirement age
  • for a traditional IRA or 401(k), u own income tax and 10 % penalty on any money u withdraw before age 59.5 years old
  • in 401 (k) or traditional IRA, whatever money u take out will be taxed as ordinary income at whatever income-tax rates are in place at that time 
  • with IRA and 401 (k), u are essentially forced to start taking money out once u reach 70.5 years old
  • with a 401 (k) or traditional IRA, ur heirs will need to papy ordinary income taxes on the money they inherit and withdraw
  • 許多人在陷入財務困境時, 會以其401 (k) 申請貸款, 這筆貸款通常必須在5年內還清; 萬一你離職或被解雇, 你尚未付清的款項將會馬上到期, 你必須在離職後的幾天或幾周內, 一次付清所有欠款; 若你在當時沒有錢繳交這項貸款, 尚未付清的部分,會被視為當年的收入, 將要交付稅金; 此外, 在你失去工作的那一年年底前, 若你未滿55歲, 你還需要額外繳交10%的聯邦稅金罰款
  • 你最好避免從401 (k)借款, 特別是市場低迷的時候, 因為除了401 (k)貸款在你離職時馬上會到期, 而你會被要求還款外, 你所貸款的數目會被課2次稅
  • 你在401 (k)退休帳戶的損失是無法抵稅的,從長遠來看, 從401 (k)帳戶申請貸款是不明智的作法_ 
  • 當你把錢存入退休帳戶, 例如, 401(k),你所存入的部分並未支付所得稅
  • don't touch ur 401 (k), don't take a loan from ur 401 (k)
  • there are limits to what ur annual contribution can be
  • when u contribute to 401 (k), 100% of every dollar goes straight into ur account, no money siphoned off for tax--- that is, if ur tax rate is 15%, u just got a 15 % bonus for agreeing to invest in ur 401 (k)
  • don't loan againstur 401 (k) to pay off ur credit card debt, u should work on boosting ur FICO score, so u can transfer to a low-rate card, before ur consider 401 (k)
  • federal government allows u to withdraw up to $ 10,000 penalty-free from ur 401 (k) to use for ur down payment. It is just the 10% penalty on early withdrals that gets waived. u will have to pay income tax
  • best to worst options: (1) take a withdrawal from Roth IRA, (2) take a loan from ur 401 (k), (3) take a hardship withdrawal from ur 401 (k)
borrowing from urself
  • there is one way u can get at ur money before 59.5 years old and not pay the penalty---take a loan from ur 401 (k) account, u can take a loan for any reason that u want, as long as it is for more than $ 1000, but not more than $ 50000; at the same time, ur loan can't exceed 50% of ur account's value
  • u can also get hit with some fees on the loan, $ 50 to $ 100
  • once u take out loan on ur 401 (k), u must commit to periodic repayment plan, monthly or quarterly, and u typically have 5 years to get the loan paid off, the only exception is if the money if used for a down payment on a home, then ur repayment period can be longer
  • there are plenty of risks with taking out  a loan on ur 401 (k), but if u can't see another way to make a down payment, it can be a viable option
  • 401 (k) loans are good enough only as long as ur stay at ur company; if u decide to leave, or if you are laid off, in most companies, the balance of what u owe (borrow) on that loan is due at the time u leave; if you don't have the money, ur loan becomes an early withdrawal, so u will pay income tax, plus 10 % penalty
  • don't tap ur 401 (k) to pay off ur debts; use ur Roth to pay ur debts
  • don't take out a loan on ur 401 (k) to pay off credit card debt 
  • when u borrow money from ur 401 (k) for a home down payment, u get a few nice breaks
  • normally, u have just 5 year to repay a 401 (k) loan, but when the money is used for a home down payment, u may be able to pay back the loan over the entire length of ur mortgage, thus can be 30 years
  • but if u are laid off from ur job, or if u decide to take a new job, u will need to repay the loan within 60 days; if u can't get it repaid, then the loan is treated as a withdrawal and u will be hit with income tax, plus 10 % penalty
  • take a hardship withdrawal from ur 401 (k): IRS does consider a home down payment a hardship, u will not have to pay the typical 10% penalty that is levied on withdrawals before u are 59.5 years old; u will still be required to pay income tax on the amount that u withdraw

Tax break
  • 401 (k) plans have a bunch of tax breaks
  • while ur money is invested in 401 (k), u pay no tax on ur earnings (ie. tax-deferred), the taxes are deferred or postponed, until u take the money out 
  • when is comes time to start taking money out of ur 401 (k)--u can start as early as 59.5 years old and no later than 70.5 years old-- the IRS comes a knocking for its share; when u make withdrawls from ur 401(k), u will be required to pay taxes on the money that u take out, at whatever ur income tax bracket is at that time
  • 401 (k) never promise to be tax-free
  • u contribute to ur 401 (k) with pretax money (ie., money that u have never paid taxes on)
  • the money u invest in the plan, known as us contribution, is taken out of ur paycheck before taxes, so every dollar u invest in ur retirement plan reduces ur taxable income for that year by one dollar---e.g., u make 40,000 a year, but invest 3,000 in ur retirement plan, ur taxable income drops to 37,000, this means a lower tax bill for the year
