The Early Tax Deadline You Can't Afford to Miss

For millions of taxpayers, the April 15 deadline to file your 2012 return already looms large. But for a select group of retirement savers, there's a deadline coming even sooner -- and missing it could cost you a huge amount of money.

That select group includes those who have money in traditional IRAs and 401(k) accounts and who turned age 70½ during 2012.

Under what's known as the required minimum distribution or RMD rules, you have until April 1 of the following year to make your first required withdrawal. In subsequent years, you need to take money out of your account by Dec. 31 to cover that year's RMD. Read more >>

Study Shows More Americans Are Raiding 401(k) Accounts To Pay Bills

A new national study shows that too many of us are cashing out 401(k) accounts to pay bills. If that retirement account is calling your name, a financial expert advises you to stop listening.

When the bills pile up and money is tight, many people turn to their 401(k) accounts to help ease the bind.

Downingtown, Pa. CPA Jacquelyn Basso says it’s not a good idea to raid your retirement; you’re getting money now that you’ll need to live on when you’re older. Read more >>

Workers raiding retirement saving accounts to survive

A large and growing share of American workers are tapping their retirement savings accounts for non-retirement needs, raising broad questions about the effectiveness of one of the most important savings vehicles for old age.

More than one in four American workers with 401(k) and other retirement savings accounts use them to pay current expenses, new data show. The withdrawals, cash-outs and loans drain nearly a quarter of the $293 billion that workers and employers deposit into the accounts each year, undermining already shaky retirement security for millions of Americans.

With federal policymakers eyeing cuts to Social Security benefits and Medicare to rein in soaring federal deficits, and traditional pensions in a long decline, retirement savings experts say the drain from the accounts has dire implications for future retirees.

“We’re going from bad to worse,” said Diane Oakley, executive director of the National Institute on Retirement Security. “Already, fewer private-sector workers have access to stable pension plans. And the savings in individual retirement savings accounts like 401(k) plans — which already are severely underfunded — continue to leak out at a high rate.” Read more >>

Are tax benefits of 401(k) plans on the chopping block?

As the debate around tax reform grows more heated, broker-dealers and other companies that service retirement plans offered by employers are increasingly concerned that the tax benefits of 401(k) plans are on the chopping block.

An industry group that normally works behind the scenes, the American Society of Pension Professionals and Actuaries, on Monday launched a media campaign intended to educate U.S. employers and workers that the federal government might consider changing the tax benefits of retirement savings accounts.


That worries the ASPPA because Americans might end up saving less, and some smaller employers might eventually decide to discontinue their own 401(k) plans.

The "Save My 401(k)" campaign includes a website, Facebook page, Twitter feed, and even an online videogame. The budget is undisclosed but is in the six figures, according to the ASPPA's chief executive, Brian Graff. Read more >>

40 Percent Of Americans Have $500 Or Less In Savings

A survey of about 1,100 Americans finds that more than 4-in-10 respondents admit they don’t have more than $500 in readily accessible savings. The survey is a kind of departure for CreditDonkey.com, a website that compares credit card deals. Not respondents all were poor. Some had big houses, big mortgages or 401(k)s, but still no more than five Benjamins to rub together right now.

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Jill Michal, president and CEO of the United Way of Greater Philadelphia and Southern New Jersey, reacts to the lack of liquid assets. “It doesn’t shock me, but it does scare me. You know, we often say that the reason so many people fall off the edge in a tough economy is that they’re standing way too close to it, and I think this is a perfect demonstration of that.”

Michal says there’s a lack of training in personal finances. “This is about life skills. It’s not just about arithmetic and reading, but we have to be able to teach the next generation that we have to be able to save for our own futures and we have to be able to save for those risks that could come our way.” Read more >>

Wall Street Employees Lose $2 Billion in Their 401(k)s

Wall Street employees, who dispense financial advice to individuals and companies, aren’t following a basic investing tenet with their own money: diversification. Workers at the five largest Wall Street banks saw the value of company stock in their 401(k) accounts, sometimes the biggest holding of those plans, decline more than $2 billion last year, according to annual filings. Those losses don’t include shares received as bonuses.

The 2001 collapse of Enron Corp. led to warnings that tying retirement funds to an employer’s stock could be more crippling when a company fails, resulting in the loss of both a nest egg as well as a source of income. Traders and bankers felt the pain of last year’s decline in revenue from job cuts and lower bonuses in addition to the shrinking of their 401(k) accounts.

“You’re already relying on that company for your job, your income, benefits and everything else,” said Chris Baker, co- founder of Carmel, Indiana-based Oaktree Financial Advisors Inc., which manages $100 million and primarily advises employees of drugmaker Eli Lilly & Co. “It’s not just another stock. It can magnify the impact on your personal finances if your portfolio takes a beating and your employer isn’t doing well.” Read more >>

Many have little to no savings as retirement looms

After a vicious decade of no growth for the stock market, including two 401(k)-eating bear markets and persistently sky-high unemployment, more Americans are finding themselves in their 50s and 60s with practically no money saved for retirement.

