Posts Tagged "retirement plan"

Can you have too much of a good thing?

Posted on Oct 31, 2013

Employees often have too much of their employer’s company stock in their 401(k) or other retirement plan. Employees feel they know their company best, overlooking the risks of having too much of an investment in any one company, including their own. What are some of the risks of loading up on your employer’s stock? * Tremendous bet in a “safe haven.” Overweighting investment holdings in any company minimizes diversification, exposing your portfolio to increased risk. The belief that employer shares are less risky is an illusion. * Double whammy potential. No company is protected from economic downturns. If your employer’s performance weakens, you may lose your job, as well as growth in your retirement portfolio from the company’s market value. * Lock-up periods. Some companies prohibit employees from converting the employer retirement match contributions in company stock into other investments until after a number of years. In this case, use your own contributions to diversify your holdings. * Tendency to forget. As you move closer to retirement, you may forget the riskiness of your employer’s stock to your portfolio. At the same time, contributions of company stock may be growing, based on higher benefit matches – just when portfolio reallocation is becoming more important. Your goal should be to create a well-balanced portfolio that suits your age (investment horizon) and your risk tolerance. Call us for assistance in reviewing your retirement situation. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in the McLean and Tysons Corner, VA. Gilliland & Associates specializes known for our superior knowledge and aggressive interpretation and application of tax laws, we help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+ , LinkedIn , Facebook , and...

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Have you changed your mind about a Roth conversion?

Posted on Sep 26, 2013

It turns out you can go back after all – at least when it comes to last year’s decision to convert your traditional IRA to a Roth. The question is, do you want to? You might, if your circumstances have changed. For example, say the value of the assets in your new Roth account is currently less than when you made the conversion. Changing your mind could save tax dollars. Recharacterizing your Roth conversion lets you go back in time, as if the conversion never happened. You’ll have to act soon, though, because the window for undoing a 2012 Roth conversion closes October 15, 2013. Before that date, you have the opportunity to undo all or part of last year’s conversion. After October 15, you can change your mind once more and put the money back in a Roth. That might be a good choice when you’re recharacterizing because of a reduction in the value of the account. Just remember you’ll have to wait at least 30 days to convert again. Give us a call for information on Roth recharacterization rules. We’ll help you figure out if going back is a good idea. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in the McLean and Tysons Corner, VA. Gilliland & Associates specializes known for our superior knowledge and aggressive interpretation and application of tax laws, we help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+ , LinkedIn , Facebook, and Twitter....

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Eggs, baskets, and investments

Posted on Sep 5, 2013

A well-diversified portfolio spreads out your investment risk. However, you can easily end up with more eggs in one basket than you intended. Here are some investment tips. Look at the big picture. The assets inside and outside your retirement plans should be considered together when you are designing an investment strategy and balancing your portfolio. Selecting the same investments for your personal accounts and your retirement accounts may decrease your diversification and increase your risk. Make sure your mutual funds are diversified. One of the main benefits of owning a mutual fund is diversification. However, your mutual fund might not be as diversified as you think. Consider these areas: * Watch out for top-heavy funds. For example, your fund’s manager favors a few stocks and invests a big chunk of the fund’s assets in those stocks. You shouldn’t necessarily steer clear of concentrated mutual funds, but owning a single concentrated fund may expose you to more investment risk than you bargained for. * Watch out for overlap. It’s possible to own different funds that own the same stocks or that own similar stocks in the same industries. For example, you might own a technology fund that invests 10% of its assets in Microsoft. You might also own a growth fund that invests 10% of its assets in Microsoft. * Watch the turnover. Although funds generally list their largest holdings in their prospectus and their annual report, that information represents a snapshot in time. If you own a fund that engages in active trading (a high turnover ratio), its holdings can change considerably from one day to the next. You should review your fund’s holdings from time to time to ensure you still have the diversity you desire. Many mutual funds periodically update their holdings on their websites. If you have questions about your investments and how they fit into your overall financial picture, give us a...

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Savings bonds are tax-smart for college savings

Posted on Sep 3, 2013

Amid the evolving assortment of education tax breaks is a benefit that has survived with few changes over the years: the education savings bond program. When you qualify for this federal income tax exclusion, the interest you receive from bonds redeemed to pay for certain college expenses may be tax-free. Are bonds you bought years ago eligible? It depends on when you bought them and how they’re titled. Eligible bonds include Series EE or Series I savings bonds you purchased after 1989, as long as you were at least 24 years old when they were issued. The age restriction rules out bonds you put in the names of your kids or grandkids, though the children can be named as beneficiaries. Once you’re sure your bonds qualify for the exclusion, the next step is to find out if you meet the income limitation. In 2013, you can exclude all the interest income you receive from eligible savings bonds when you file a joint return and your modified adjusted gross income is less than $112,050 ($74,700 for singles). A partial exclusion is available until your income reaches $142,050 ($89,700 for singles), at which point the exclusion is no longer available. Finally, the bonds must be redeemed in the same year you pay qualifying educational expenses for yourself, your spouse, or your dependent child. What expenses qualify? The definition includes tuition and fees that you pay out-of-pocket and for which you claim no other deduction or credit. You can also claim the exclusion when you use the bond proceeds to fund a 529 college savings plan or a Coverdell education savings account. Savings bonds offer additional, less restrictive opportunities for education and tax planning. For instance, it may make sense to put the bonds in your child’s name and report the interest on an annual basis. Depending on your child’s income, the interest could remain tax-free. Alternatively, you may choose to defer recognizing interest on bonds issued in your child’s name until the bonds are redeemed. Please call us to discuss these strategies and others that can help ease the burden of college...

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Retirement tax rules

Posted on Aug 13, 2013

Three important birthdays affect your retirement plan: * At age 50, you can make extra “catch-up” contributions to your IRA and 401(k) savings. For 2013, these are $1,000 and $5,500, respectively. * After age 59½, you’re eligible to make penalty-free withdrawals from your IRAs. * Beginning no later than the year after you reach age 70½, you’re required to take minimum distributions from your traditional IRAs each year. Need more details? Contact our...

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