  • as long as u keep ur money inside the retirement plan, u won't owe any taxes, it is only when u start taking money out of the account that u will owe tax --- this is known as tax-deferred investing, ur money gets to grow and grow without any tax bill while it is invested
  • the tax bill is deferred, or postponed, until u are retired and withdrawing money from the account
  • in return for getting these nice breaks, u agree to keep the money invested until u reach retirement age, or u will be hit with a 10% early-withdrawal penalty
  • generally, u must be at least 59.5 years old, though in a few instances u can withdraw money at age 55 without incurring the penalty
  • no matter what ur age, when u take money out of a 401 (k) plan, u will owe tax on the amount of money that u take out
  • with a 401 (k) plan, ur money comes staight out of ur salary, before taxes are deducted, this is why ur contributions are called pretax; with a Roth, ur contributions are made with money that u have already paid taxes on; ur Roth is funded with after-tax dollars
  • with a 401 (k), u contribute pretax dollars, so the tax bite is on the withdrawal; with Roth, the tax bite comes at the beginning, when u contribute with after-tax dollars
The employer matching contribution
  • retirement bonus, the extra money ur employer agrees to give u every year as long as u contribute to ur 401 (k)
  • the formula for the match varies, e.g., an employer contributes 50 cents for every 1 dollar an employee invests in her 401 (k) account, up to a maximum for 1,500; thus, if u invest 3,000 of ur own money, ur employer will add in another 1,500. this is an instant 50% gain, very good deal
  • if u don't contribute to the plan, ur don't get the match --- similar to tell ur boss that u don't want a bonus
  • the amount of employer match varies, some employers do a dollar-for-dollar match up to a certain level, eg., 1500; others may offer a 50 % match on the first $ 2000, 3000 or 4000 u invest in the plan
  • u don't really own employer match until a few years have passed, this is know as vesting (vesting interest); Each employer has a different vesting schedule, but typically  have 20 % or 25% of the company match vest each year. Thus if u start a new job in 2005, and vest over 4 years, then the employer match for the amount ur invested that year will be 100% urs in 2009; if u leave ur company after 2009, u will get to take all the match with u; If u leave ur company before 2009, u can take only the portion of the match that is already completely vested --- this is only about employer match, the money that u contribute to ur 401 (k) is always 100% urs.
  • if u anticipate u will be job-hopping in the next year or so,  u might want to skip 401 (k), since u won't be around long enough to collect the vested company match, instead, focus on funding a Roth IRA
  •  max out ur retirement bonus --- make sure to contribute enough to ur 401 (k) account to get the maximum matching contribution from ur employer
  • law encourages companies to enroll employees in the retirement plan automatically unless the employee explicitly ask to opt out of the plan
  • when u are automatically enrolled in a plan, ur employer chooses a contribution level for u, maybe 2 % of ur pay; the default contribution level ur employer chooses for u might not be high enough to qualify for the maximum matching contribution
  • after u max out on ur company match, u are to stop ur 401 (k) contributions for the rest of the year
  • u need to check with HR to see if u need to boost what u pay into the plan so u can be assured that u are getting maximum bonus contribution from ur employer
  1. 401 (k) with an employer match is great, but not all companies offer it; even if u have this great plan at work, u also need to have additional retirement saving on ur own, u need to ahve additional account that u set up, invest in, and manage on ur own
  2. if ur employer/retirement plan doesn't offer a match, don't make ur 401 (k) ur first retirement move --- Roth IRAs is a smarter choice for u
  3. Roth IRA (below for more details)
  4. participate in a 401 (k) due to the great "bonus" of the employer match, after the point of the match (or if ur company doesn't match at all), the Roth IRA is a better choice
  5. u can have both 401 (k) and a Roth IRA
IRA rollover
  • when u change jobs, u cna take ur 401 (k) with u by doing an IRA rollover, u keep ur money growing, tax-deferred, and expand ur investment options, it is win-wine
  • most likely, the reason ur old employer tell u that u must take the money out of 401 (k) is that u have less than $5000 in the plan. Even if u were not asked to move ur money, expert suggests you to move the money no matter what.
  • when u contribute to ur company's 401 (k), u are capitve to the investment options offered in the plan; typically,  u have a bunch of mutual funds to choose from; some of those funds may be great, some are not.  You are stuck with what the plan offers. 
