Personal Banking E-Newsletter - January 2014
4 Retirement Mistakes 30-Somethings Make, and How They Can Avoid Them in 2014
Any wise financial planner knows to get a second opinion on her own retirement plan. So Nancy Anderson wasn’t surprised when a 30-year-old colleague asked her to be her second look, and she gave her opinion freely.
As you’d expect from a Certified Financial Planner™ professional, her friend had her basics down. She had an emergency fund with six months of her net income, no credit card debt, and was on track to replace her income in retirement. In fact, at the rate she is going, she will replace over 100% of her income in retirement. So, why aren’t more 30-year-olds as prepared as she is?
But she is in the industry, and is not making a lot of false assumptions that other younger people make. Decisions based on the wrong information can lead to costly mistakes, and the results could be as serious as having to delay retirement or living on a reduced income later.
Here are four false assumptions that a lot of people in their 30s make, and ways to help them to stay on the right track for retirement.
1. They assume it will be easier to save in the future. The truth is that your 30s can be an expensive decade. Many people are establishing a household, having children, and buying a home, along with all the furnishings that go in it. So it may actually be more difficult to save in your 30s than in your 20s. Anderson’s colleague started saving the absolute maximum she could in her late 20s, knowing that she wanted a house and family someday. She figured, correctly, that even though her income might grow exponentially in her 30s, her expenses might surpass her income.
Tip for 30-somethings: Seriously consider maximizing retirement savings earlier in your career, knowing that you may have gaps in savings in the future.
2. They don’t verify that they are on track for their retirement goals. According to recent research from BlackRock BLK, more than 4 in 10 people surveyed weren’t saving because they hadn’t run retirement calculations and didn’t know how much they needed to save. But almost 8 in 10 said they would start saving or increase their contributions if they knew how much they needed to save. Since the new model of retirement planning consists of employees managing their own retirement with a defined contribution plan, it’s important to be proactive.
Tip for 30-somethings: At a minimum, run a retirement calculation. Meeting with a Certified Financial Planner ™ professional can be one way to get started on your financial plan.
3. They assume the 401(k) is the “be all, end all.” There are major benefits to investing in an employer’s retirement plan. First of all, you can never underestimate the value of automatically deducting funds from a checking account. When funds are invested before ever hitting your bank account, you simply can’t spend that money. And company-matching contributions are obviously a significant benefit. Employees who receive a company match should invest at least up to the matching contributions in their 401(k).
But don’t ignore the Roth IRA. The tax-free retirement benefit of the Roth is well known, but many folks may not realize how much flexibility the Roth has. The principal amount can be withdrawn for any reason and at any time, without a tax penalty. This serves as a back-up emergency fund, but also gives an investor flexibility to reinvest the principal into something else, such as a down payment on a primary residence or on an investment property. For someone in his or her 30s, a Roth IRA can be the best of both worlds; investing for retirement and having some flexibility to withdraw the principal without hefty taxes. (A Roth investment is post-tax; meanwhile, a 401(k) carries a 10% early withdrawal penalty.)
Tip for 30-somethings: It can be wise to invest in the 401(k) up to the amount matched by your company. Over and above the company match, consider investing in a Roth IRA.
4. They assume all funds are created equal. Albert Einstein is rumored to have said that compound interest is the most powerful force in the universe. Compounding fees, on the other hand, are another story. When you pay high annual fees on the funds in your retirement accounts, the compounding works against you. For example, an investor with a $50,000 balance who pays 1.5% in annual investment fees on an account that earns 7% annually would pay about $138,000 in total expenses over 30 years, including opportunity costs. Everything else being equal, that same investment with fees at 0.5% would only incur about $53,000 in total expenses and opportunity costs. Something as seemingly insignificant as a 1% difference in annual fees can add up to an $85,000 difference over time.
Tip for 30-somethings: Think about investing in low-fee mutual funds or index funds in your 401(k). See your fund’s prospectus for full disclosure on fees.
Albert Einstein also said that anyone who has never made a mistake has never tried anything new. But frankly, in terms of retirement planning, it’s better to start off strong by not making mistakes in the first place. If you really want to try something new, there’s always hang gliding.
Protect Yourself From Mortgage Scams
Let’s say you are a homeowner in financial distress and at risk of losing your home. You may also have heard that the government is requiring mortgage servicers to mail offers of assistance to borrowers who are behind in their payments. Then, an official-looking letter arrives “guaranteeing” to save your home by accessing new kinds of “federal” loans.