"We were in our 30s, blinked, and now we're our parents' age," says Alan Tipps, a corporate jet pilot who typically earns more than $100,000 a year when he's working. But Tipps, 52, has been laid off three times during the past four years, and says that has forced him to burn through what was in his 401(k) just to "keep the lights on" in his home in Portales, N.M.

Investors of all ages have suffered. But for those close to retirement, it's been especially tough, because they're faced with taking distributions from investment portfolios that in some cases are a fraction of their peak value. Forced early retirements and the near extinction of pensions are making things worse, creating a generation of aging investors in which some have little or no plans for how they're going to pay for retirement. More...

Obama Needs Your 401(k) to Balance His Budget

Image by MJTR (´･ω･) via FlickrThe Obama administration is “taking the first steps to confiscate retirement dollars,” according to Dr. Jerome Corsi who predicts that the end result will be retirees with 401(k) plans holding near-worthless government debt “that will be paid off in a devalued currency worth … pennies on the dollar.”

The move to confiscate those retirement dollars for government purposes was best illustrated by Christina Kirchner, President of Argentina, in 2008 when she announced plans to seize her citizens’ private pension funds. Writers at the Heritage Foundation said that while Kirchner claimed such seizure was necessary to protect her citizens’ investment accounts from the global meltdown, “most observers believe[d] her real motive [was] to use the $30 billion in seized assets to ease the massive debt obligations her leftist spendthrift government [had] run up.” The Wall Street Journal agreed, saying that “taking over the … pension fund assets [would] ease the cash crunch faced by [her] government.”

Corsi said he has a letter from the Treasury Department, Bureau of Public Debt, informing U.S. citizens that the federal government is rolling out a new program called “Treasury Direct” that will allow citizens “to purchase, manage, and redeem…savings bonds” electronically, as well as offering an option to purchase such bonds automatically through payroll savings or a personal checking account. This happened to coincide nicely, according to Corsi, with a bill offered by Senator John Kerry (D-Mass.) to create “Automatic IRAs” that would require all employers and employees to invest in IRAs using that automatic deduction option, “whether they want to do so or not.” More...

401(k) Withdrawals see biggest spike in five years

Image by ZaCky ॐ via FlickrAaron Smith, CNNMoney
Withdrawals from 401(k) retirement saving plans saw their biggest spike in at least five years, Fidelity Investments said on Friday, in the latest sign of hardship amid a dismal economy.

Fidelity reported that 62,000 people made hardship withdrawals from their 401(k) workplace plans during the second quarter. That's up from 45,000 participants during the prior quarter, a 37% increase. That means that 2.2% of Fidelity participants took a hardship withdrawal in the second quarter, compared to 2% in the same period last year.

Fidelity also said that 11% of participants took out loans from their 401(k) over the past 12 months, an increase of 2% from the prior year. The average loan amount was $8,650 at the end of the second quarter.

Fidelity said the top reasons people took loans and withdrawals were to prevent foreclosure or eviction, pay for college, or purchase a home.

"The current economy has forced some workers to borrow from their 401(k) accounts in order to pay for critical living expenses, ultimately jeopardizing their future retirement," said James MacDonald, president of workplace investing for Fidelity Investments. More...

Democrats covet Americans' pensions in stealth

Image by Silvio Sousa Cabral via Flickr

investors.com
Democrats have obliquely admitted they covet Americans' pensions. Last week, congressional Republicans told them to stay away. The shame is that they had to do anything at all.

The first rumblings were heard in the 1990s, when Democrats were said to be coming after our retirement accounts. Back then, the warnings were easy to pass off as hyperbole or a cranky conspiracy theory. Today, they pass as prescient.

In January, Bloomberg reported the "U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and individual retirement accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry."

Alarms went off. In February, former House Speaker New Gingrich and policy analyst Peter Ferrara warned in our "On The Right" column that "Washington is developing plans for your retirement savings."

"The idea," they said, "is for the government to take your retirement savings in return for a promise to pay you some monthly benefit in your retirement years.

"They will tell you that you are 'investing' your money. ... But they will use your money immediately to pay for their unprecedented trillion-dollar budget deficits, leaving nothing to back up their political promises, just as they have raided the Social Security trust funds."

Last week, Connie Hair wrote the following in Human Events about the Annual Report of the White House Task Force on the Middle Class released in February:

"The radical solution most favored by Big Labor is the seizure of private 401(k) plans for government disbursement — which lets them off the hook for their collapsing retirement scheme. And, of course, the Obama administration is eager to accommodate their buddies."

Hair says a "backdoor bull's-eye is on your 401(k) plan and trillions of dollars the government would control through seizure, regulation and federal disbursement of mandatory retirement accounts."

Republican lawmakers are taking the threat seriously. They have expressed to the administration through a letter their "strong opposition to any proposal to eliminate or federalize private-sector defined contribution pension plans." These congressmen know that among their Beltway brethren there exists an eagerness to "essentially dismantle the present private-sector 401(k) system, replacing it instead with a government-run investment plan."

This isn't the first time Democrats have eyed Americans' retirements. In 1993 the Washington Post reported that the Clinton administration considered an "unprecedented effort by the federal government to deal with its budget woes by turning to the more than $4 trillion in cash, stocks and other investments held by pension funds."