  • No mater how small ur 401 (k) account is, don't cash out when u leave ur job. U will pay income tax on the withdrawal, plus a 10% penalty. Also, don't leave ur 401 (k) where it is
  • Use IRA rollover, u simply transfer ur 401 (k) balance out of ur old employer's plan and into an IRA account that u set up at a discount brokerage fimr or no-load mutual-fund company that have low expenses. You literally roll the money over into a traditional IRA. when u do this, u will owe no taxes or penalties, u are simply moving ur money from one tax-deferred retirement plan to another
  • if u have multiple 401 (k) from many old jobs, u can move all those seperate accounts into one IRA rollover account to simplify ur life, then u can convert ur rollover account into a Roth IRA
  • u can't move ur money directly from a 401 (k) to a Roth, but u can move it to a rollover IRA, and then convert that into a Roth --- to get ur 401 (k) into a Roth, u first need to transfer the money into a rollover IRA, which really is just a traditional IRA. Once ur have the rollover done, u can then convert it to a Roth IRA
  • to convert ur money from IRA rollover to Roth, to make the conversion, u must first pay tax (ordinary income tax, in the year u convert) on whatever money is being transferred from the IRA rollver to Roth; if u convert $ 10000 at once, u could end up in a higher income tax bracket that year. Thus, u can do partial conversions over a number of years, u can convert $ 5000 a year for the next two years, or $ 2000 a year for the next 5 years, or whatever combinations makes sense for u, tax wise
  • after ur money has been in the converted Roth IRA for at least 5 years, u can take out any of the money that u originally  converted, regardless how old u are, without any tax or penalty. It is the earnings, or the growth, of ur money that you converted that has got to stay in there until u are 59.5 years old.
  • ur modified adjusted gross income (MAGI) must be less than $100,000 in the year that u convert 
  • direct rollover -- choose a direct rollover where the money is transferred without ur touching a penny of it; never have ur old 401 (k) plan send u the rollover check, becasue then it becomes ur responsibility to get the money invested in a rollover IRA. If u dont get the rollver over done in 60 days, u wil be hit with income tax plus the 10 % penalty. Use direct rollover, where the firm that has ur existing 401 (k) sends the money directly to the firm where u are going to set up ur new IRA;  u fill out a simple IRA rollover form, brokerage will contact ur 401 (k) plan directly adn get the rollover done
Choose the right investments for ur plan
  • after u sign up for the plan, next u need to tell the plan how u want ur money invested, u are usually limited to the choices offered within ur plan, typically, these are the stock of ur company that u work for and mutual funds
  • ur employer merely sponsor ur plan, but has absolutely no control over the management of the plan, ur company hires another firm to tun the plan, the firm is a brokerage firm, or fund company, or an insurance company
  • ur 401 (k) doesn't stay at ur company,it is physically transferred to an outside firm that handles ur plan and invests the money for u,based on the choices u have made; ur 401 (k) investment is never part of ur company's finances
  • u never want more than 5% of ur investment money to be riding on one stock, whether or not if is stock of ur employer
  • many companies have gone overboard and built retirement plans that have more than a dozen different mutual funds to choose from 
  • own many different stocks that are in different types of industries or services -- diversification
  • the majority of ur money should be in the mutual funds of ur 401 (k) plan, even if ur plan offers u shares of ur company's stock, u still should make mutual funds the centerpiece of ur 401 (k) fund, loading up on ur company stock will leave ur undiversified
  • invest ur 401 (k) in stock mutual fund; ur 401 (k) plan may also offer mutual funds such as bond funds and stable-value funds, don't invest in these options unless u are just a few years away from retiremen
  • bond and stable-value fund don't have as much upside potential as stock
  • if u have at least 10 years before retirement ---- choose and use individual stocks or stock mutual fund
  • bond and stable-value (mutual) fund don't have as much upside potential as stock
  • over time (at least 10 years) --- decades, not months--- stocks outperform bonds and saving account
  • the only individual stocks u can own within ur 401 (k) plan are shares of the company that you work for; with a Roth, u can own any stock u choose, if u open an account with a brokerage firm
  • u should diversify stock portfolio to include stock from different industries, large and small companies, companies in US, foreign companies, new companies, old companies
一勞永逸, 懶人法 (if u want to make a move once and never look at ur portfolio again, i.e., go on automatic pilot form today until the day u retire) 

1. opt for lifecycle fund (not a perfect solution)
  •  choose the option in the lifecycle fund that has a retirement year (is part of the fund's name) that reflects when u expect to retire; choose funds with target retirement dates that are anywhere from 5 years to 40 years away
  • the fund automatically holds, and adjusts over time, the proper types of investments based on how many years u have until retirement
  • e.g., if  u pick a lifecycle/target fund with a retirement year 40 years off, it will own mostly stocks right now, then, as u get closer to retirement, if will automatically scale back its investments in stocks and shift to less risky investments. The fund will automatically allocate ur investments in a wide range of types of stocks: stocks from different countries, industries, small stocks, large stocks, etc.,
  • many of these funds hold bonds or even some cash
  • if u are 20, 30, 40 years from retirement, u should focus on stock funds
2. opt for index fund (若願意或可以再花一點心思及時間, 較前者佳)
  • check fund post for more details
  • look at ur investing options and search for any fund with the name "index" of "500" or "total market" or "extended market" in the name, these fund are index fund
  • instead of being run by a manager or a team of money managers who are responsible for deciding what stocks the fund will own (stock mutual fund), an index fund removes the human element