Maybe you would like to lower your housing costs and you receive an e-mail, text message, or phone call promising a very low interest rate. All you have to do to get started is provide some personal financial information.
Do these deals sound good, or are they too good to be true?
FDIC Consumer News wants to remind you to watch out for scammers who falsely claim to be lenders, loan servicers, financial counselors, mortgage consultants, loan brokers, or representatives of government agencies who can help with your mortgage. “These criminals attempt to enrich themselves by preying on vulnerable, desperate homeowners,” said Ron Jauregui, an FDIC Community Affairs Specialist. “If you suspect that you have been targeted by a mortgage scammer, you can protect yourself and your community by reporting it to the appropriate authorities.”
Here are common warning signs of fraudulent offers of mortgage assistance, plus key points to remember:
You must pay a fee to be “guaranteed” a foreclosure rescue or loan modification.
No one can guarantee in advance that a mortgage assistance application will be approved. Also, collecting upfront fees, supposedly to cover processing or administrative costs, is questionable and, depending on the circumstances, may be illegal. If you pay the money, chances are you will never see it again and you will not get the promised services.
The company claims that it is approved by or affiliated with the government.
“Mortgage crooks like to fool people by presenting fake letters and e-mails that look official or other offers that seem to present fast and easy solutions,” said Luke W. Reynolds, Chief of the FDIC’s Outreach and Program Development Section. “They also may imply that they have been approved by the federal government. When in doubt about an offer, contact your loan servicer — the company that collects the monthly payment for your mortgage, property taxes and insurance — to find out if you may qualify for any programs to prevent foreclosure or modify your loan without having to pay a fee.”
You receive an unsolicited request to divulge personal financial information.
Never provide personal information in response to an unsolicited text message, e-mail, call, or letter asking you for personal information. Many people think that as long as they don’t share their Social Security number they won’t be victimized. But other information — like your date of birth, loan balance, loan number, or other account numbers — may be enough for a scammer to commit fraud or theft.
You are pressured to sign over the title to your home or approve documents that you haven’t had time to read.
Predators will say you must act fast to save your home. That may include quickly signing documents, including the title or deed to your home, to be eligible for their mortgage assistance. But if you comply, you may be giving them ownership of your home. You never need to give up ownership of your home to obtain an authentic mortgage modification.
“Scammers rely on distressed homeowners to trust people offering solutions that sound easy or effective,” said Paul Horwitz, an FDIC Community Affairs Specialist. “If you’re having trouble paying your mortgage, don’t communicate with third parties that contact you. Instead, talk to your lender, perhaps after first consulting a trained professional at a reputable counseling agency that will provide free or low-cost help.”
For a referral to a nearby housing counseling agency approved by the U.S. Department of Housing and Urban Development (HUD), a good place to start is the Consumer Financial Protection Bureau (call 1-855-411-2372 or go to www.consumerfinance.gov/find-a-housing-counselor).
You are told to stop paying your mortgage lender and start paying your new “helpers.”
The con artist may claim that, to qualify for a mortgage modification, you need to stop paying your lender. Withholding a payment to your lender might sound appealing, but doing so can make matters worse, including further damage to your credit. Also, keep in mind that any money you give to a fraudulent third party will likely disappear. Discuss issues such as these with a HUD-approved housing counselor when evaluating the options for a legitimate loan modification.
Be wary of unsolicited offers by third parties, especially if they relate to your home. “The best defense for fighting mortgage scams is to know the signs of fraud and err on the side of caution,” advised April Richardson, a Counsel in the FDIC’s Financial Crimes Unit.
For more information about avoiding and reporting a variety of mortgage scams, not just those involving loan modifications, start at www.stopfraud.gov/protect-mortgage.html, which features tips from government agencies and NeighborWorks® America.
You’ve Been Turned Down for a Checking or Savings Account. Now What?
You go to a financial institution to open a checking or savings account and a representative says you aren’t eligible. Why? Because a report shows that an institution previously closed your checking account, perhaps because of unpaid overdrafts. Can the institution deny you a new account for that reason? What are your options for getting a new account? And, what if the negative information being reported about you is wrong?
By law, certain consumer reporting companies can collect information from banks and credit unions on aspects relating to a consumer’s checking account, such as the reasons an account was closed. These companies are similar to credit bureaus that track how consumers pay their bills and other debts.
Under the Fair Credit Reporting Act (FCRA), a checking account closed by an institution because of mismanagement, and most other negative information, can continue to appear in these reports for up to seven years. When a consumer wants to open a new deposit account, the institution may access such a report.