They made another pass in 2008, when Teresa Ghilarducci, a professor at the New School of Social Research who was invited by Democrats to testify, brought the idea of government "guaranteed retirement accounts" to the House subcommittee on income security and family support. Such accounts would be administered by the Social Security Administration. "Contributions" would be required and the payout would be a lean 3%.

Ghilarducci didn't suggest that 401(k)s be eliminated, but she didn't have to. She supports removing the favorable tax treatment they receive, which would virtually destroy their reason to exist.

To close the loop, we refer back to the White House's middle-class task force report. It mentions guaranteed retirement accounts as a way to "give workers a simple way to invest a portion of their retirement savings in an account that was free of inflation and market risk and, in some versions under discussion, would guarantee a specified real return above the rate of inflation."

Or, as Gingrich and Ferrara say, the government would treat ostensibly private retirement savings the same negligent way it's treated Social Security. Let's not forget: The courts have ruled that Washington isn't obligated to pay back a dime it's seized from paychecks to fund Social Security.

Don't think Washington would never wreck private pensions in the name of the collective good. It happened in Argentina, and if the same group that's determined to take over the U.S. health care system stays in power long enough, it could happen here.

Govt wants to protect you by making annuities mandatory for 401(k)s

Sara Hansard
Should annuities be mandatory for 401(k)s? Fund companies go on the offensive
Participants in 401(k) plans do not want the government to require them to convert a portion of their 401(k) assets to annuities, according to the results of a survey of about 3,000 households released today by the Investment Company Institute.

The results of the survey aren't surprising, given that the IC I represents mutual fund companies. Some $7.5 trillion is invested in 401(k) plans and individual retirement accounts, about half of which is invested in mutual funds.

The release of the research indicates that the mutual fund industry intends to resist proposals discussed in Washington to reduce tax breaks for 401(k)s and to impose more government controls on the plans, such as mandating investment options.

“Government should not be making those decisions for them,” ICI president and chief executive Paul Schott Stevens said in summarizing the ICI survey of 401(k) participants, which was conducted in November and December. “They really value the independent control that they have over the way they invest and manage those accounts. They don't like mandates. They don't like government micromanagement.”

Mr. Stevens, speaking at a press conference in Washington on Friday, also opposed a plan being considered by the Treasury and Labor departments to require that a portion of 401(k) balances be converted to annuities to guarantee lifetime income for retiring workers. About 96% of the respondents in the ICI survey said retirees should make their own decisions about managing retirement assets and income, while more than 70% disagreed that the government should require retirees to trade a portion of their retirement plan accounts for a contract that promises to pay them income for life.

“They want the maximum amount of choice, so if you want to take an annuity, great,” said Jack Brennan, chairman emeritus of The Vanguard Group Inc., who also spoke at the press conference. “But don't force it, because it's not for everyone.”

J. Mark Iwry, senior adviser to Treasury Secretary Timothy Geithner and deputy assistant secretary for retirement and health policy, co-authored a paper before joining the Obama administration that recommended having a portion of a retiring worker's 401(k) assets automatically invested in an annuity — unless the employee opts out of the program.

The Treasury and Labor departments are likely to issue regulations this year to make it easier for companies to offer “automatic annuities” in 401(k) plans, Mr. Iwry said last September. More...

Half of U.S. workers who left their jobs last year cashed out 401(k)

Ben Rooney
Nearly half of U.S. workers who left their job last year cashed out their 401(k) accounts, according to a study released Wednesday, despite ongoing efforts to dissuade Americans from doing so.

Hewitt Associates, a global human resources consulting firm, said 46% of employees who left their job last year took a cash distribution from their 401(k) plan.

The "alarmingly high" number, which was based on a study of 170,000 401(k) participants, has remained virtually unchanged since 2005, the group said.

Pamela Hess, Hewitt's director of retirement research, said employers and policymakers need to work together to change employee behaviors and reduce 401(k) cash-out rates.

"Otherwise, millions of Americans who rely on defined contribution plans will find themselves unable to achieve a financially secure retirement," Hess said in a statement.

While cashing in a 401(k) can make sense for some workers, most financial advisers say breaking your nest egg before retirement is a bad idea because of the penalties involved and the loss of potential interest.

"Over the course of 20 or 30 years, modest amounts of savings can turn into surprisingly large sums of money," Hess said.

Among the workers who did not cash out their plans, 29% left their savings in their prior employer's 401(k) plan, while 25% rolled over their money into an IRA account or other retirement plan.

The study also showed that younger workers were more likely to take the money and run. Six out of ten workers in their 20s took a cash distribution from their 401(k) last year, compared with just one-third of employees in their 50s.

Hess said the high cash-out rate among young workers is troublesome because those employees are missing out on "decades-worth of tax-deferred growth on their investments."

Not surprisingly, the study found a correlation between 401(k) plan balances and cash-out rates.

Only 8% of workers with 401(k) balances of $100,000 or more cashed out their plans last year. That compares with 85% of workers with a balance of $1,000 or less who did take a cash distribution.