  • u are not investing in the ability of a money manager to be a market guru who makes great calls on what to own and what to sell
  • u are investing in a fund that simply aims to mimic the performance of a popular market benchmark, one of the most well-known market indexes is the Standard & Poor's 500, this index is made up 500 different stocks of well-known companies---what are referred to as the "blue chip"
  • if ur 401 (k) plan offers an index fund that mirrors the S&P 500, that is a fine choice
  • international index fund vs. emerging market fund

  • in addition to the basic lifecycle and index funds, there are many different types of funds to invest in
  • each of these funds has a different investment goal
  • some funds focus on big, established companies that have been around for years (largep-cap funds), while others invest only in smaller, younger firms that have the potential for big growth (small-cap funds)
  • there are funds that use a specific investment strategy: a fund with the word "growth" in it tends to hold stocks of companies that are expected to have big jumps in their earnings
  • other funds focus on stocks that have been a bit lackluster or beaten up lately, but are expected to rebound, these are known as "value" stocks
401 (k) allocation
  • 90 % in ur index fund that follows a broad benchmark of US stocks; look for index funds with "total stock" or "extended market" in the name
  • 10% in an international fund or international index fund
getting close to retirement
  • if u are few years away from retirement, start slowly shift some of ur money from stock funds to into the stable-value funds within ur 401 (k) plan to reduce ur risk;  not bond funds --- bond funds go up and down in value depending on what is happening with interest rates
  • stocks and stock funds is good for u when u have at least 10 years or more to keep the money invested, but if u are retiring and expect you will need that money in a few years, u want to add some protection to ur account
  • if u stay 100 % invested in stocks, u run the risk that ur account will suffer a big loss if the stock market goes into one of its swoons just as u want to start withdrawing money
  • don't automatically move everything into stable value when u are 55 or 60 years old. keep some of ur money invested in stocks (because u are just 55 or 60 years young), u may live another 20 years or more --- so just remove a portion of ur money out of stock funds and into stable value
  • u need both the stability that stable-value funds provide and the earnings potential of stocks
  • stable-value funds 
  1. have a goal to keep ur value stable
  2. A stable-value fund in fact invests in bonds, but it has an added component that aims to eliminate the ups and downs that come with changes in the interest rates --- it is a conservative-type bond fund that is structured so the value of ur account won't drop, that is, it will be stable
  3. the interest rate is 1 or 2 % more than what u can earn in a saving account or money market account
  • by the time u are 60 years old, have 35 % of ur money in stable-value funds
  • between 60 and 70 years old, increase the above to 50 %
  • after 70 years old, shift another 5 % into stable value each year
  • by the time u are 80 years old, u are not invested in stocks or stock funds
If u don't need to use 401 (k) money to support urself in retirement, and you want to leave ur 401 (k) to ur heirs
  • u don't need to lower ur risk aggressively
  • u can leave the money in stock and stock funds, so it grows for future generations

company stocks
  • if ur 401 (k) is 50 % invested in ur own company's stock, u are not diversified
  • ur company's own stock should not amount to more than 10 % of ur total invested assets, Not just ur 401 (k) assets, but ur total invested assets
  • keep ur company stock to 10% or less of ur total assets
  • the only individual stocks u can own within ur 401 (k) plan are shares of the company that you work for
  • with a Roth, u can own any stock u choose, if u open an account with a brokerage firm
don't take a loan from ur 401 (k) plan before ur retirement
  • many 401 (k) allow u to take a loan from ur account --- actually, u will have to pay urself back (with interest) within 5 years, this is not a good idea
  • if u are laid off or decide to take a new job, u need to repay whatever amount of the loan is still outstanding within a few months; if u don't have the cash to repay the loan, u will owe a 10 % penalty (assuming u are  under 55 years old in the year u left the job) as well as income tax on the money u withdraw from the 401 (k) account
  • when u invest in ur 401 (k), u use pretax dollars, i,e., money that has yet to be taxed
  • but when u take that money out as a loan, all money withdraw from a 401 (k) is taxed at ur ordinary income tax rate
  • u will owe 10% penalty, as well as income tax, on money u withdraw from ur 401 (k) before age 59.5 years old
don't cash out ur money from ur 401 (k) plan before ur retirement

  • when u leave a company, voluntary or not, u no loner have to stay invested in that company's 401 (k), u have 4 different options
  1. keep the money in that plan as long as u have at least 5,000 dollars or more
  2. move that money into ur new employer's plan
  3. move the money into that is known as an IRA rollover account
  4. take the money in cash --- don't take this option;  u will owe 10% penalty, as well as income tax, on money u withdraw from ur 401 (k) before age 59.5 years old (exception: if u are 55 years old or older in the year u retired, took another job, or were laid off, u can withdraw any amount of money u want from ur 401 (k) without having to pay the 10% penalty --- this is not true for traditional IRA or IRA rollover, just for retirement account like 401 (k))
  5. expert's suggestion: when u leave a job, moving ur 401 (k) into either an IRA rollover at a discount brokerage or mutual fund company. With an IRA rollover, u still get all the tax advantages of ur 401 (k), but u expend ur investing options beyond the funds offered in ur former employer's plan --- check Suze website for more details

Roth 401 (k)
  • beginning in 2006, employers were permitted to expand their 401 (k) to offer what is known as a Roth 401 (k), this is a better deal than a regular 401 (k) for almost everyone
  • the big difference between a regular 401 (k) and a Roth 401 (k) is how u are taxed. 