And just as a negative credit report can hurt your ability to borrow from a financial institution, a checking account history that shows a closed account can hurt your ability to open a new account. (An institution you are seeking to do business with also may access your credit score, which is based on your credit history, in deciding whether to open a new checking or savings account.)
“While consumers have generally become more aware of the importance of credit scores and credit reports, relatively few have thought about the services that report on their bank account activity,” noted Keith Ernst, an Associate Director of the FDIC’s Division of Depositor and Consumer Protection in charge of consumer research. “So, when people are denied the opportunity to open a new deposit account, often they are surprised to learn that negative information about a past checking account can be shared.”
Here are suggestions if you are unable to open a new account.
Ask the Institution to Reconsider its Denial of a New Account
“Every bank decides for itself how to evaluate the information in a consumer’s report,” added Ernst. “While banks might use information from a reporting service to make a decision, the service itself does not approve or reject account applications, so you might be successful in getting the institution to reconsider its decision and allow you to open an account.”
Review your Report and Dispute Incorrect Information
If the bank used a report from a reporting service in deciding not to open a deposit account, it must tell you the name and contact information for the company. “If some information is wrong, getting it corrected may enable you to open a new account when you otherwise couldn’t,” explained Tracie Greenway Morris, an Acting Community Affairs Specialist at the FDIC.
Most likely, the report would be from one of the two major companies that track this type of checking account-related information: ChexSystems or Early Warning Services.
Under the FCRA, you are entitled to one free copy of your report every 12 months and any time that a report is used against you, such as an “adverse action” when your application is denied. You have a right to dispute any information in the report that is incomplete or inaccurate. Negative information in a report may include checks written without sufficient funds in the bank account, accounts closed with negative balances (fees owed to a bank), and transactions considered potentially fraudulent. Merchants may also report to these services any “bad” checks that you write to them; those that are returned unpaid by your bank.
The reporting services must also provide guidance on how to dispute the information. Generally, you should inform the reporting agencies, in writing, about information that is inaccurate, and provide copies of any available supporting documentation. “While supplying evidence can be helpful, it is not required. You can still dispute negative information in your report without it,” advised Ernst.
Be aware that when you contact a consumer reporting agency for a free copy of your report, the company may try to sell you other products, such as a numeric “score” based on the information in your report. Remember that you are not required to purchase any product for a free copy of your report.
Look Into “Second Chance” Accounts
A closed account in your history doesn’t mean that you won’t be able to get another checking or savings account. “An FDIC survey indicates that one in four banks offers accounts that give an option to some consumers unable to open a regular checking account,” said Luke W. Reynolds, Chief of the FDIC’s Outreach and Program Development Section.
Second chance accounts generally have higher fees and more restrictions than traditional accounts, but are still less expensive and more convenient than the alternatives of paying check-cashing and money-order fees.
Possible restrictions include: a lower dollar limit on daily withdrawals, deposits of only “official” checks such as cashier’s checks or money orders, requirements to open and manage a savings account for several months before you can have a checking account, and only allowing debit card transactions, which can limit withdrawals to the balance in your account (i.e., overdrafts are not allowed).
Some institutions also may require you to attend free financial-management training. Even if they do not, you could consider using the online version of the FDIC’s “Money Smart” financial education curriculum to learn about selecting and managing a checking account effectively.
Institutions may also be less likely to allow you to open a checking account within a year after your account was closed due to overdrafts, suspected fraud, or certain other issues. But if you owed a balance at your previous institution and have paid it in full, the new institution could be more willing to open a new account for you sooner.
Be on guard against fraud artists and unscrupulous companies that offer to “repair” or “erase” your checking account (or credit) history, particularly if they charge a fee and “guarantee” a specific result. “If the history of a closed account is accurate, the reporting services are under no obligation to remove that information,” cautioned Reynolds. “The account closing will remain in their files for up to seven years unless the bank or credit union that supplied that information asks that it be removed or there is a reason to do so under the law.”
In general, think twice before paying for something that you can do at little or no cost on your own or with the help of a reputable counselor.
Once you obtain a new account, arrange to have money automatically transferred from savings to checking to cover overdrafts. And, develop a strategy based on what works best for you, perhaps one using Smartphone technology, to know your account balance before you use your debit card or write a check.