  • with a Roth 401 (k), u will get no up-front tax break: the money u contribute into the plan is money that has already been taxed
  • but the potential big break comes when u retire and start withdrawing money from the plan; with a Roth 401 (k), if u meet some basic rules, all ur withdraws will be tax-free, whereas withdrawals from a traditional 401 (k) will be fully taxed at whatever ur income tax rate is in retirement
  • the younger u are, the more sense a Roth 401 (k) makes

IRA : traditional IRA vs. Roth IRA

Traditional individual retirement account (IRA)
  • committed to investing in an IRA in addition to investing in ur 401 (k) or 403 (b)
  • anyone can invest in a nondeductible traditional IRA, same contribution limits, same deferred tax treatment whiel ur money is invested; u just are not able to deduct ur initial contribution on ur federal tax bill
  • anyone with earned income can set up an IRA, and depending on their income, deduct the IRA contributions from their taxable income
  • who is allowed to deduct IRA contributions on their federal tax return:
  1. if u are single and don't have a retirement plan at work, u can invest in an IRA and deduct ur IRA contributions regardless of ur income (the adjusted gross income, AGI, u report on ur tax return)
  2. if u are single and have a retirement plan at work, u can deduct ur IRA contribution if ur AGI is below 60,000 dollars
  3. if u are married, file a joint tax return, and neither of u has a retirement plan through ur employer, u both can invest in an IRA and deduct ur contributions regardless of ur AGI
  4. if u are married, file a join tax return, and u both contribute to a retirement plan through work, u will be allowed to deduct ur IRA contributions only if ur joint AGI is below 100,000 dollars
  5. if u are marred, file a joint tax return, and do not actively participate in a retirement plan through work, but ur spouse does, u can make a deductible IRA contribution if ur joint AGI is below 160,000 dollars
  6. if ur income falls into certain phase-out ranges set by the IRS, the amount u can invest in a deductible IRA will be limited. The phase-out affects singles with income between 50,000 and 60,000, and married couples filing a joint tax return with income between 150,000 and 160,000
  • even if u can't deduct the contribution from ur tax bill, anyone can open a nondeductible IRA: though there is no initial tax break, u get all the other benefits of tax-deferred investing. 
  • While the money stay in the account, u can invest in almost anything u want and all the growth of that money over all the years u remain invested in not taxed
  • only when u withdraw money do u owe income tax-- on the amount withdrawn
  • for a traditional IRA or 401(k), u own income tax and 10 % penalty on any money u withdraw before age 59.5 years old
  • in 401 (k) or traditional IRA, whatever money u take out will be taxed as ordinary income at whatever income-tax rates are in place at that time 
  • with IRA and 401 (k), u are essentially forced to start taking money out once u reach 70.5 years old
  • with a 401 (k) or traditional IRA, ur heirs will need to papy ordinary income taxes on the money they inherit and withdraw
  • beginning in 2010, high-income individuals with traditional IRA can convert to a Roth IRA (see below IRA investing if u don't qualify for a Roth for more details)
  • 若你沒有應急基金或信用額度,而你又需要用錢,Roth IRA為優先應變途徑(詳如下文); 若你有traditional IRA 或Rollover, 每年你可以動用一次這筆存款, 提取金額不限, 幫你度過60日內不必付稅金或罰金, 只要你在60日內將之前提領的金額存放回去, 就沒有問題; 若你在60日內未將這筆款項存放回去, 你所提取的款項就會欠稅, 這筆錢被視同一般收入, 若你未滿59.5歲, 可能須繳交10%聯邦稅金罰款
  • if u have a traditional IRA, u can withdraw ur money for 60 days without tax or penalty, but if u don't repay the money into the account by day 60, u will have to pay income tax on the withdrawn amount and a 10 % penalty
  • just like 401 (k), with a traditional IRA, the money grows tax-deferred, but u must pay income tax on ur withdrawals
  • if u don't have a 401 (k) at work, u can invest in a traditional IRA no matter what ur income is, and ur contribution is tax-deductible; e.g., if u invest $4000 and u are in the 15% tax bracket, ur tax bill will be reduced by $600 (4000*15%); But if u have 401 (k), u are eligible for the full tax break on the traditional IRA only if ur are single and ur modified adjusted gross income (MAGI) is below $ 50000 in 2005; For married couples filing a joint tax return, the limit in 2005 is $ 70000
  • Even if u get the full tax break on traditional IRA, the Roth is the smarter IRA move
  • u should focus on the finish line: up-front tax breaks on a 401 (k) or traditional IRA are not very good, because, ur tax brackets could be higher in the future than they are now, given the  high deficits that we have to finance
  • Roth is better than traditional IRA which was the only IRA in town, until Roth was created in 1997
  • if you have several different IRA accounts, you should consolidate them, this makes monitoring easier and can reduce ur cost (u only need to pay one custodial fee, the administration fee of $10 to $40 or so a year); many financial institutions will completely waive ur IRA maintenance fee once ur account rises to $ 25000 or $ 50000

Roth IRA (Roth Individual Retirement Account) -- highly recommend by expert
  • participate in a 401 (k) due to the great "bonus" of the employer match, after the point of the match (or if ur company doesn't match at all), the Roth IRA is a better choice
  • u can have both 401 (k) and a Roth
  • not everyone is eligible for a Roth IRA, there are certain income limits
  • in 1998, a new type of IRA hits the market--the Roth IRA
  • u fund a Roth IRA with money u have already paid taxes on
  • because u invested after-tax money, if u abide by just a few simple rules, all the money u invest and all of the growth on that money will be tax-fee when u take it out
  • different from traditional IRA and 401 (k) -- these two types, u owe income tax on whatever money u withdraw
  • if u suddenly need money from ur Roth IRA, u can withdraw any of ur contributions without any tax or penalty, regardless of ur age or how long the money has been inthere
  • for a traditional IRA or 401(k), u own income tax and 10 % penalty on any money u withdraw before age 59.5 years old
  • with a Roth, ur contributions are made with money that u have already paid taxes on; ur Roth is funded with after-tax dollars; with a 401 (k) plan, ur money comes staight out of ur salary, before taxes are deducted, this is why ur contributions are called pretax
  • with a Roth, the money u contributed is not going to be taxed (it already was taxed before ur contributed it), all the money u earn on those contributions (ie, ur investment gains) is not going to be tazed, a long as u have owned the Roth for a minimum of 5 years and u are at least 59.5 years old at the time u make the withdrawal---this is the big tax break with Roth, there is no tax at the end
  • If you can get a company match for 401 (k), u should contribute to 401 (k); if u don't get a match, and even for any contributions beyond what u need for the match, u should concentrate on Roth, which is a far better deal than 401 (k)
  • Roth IRA offers flexibility --- for emergency, u have access to ur contributions without tax or penalty
  • when u reach 59.5 years old, assuming u have the account for at least 5 years, u can withdraw 100 % of ur money without paying any tax and use it to pay off ur mortage or pay down any other debt u might have
  • in 401 (k) or traditional IRA, whatever money u take out will be taxed as ordinary income at whatever income-tax rates are in place at that time 
  • u are not required to make any withdraws if u don't need the money
  • with IRA and 401 (k), u are essentially forced to start taking money out once u reach 70.5 years old---this make a big difference for ur heirs
  • u can leave more money in ur Roth IRA for ur loved ones to inherit, any money that is left in ur ROth upon ur death will pass tax-free to whomever u have designated as ur beneficiary
  • with a 401 (k) or traditional IRA, ur heirs will need to papy ordinary income taxes on the money they inherit and withdraw
  • the maximum amount u can invest in a Roth IRA in 2007 is 4,000 dollars per year if u are under 50 years old and 5,000 dollars if u are 55 years old or older; it is $ 4000 per year in Roths, not $ 4000 for every Roth that u want to open
  • 若你沒有應急基金或信用額度,而你又需要用錢, 你首先想到的應該為Roth IRA, 你可在任何時間從Roth IRA中, 提取部分或全部存款, 而不會欠稅或被罰任何稅金; 不論任何年齡或存放期間多久, 你都可以提款; 你不能動用的只有你存款金額的增值部分或利息, 這些增加的錢放不到5年或在你年屆59.5歲前是不能免稅的; 例如, 你目前36歲, 過去4年中, 你在Roth IRA中存放了11000元, 那筆錢已增值為13000元, 若你急著用錢, 你可領出部分或全部存款 (11000元), 而不須要付稅金或罰款, 也不用再存放回去; 但你不能動用先前存款所賺取的2000元, 存款增值部分至少要存放5 年, 而你的年紀也已經超過59.5歲, 才可以動用
  • 若你想要將所得全部存作Roth IRA中, 你必須符合資格, 若你是單身, 年收入必須低於110000元, 若已婚, 夫妻合計年收入必須低於160000元
  • 先弄清楚你是否符合資格可同時在Roth IRA存入最高可存金額, 若符合資格, 你可以同時存入401(k)和Roth IRA
  • If u need emergency money, u can tap ur Roth IRA, u can always withdraw ur contributions (but not ur investment gains) without any penalty or tax
  • if u need money, u can withdraw the money that u originally invested in the Roth at any time, without paying income tax or a penalty tax--ur contributions are made with money already been taxed, so there will be no punishment for taking it out; eg., u are 28 years old, u contribute $4000 a year to ur Roth for the next 3 years, when u turn 31 years old, u have contributed $ 12000 to ur Roth, u can withdraw any amount up to that entire 12000 without taxes or the usual 10% penalty; it's only the earning on those contributions that u can't take out without the penalty and tax; so, if over those 3 years, ur $ 12000 grew to $ 14000, the only money u can't touch without incurring taxes and penalty is the $ 2000
  • a Roth is just a type of account, u must choose where u are going to open this account and what u are going to fill it up with---expert recommends either a brokerage or a no-load mutual fund company
  • highly rated discount brokerage: Muriel Siebert https://www.siebertnet.com/,  Scottrade https://www.scottrade.com/ , fidelity brokerage https://www.fidelity.com/ , vangard https://investor.vanguard.com/corporate-portal/ , T. Rowe Price, https://www3.troweprice.com/usis/corporate/en/home.html