“These days information is being collected, legally, on many aspects of our lives, and bank transactions are no exception,” Morris said. “Missteps or misinformation can jeopardize your ability to retain or acquire a bank account. So, bank carefully and know your options if a problem should arise.”
8 Steps to Creating a Personal Budget
Just like dieting, budgeting is often associated with deprivation and cutting back. However, creating and maintaining a budget doesn't have to be a painful process. "If you start thinking about [budgeting] as a way to concisely create a better environment for yourself using your resources, it will get that much easier," says Leslie Beck, a certified financial planner at Compass Wealth Management in Maplewood, N.J.
Aside from maintaining a positive mindset, here are eight guidelines to help you successfully build and manage a budget.
1. Keep it Simple
While a budget can be a great tool for managing finances, it can quickly become overwhelming if it's overly detailed or idealistic. "There are things that you will likely sacrifice when budgeting, but it's very important to be realistic and understand your own habits," says Kristin Wong, a contributor to the financial blog Get Rich Slowly. "If I have a problem area within my budget, like eating out or shopping, instead of trying to focus on everything and being too hard on myself, I pick that one area. The hardest part of a budget is sticking to it, so the easier you can make it, the better."
2. Set a Time Period
Establish your budget for a time period that's long enough for you to see results. Stephen Lovell, a certified financial planner with Lovell Wealth Legacy in Walnut Creek, CA suggests budgeting for one year at a time. Budgeting month-to-month can accommodate everyday living expenses and bills, but a yearly budget can help you also plan for larger and more infrequent expenses, like income taxes or holiday presents. "You don't want things to slip away," Lovell says. "It's better to be approximately right than precisely wrong."
3. Build an Emergency Fund into your Budget
An emergency fund should be an essential component of every budget. It can help you finance unexpected expenses like medical bills so you don't have to pull income from other areas. "For example, allocate just as much to your savings as your emergency fund," Wong says. "Once you have that, it's a lot easier to maintain the budget if a big expense springs up."
4. Don't Worry about Finding the Perfect Record Keeping Method
Just as there are many ways to create a budget, there are also many ways to keep track of it. Whether it's through an online budgeting program like Mint or Quicken, or on paper, stick to whatever works best for you. "Make sure you approach it in a manner that you are comfortable with," Beck says.
5. Make Sure Everyone Involved is on the Same Page
Whether your budget affects your spouse, partner, or roommate, communication about the established financial plan is crucial. "If you have two people who have really disjointed approaches to money, that's really going to be a problem in the long run," Lovell says.
"You need to be aware of the other person's attitudes about money and realize that your own aren't universal. Everyone needs to be on the same page and after the same goals for the budget to be successful."
Being open with those around you about your budget can also help you create a support system while you work to get your finances on track. "Talking to friends really helped me," Wong says. "For example, even talking about it helped me when I was shopping with my mom. If I hadn't told her that I was on a strict budget, I probably would have spent more. She was there to hold me accountable."
6. Make Adjustments Along the Way
If over time your budget results don't match your expectations or financial needs, you may assume the plan is wrong. However, it's likely that you simply uncovered unknown problem areas. "The things that pop up will actually let you know what the real norm is, so pay attention to what it is telling you," Lovell says. "If you think, for instance, that you spend 12 percent of the family income on discretionary items, and you find after tracking for two months it's more like 28 percent, then something is off there."
7. Try Adding on Instead of Only Cutting Back
Following a budget typically means making cuts in less essential areas or eliminating some costs completely. However, if reducing the amount of money going out isn't doing enough, look for ways to increase the money coming in. "Take a part-time job or sell something that is just sitting in your closet taking up space," Beck says. "People tend to think about just the one side of the equation when working to keep their budget on track, but there's another side that you can influence too, whether it's for a temporary or permanent basis."
8. Don't Set Yourself up for Failure
Making sacrifices is part of managing expenses, but if you set restrictions too high and too soon, you will be less likely to follow your budget over the long term. "If you enjoy a latte every day, don't go from 0 to 60 in terms of cutting back. Do it gradually," Wong says. "Nobody wants to stick to a budget that cuts out everything fun in their life. If you keep failing at your budget, you are going to be discouraged and you're not going to want to do it anymore."
Getting Social with Your Bank
Some tips for using financial institutions’ social networking sites
Many people connect with friends, meet new people, and interact with businesses on social media sites such as Facebook, Google+, and Twitter. Banks are also using social media to advertise their products and services, obtain feedback from consumers, and, in some cases, provide a gateway for customers to access their accounts. Financial institutions also often use social media to share information with their local communities and to solicit feedback from them.