  • ur original contributions to ur Roth were made with after-tax money, so u are free to withdraw the money that u put  into ur Roth at any time for any use whatsoever
  • u can withdraw up to $10,000 in earnings penalty-free if the money is used for a house down payment
  • if ur Roth is less than 5 years old (day one is the first day you opened the account), u will be hit with income tax on the earnings withdrawal (thus, it is good to open a Roth now, even if it is a small amount, it will start ur 5 year clock ticking immediately)
  • if u have not hit the 5 year mark, but want the money for house down payment right now, experts suggest using ur Roth contributions, but don't touch the Roth earnings
capital gains tax 
  • if u max out on the Roth and don't have a 401 (k) at work, u can use a regular taxable account for ur retirement savings--- regular accounts aren't necessarily hit with income tax, instead, u can pay the capital gains tax rate if u have held the investment for more than one year 
  • if u own an investment for at least one year, ur capital gains tax will be either 5% or 15%; meanwhile, ur 401 (k) investments will be taxed at ur income tax rate, which can be as high as 35%
  • u can get caught paying tax every year that u are invested in a regular account; any trade u make that trigger a gain will be taxed. Mutual funds can hit u with a tax bill each year, even if u didn't make one trade. Solution--- u can invest in index mutual funds and exchange-traded funds, if u buy them and hold them (meaning you don't trade them), u are going to either eliminate ur tax bill (for the ETF) or keep it super-low (for the index fund), this way, u can pretty much mimic tax-deferred investing with ur taxable account; when the time comes to cash out, u get to pay the lower capital gains tax rate, rather than income tax rates; also, investments in taxable accounts that are sold at a loss can be claimed as a deduction on ur taxes
  • as of 2007, u qualify for a Roth IRA,if:
  1. u are single and ur modified adjusted gross income (MAGI) is below 114,000 dollars
  2. u are married and file a joint tax return, with MAGI below 166,000 dollars
  3. check ur federal tax return from last year, if u file form 1040, check line 38 as ur adjusted gross income; for most of u, us AGI is close to ur MAGI
  • two methods to invest in a Roth or ordinary IRA
  1. make one large investment one time a year (lump-sum investing): if u have 4,000 or 5,000 dollars, u can put it into ur IRA all at once; the best time to do so is in January, then ur money is working in advantageous way all year long
  2. invest a smaller amount each month or each quarter (dollar cost averaging): to end up 4,000 dollars invested over the course of a year, u could invest 333 dollars a month
  • if u plan to put money into ur Roth or IRA account every month or so, u should invest in no-load mutual funds. A load is a fee (a commission or sales charge)
  • a no-load is a on-commission fund
  • a load is no the same as expense ratio; expense ratio is a completely separate charge that all mutual funds (and all ETF) have, it is a annual charge everyone pays --- see mutual fund post for more details about expense ratio
  • the goal is to choose mutual funds that have no load and have the smallese possible annual expense (expense ratio)
  • loads are charged in two basic ways: 
1.up front when you first invest: A share funds
  • funds that charge a load when u invest have an A following their name, they are often called A share funds
  • an average A share load is about 5 %. thus if u invest $4000, only $ 3800 will actually be invested in ur account, the other $ 200 (5 %) goes to pay the broker or financial advisor who sold ur fund, that is their commission
  • A share doesn't guarantee u great performance, the load u pay has nothing to do with the talent of the fund manager (if u are investing in the index fund, there is actully no talent needed)
  • the load simply pays the person who sold u the fund
2.as a deferred sales charge that you may have to pay when u sell ur shares: B funds
  • funds that charge u a commission when u sell have a B at the end of their name, they are called B share funds
  • they look great u don't pay a commission when u invest. However, u will pay a fee if u leave within a few years.
  • Typically, u can get hit with a  5% sales charge if u sell them within the 1st year, 4% within 2 years, and so on
  • the expense ratio on a deferred-load fund is a lot higher than the expense ratio  on a true no-load fund, expecially a low-cost index fund.
  • u should avoid B share fund,if u see the letter B after the name of the mutual fund, don't buy it
How to spot a load fund
  • check if there is an A or B after the name of the fund
  • before u invest in any fund, u can look it up at the fund company's website or call customer service and ask about the fees: (1) do i pay a load when i buy shares of this fund? (2) will i pay a load if i sell my shares within, e.g., 5, years?