Should you consider using social media to connect with your bank? And, if you do, what should you keep in mind?
Advertising Products and Services
“There can be benefits to using social media to interact with banks,” said Elizabeth Khalil, a Senior Policy Analyst in the FDIC’s Division of Depositor and Consumer Protection. “You might find out about new bank products or services more quickly, or be eligible to obtain special offers. You might also obtain faster responses to your questions or complaints.”
In December of 2013, federal regulators including the FDIC issued guidance reminding banks that the laws that apply to institutions’ activities in general continue to apply when they use social media. For example, when a bank uses Facebook to advertise loans, the bank must provide accurate disclosures just as it would in a newspaper advertisement.
Communicating With Your Bank
If you want to communicate with your bank on Twitter or Facebook, keep in mind that your posts could become public, even though you can protect your tweets and Facebook posts to some extent through your account settings. You should not include any personal, confidential, or account information in your posts. “Also, reputable social media sites will not ask you for your Social Security, credit card or debit card numbers, or your bank account passwords,” said FDIC Counsel Richard Schwartz.
Before posting information such as photos, comments, and links, you should look for a link that says “privacy” or “policies” to find out what can be shared by the bank or the social media site with other parties, including companies that want to send you marketing e-mails. Read what the policies say about whether, and how, personal information will be kept secure. Also, find out what options you have to limit the sharing of your information.
“Look carefully to see whose site you are on and which policies apply,” Khalil said. “You might have started out on the bank’s page, but clicked on a link that took you to another company’s page, where that company’s policies will apply.”
It is also best to avoid posting personal information that a fraudster could use to impersonate you. Information that may seem innocuous to share could be helpful to an identity thief. “Be cautious, even with details such as the name of your pet or a school you attended,” advised Schwartz. “That type of information is often requested by banks for their security ‘challenge questions’ that are used to control access to accounts. A fraudster could use that information to log in to your account.”
Khalil said that some social media sites require or encourage people to provide their birth date. “You should evaluate how comfortable you are providing this and similar information and who, if anyone, would be able to see it,” she suggested. Also, she added, “Social media is inherently conversational and somewhat informal. That can lull people into a false sense of security, making them less careful with their personal information than they otherwise might be.”
Banking Through Social Media
Some banks use their social media sites as a portal for consumers to bank online. Anyone interested in doing so should first determine whether the page is really the bank’s page or if it appears to be fraudulent.
Make sure you are on a secure page — and on the bank’s legitimate site — before you enter your username, account number, or password. Some fraudsters have become sophisticated at mimicking official websites.
Look for clues that might indicate that the site is fraudulent, such as misspellings or a low number of “likes” on a page. If only a few consumers are subscribed to a social media page that supposedly belongs to a very large bank, it could be an indication that the page you are on is not the bank’s official page.
You should also look for a padlock symbol on your Web browser. If you have any doubts, go directly to your bank’s Web site instead of linking to it from a social media site.
8 Indispensable Money-Saving Apps for College Students
Money is always tight when you're in school, but with the right apps, you can turn your Smartphone or tablet into a savings magnet. From free texting to cheap textbooks, here are eight must-have apps for college kids on a budget.
Chegg (free, though textbooks are not; iOS, Android): The Chegg app can save you money and lighten your load -- literally. It allows you to rent or buy new and used textbooks, and many books are available for sale in digital form as well. You can also recoup some of your book budget by using the app to easily sell back books you no longer need.
Sample savings: $21.96 on a used copy of Campbell's "Biology," 9th Edition, from Chegg instead of Amazon.
BillMinder ($1.99; iOS, Android): College is often the first time many of us become responsible for paying our own bills. But with a busy schedule and a host of distractions, it can be hard to stay on top of those new responsibilities, and that can quickly become an expensive problem. Not only will missing a due date trigger late fees, it can also damage your fledgling credit score, which could cost you next time you need a loan, apply for a credit card, or when a future employer or landlord does a background check. Track your bills easily with the BillMinder app.
Sample savings: $5 a month (or 1.5 percent of your balance, whichever is greater) if your cell phone bill isn't paid on time.
WhatsApp (free for the first year, $0.99 per year after that; iOS, Android, Windows phone, and more): Want to cut down on that Smartphone bill in the first place? Get free texting from WhatsApp. Using your data plan or WiFi, with WhatsApp you can send free SMS messages to almost anyone else who has the app installed; even those who live overseas.