  • if the answer to either question is yes, u are looking at a loaded fund
to learn more about mutual funds, http://www.morningstar.com/
enter the name or ticker symbol for a mutual fund, it will take u to a data page for that fund, including expense ratio and loads
ticker symbol has five letters and ends in X
strategy for no-load fund
  • 90 % in a no-load mutual fund that tracks a broad market benchmarket
  • 10 % in a no-load mutual fund that invests in international stocks from developed countries
How to open a no-load Roth IRA or traditional IRA
  • a great place to open Roth IRA, T. Rowe Price mutual fund group https://www3.troweprice.com/usis/personal-investing/mutual-funds.html. u can open an account where u invest as little as $ 50 a month
  • T. Rowe's Extended Equity Market Index fund is a smart choice for ur core index fund
  • it also have an international stock fund for the remaining 10 % of ur Roth IRA
  • Vanguard mutual fund company https://investor.vanguard.com/mutual-funds/ ; is great, it tends to have the lowest expense ratio of any no-load firm, the minimum initial investment for its funds is $ 3000 (and then $ 100 after that), check suze website for strategy for how to build a Roth IRA using vanguard fund
choose the right investment for ur IRA or Roth IRA
  • if u simply send in a check to a brokerage or mutual fund company to open an IRA or a Roth IRA without making it clear what u want ur money invested in, ur mony will just sit in a saving account or money market account ---- this is bad
  • if  u have at least 10 years or more until u retire, u need to invest in the stock market to get the best returns on ur money over the long haul
  • exchange-traded fund (ETF) are great choice, ETF is very similar to index fund, it also aims to mimic the performance of a bench-market index, just like a regular index mutual fund
  • u can ofen find an ETF and an index mutual fund that are tracking the same exact benchmark, they just have a few small diffference 
  • See mutual fund post for more details about ETF
Keep all ur IRAs in one place
  • whether u choose to invest in ETFs or mutual funds, u should keep ur IRA investment with one firm, because many discount brokerages and fund firms will charge u an annual maintenance fee (custodial fee) for each separate IRA
  • the account custodial fee can be $ 10 to $ 50. often once ur account reaches a certain level, e.g., $ 10,000 or more, the fee may be waived
  • move all ur accounts to the firm with the best investing options and lowest fees, by consolidating ur various accounts into one account, u may have enough money to get the custodial fee waived
How to transfer IRA money
  • see gmail note for more details
IRA investing, if you don't qualify for a Roth IRA
  • even if u make too much money to qualify for a Roth IRA, u still need to have ur own retirement fund outside of a company plan
  • beginning in 2010, high-income individuals with traditional IRA can convert to a Roth IRA
  • with high income, u can't open a Roth IRA directly, but if u open a traditional IRA, u can change it into a Roth IRA, regardless of how much u make
  • invest in a traditional IRA first, keep funding it to the max, then convert the money into to Roth IRA
  • u can choose any amount of money u want to convert
  • the downadie -- when u convert, u will owe tax
  • if u are convert a decuctible IRA, you will owe tax on the entire amount of the conversiion
  • if ur traditional IRA was nondeductible, u will owe tax only on what u have earned; ur origional contributions are not taxed because they were made with money u already paid taxes on
  • fund a trational IRA,then convert to Roth IRA, see gmail more for more details
jugging ur 401 (k) and Roth IRA contributions
  • if money is tight and u can't easily fund ur 401 (k) and Roth IRA to their annual maximums, here are the strategies
  • make sure u  contribute enough to ur 401 (k) to get the maximum annual matching contribution, but don't contribute a penny more than what u need to get that match; then the rest money can invest in a Roth IRA or IRA
  • if u don't get a company match in ur 401 (k), make Roth IRA, or traditional IRA ur first priority (Roth IRA is better than traditional IRA)
  •  Fund IRA to the max, if u can
  • if u finish funding the Roth IRA or IRA completely befor year end, spending the rest of the year adding to ur saving fund (emergency saving account) 
  • when the new year rolls around, go back to focusing on funding ur IRA again (u also need to make sure that once again contribute enough to ur 401 (k) to get the maxmium employer matching contribution)
  • if u finish building ur emergency saving fund, turn back to ur 401 (k) and boost ur contribution level for the rest of the year
  • see gmail note for more details --- jugging ur 401 (k) and Roth IRA contributions
Separate Emergency saving account
  • u need to have a Roth IRA and an emergency saving fund
  • Roth IRA can only serve as a "last resort", as a "backup" emergency account
  • if u can full fund both the saving account and the Roth IRA, great
  • if money is tight, be strategic: take whatever u have to invest each month and divide it between ur two goals, e.g., if u have 200 dollars u can invest each month, put 100 in the saving account, and 100 in ur Roth IRA
for women over 45

  • if u live in the home u intend to retire in and it still has a mortgage
  • u need to invest in ur 401 (k) if u get a company match, but after u achieve that, u need to forgo invest any more in retirement account and shift ur money to pay off ur mortgage so u own ur home outright by the time u retire
  • own ur home free and clear before retire, u remove one of ur biggest financial worries

social security retirement 
  • estimator  https://www.ssa.gov/retire/estimator.html

退休基金投資的安全處所
  • 若你再過幾年就要退休, 你退休後的收支剛好平衡 (例如, 你每月可由退休帳戶拿到700元而你每個月至少需要700元維生),則你必須將基金由股票市場, 轉到報酬固定的債券市場(不會有意外發生)
  • 當你即將在5年內退休, 你個人的投資組合不是取決於你的年齡, 而是你需要多少錢, 以及你目前有多少錢
  • 莫投資在債券基金, 莫投資在個別公司債或是優先股
  • 可投資於: 中期公債 (treasury note)和長期公債(treasury bond/國庫債券), Ginny Maes (Government National Mortgage Association 發行的債券), 定存, single-premium deferred annuity (保障一定的期間利率, 提前解約者,需繳解約罰金), insured municipal bonds (僅限退休帳戶以外的資金)

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