Sample savings: $10 per month (compared to an average international texting plan).
Onavo Extend (free; iOS, Android): Speaking of data, couldn't we all use more of it? With unlimited data plans getting more expensive -- when you can get them at all -- this app could be a lifesaver. Onavo Extend compresses your mobile data, and claims to boost your data allowance by as much as 500 percent. In other words, it gives you more than five times as much data as you're paying for. That sound too good to be true, but even if its compression is only a fraction as good as advertised, it's worth it to try it. The app also provides a report function that will show you exactly how your data is being used, which can help you better manage what you've got.
Sample savings: $10 per month (the average cost to move up to the next data plan).
DrinkOwl (free; iOS, Android): Never overpay for drinks again with the DrinkOwl app, which highlights local drink specials and happy hours by city and college campus, as well as by type. Search for upcoming deals by day to plan out your weekend.
Sample savings: Two-For-One drinks at your favorite local hangout.
Venmo (free; iOS, Android): Venmo makes it a snap to share payments (like rent or utilities), pay someone back for a debt, or collect payments from those who owe you. Just hook up the app to your bank account or debit card (it uses bank-level security), then let your friends know who owes what.
Sample savings: Getting back the $5 your roommate borrowed last week.
Apps Gone Free (free; iOS): All these apps can save you money, but others, like games and other fun add-ons, can add up fast. Searching for free apps can be time-consuming, and many are duds. Find highly-rated, expert-picked free apps (including ones that are temporarily free) with the Apps Gone Free app.
Sample savings: $0.99 on the next popular game.
ATM Hunter (free; iOS, Android, Windows phone): We all know how fast ATM fees can add up. With the ATM Hunter app (from MasterCard), you can find where ATMs are located based on your current location. You can filter to find only your own bank's ATM so you can avoid an extra surcharge from using a foreign ATM.
Sample savings: $3 per ATM withdrawal.
*Bonus App (free; iOs and Android): With the Coulee Bank Mobile Banking App, you can find our ATMS and nearest branch, pay bills, transfer funds between accounts, check account balances, and deposit checks right from your phone or tablet. Find it in your App Store today!
Add it all up and these apps could easily save you more than $50 in just the first month -- perhaps a lot more if it's textbook-buying time. Now that's some smart savings.
Start Your New Year with a Financial Review
As you plan for the year ahead, is an investment checkup leading your list of resolutions? Taking time for a detailed financial review -- including retirement planning, college savings, and your tax situation -- may help you progress toward your long-term goals. Consider the following items as part of your checkup:
Capitalize on Tax Reductions
If you plan to adjust your investment allocations, make sure you understand the tax consequences of your actions. Taxes on both long-term capital gains -- profits earned on investments held for more than one year -- and equity dividends are generally lower than rates on ordinary income (15% for many taxpayers, 20% for those in the highest tax bracket). Because of these tax reductions, you may now have greater incentive to hold your mutual funds for the long term and include equity funds that pay dividends within your portfolio.
School Yourself in Education Incentives
Consider opening a 529 college savings plan account if education is part of your family's future. Contributions to a 529 plan compound tax-deferred and withdrawals are tax free1 when the money is used for qualified higher-education expenses.
Remember Three Important Letters -- IRA
You can boost your retirement planning efforts by making the maximum annual contribution of up to $5,500 to either a traditional or Roth IRA. Investors aged 50 and older get an added bonus: A $1,000 "catch up" contribution that can be made in addition to the annual maximum, for a total investment of $6,500. Your money compounds tax-deferred until you begin withdrawals. At that point, earnings withdrawn from a traditional IRA may be taxable, while those withdrawn from a Roth IRA may be tax-free, subject to certain restrictions.2
There are other factors to consider -- such as your investment mix -- as you evaluate your progress toward your long-term goals. But this list can help you get started as you chart your financial course for the year ahead.
1Withdrawals used for expenses other than qualified education expenses may be subject to a 10% additional tax on earnings, as well as federal and state income taxes. Prior to investing in a 529 plan, investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
2Withdrawals before age 59½ may be subject to ordinary income taxes and 10% additional tax.
Because of the possibility of human or mechanical error by S&P Capital IQ Financial Communications or its sources, neither S&P Capital IQ Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall S&P Capital IQ Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
© 2013 S&P Capital IQ Financial Communications. All rights reserved.
Security Tip of the Month
When selecting your own personal identification number (PIN) for your debit card, never use information that could be readily found in your wallet or purse, such as your house number or date of birth.