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Is a Rollover Right for You?

If you’ve recently changed jobs — or maybe changed jobs a few times over the years — you may be juggling multiple retirement plan accounts. While it’s certainly acceptable to leave your money in your former employer’s plan (as long as your balance is over $5,000, your old employer can’t cash you out), in many instances it might be a better idea to consolidate your assets.

Consolidation can help make administering and allocating your assets much simpler.1 Having your entire retirement portfolio summarized on one statement makes it easier to track performance and make changes.

But before you initiate a rollover, be sure to compare the investment options and their associated fees in your old plan with those in your new plan.

  • Were you able to properly diversify your assets in your old plan?1 If your investment choices were limited, you probably want to move your old account into your new account.
  • Are the investment fees higher or lower than those in your current plan? If you were paying more at your old plan, it’s a good reason to move your assets to a plan with lower investment fees.
  • Are you satisfied with the investment choices and fees charged in your current plan? If you’re not happy with your current plan — and weren’t crazy about your old plan — you can always roll over your old plan assets into an IRA.

Initiating a roll over isn’t difficult. First, check your current plan rules to confirm that rollovers are permissible (the vast majority of plans accommodate this feature). Then contact the administrator of your old plan (you can find their information on your quarterly statement) to get the ball rolling. Some plan providers have a simple online request process, while others require completion of a paper-based rollover form. Your current plan provider or IRA provider may even furnish a rollover service for you.

It’s also important to know the difference between a rollover and a distribution. A rollover allows you to transfer your money from one qualified retirement account to another without incurring any tax consequences. A “qualified” account can be either your new employer’s plan or a rollover IRA.

A distribution is essentially a withdrawal from your account. If you request a distribution, the account administrator is required by law to withhold 20% of your account balance to pay federal taxes. State taxes, if applicable, are also due. If you are under age 59 1/2, you will probably be hit with an additional 10% federal early withdrawal penalty.
If you have specific questions about your retirement plan distribution options, contact your employer’s benefits coordinator or a qualified financial consultant.

1Asset allocation and diversification do not ensure a profit or protect against a loss in a declining market.

© 2012 S&P Capital IQ Financial Communications. All rights reserved.

Older Americans Targets of Financial Fraud

America’s senior generation grew up in a different world. Earlier decades of the twentieth century were governed by courtesy, good manners, loving one’s neighbor as oneself, and trust in one’s fellow man. Today, these exemplary standards of conduct are getting seniors into trouble. Con artists, offering a wide variety of too-good-to-be-true investment “deals,” are banking on the willingness of older Americans to seal their shady scams with the proverbial handshake. Unfortunately, many seniors today are finding themselves in financial tight spots, making them more inclined to jump at the chance to “double” their money.  With today’s multitude of contact options, ranging from the phone to the Internet, scammers have virtually an unlimited number of “ins” when targeting victims. Common scams include e-mailed chain letters that are not only illegal, but also promise a pyramid of payoffs that always fall apart once the victim has bought into the system. Another common scam is one in which a Nigerian prince, doctor, or chief e-mails the victim and claims to need assistance transferring his riches to an American bank account. The victim is promised as much as 30% of the transferred millions and is asked to pay the perpetrator a fee to prove his or her honesty.

Fake charities are another common scam method. Kind-hearted donors are swindled into becoming victims by paying ridiculous sums to a cause that only benefits a con. Phone calls and paper mail are often used to offer individuals the chance to “win” the lottery or claim a sweepstakes prize. In the end, these supposed winnings only end up causing financial loss and heartache. Topping off all of these scams are fraudulent investment opportunities wherein the victim is promised fantastic returns on capital from “lucrative” oil and gas leases, penny stocks, rare coins and metals, etc. The list is endless.

Too often, these scams go unreported because of the shame victims experience once they realize they have been had. And that’s just what scammers are banking on. The FINRA Investor Education Foundation teamed up with WISE Senior Services and the AARP to study this growing crime in a report entitled, “Off the Hook Again: Understanding Why the Elderly Are Victimized by Economic Fraud Crimes.” Several discoveries were made, including the typical psychological tactics cons use. These tactics increase cons’success rates and decrease the chances of them being reported. Victims may be led to believe that their only option is the one being presented in the scam, or the scammer may befriend the victim knowing full well that people are less inclined to ask friends hard-hitting questions. Another ploy is a request for help from the scammer tapping into the victim’s pity. Or the scammer may claim famous investors, like Donald Trump, are also buying into the property, or the product is in such high demand and so rare that the victim is lucky to have even heard about it in the first place.

Con artists may also use their assumed authority roles to coerce victims into letting the con make the decision for them; offer no-risk, guaranteed results; intimidate the victim by playing on his or her fears; or procure more and more payments by telling victims they are committed to the investment and must continue to invest in order to not lose the sums they have already paid.

On paper, these tactics might sound entirely see-through. But in person, they are too often extremely effective. The FINRA study also revealed that fraud techniques are often tailored to the psychology of the individual. Financial education, alone, will not be enough to put an end to senior fraud, since one of the study’s major findings indicated that senior fraud victims are more financially educated than non-victims and more willing to listen to sales pitches. In addition, victims are more likely to have experienced negative life events, such as job loss, divorce, or the death of a spouse.

Anyone approached with a “must-act-now” deal should take the time to walk away and do some research. Be skeptical, question why the offer is being made to you at that time, and contact the Better Business Bureau to learn more. Don’t waste time listening to cold-call sales pitches, and make sure to get second opinions from friends and family before taking action on any hot deal. In the end, follow the golden rule of thumb. If it sounds too good to be true, it probably is.

Copyright © 2013 Liberty Publishing, Inc. All Rights Reserved.

The Basics of Long-Term Care Insurance

Thinking about the need and the costs of long-term care is enough to make anyone uncomfortable. But while it’s a difficult subject to talk about, it’s also a topic that often generates lots of questions and misunderstanding.

Consider this: The average cost of nursing home care in the United States now exceeds $87,000 per year, with wide-ranging variations from state to state.*

Who Pays?
For the most part, those who need long-term care are left to foot the bill on their own. Neither Medicare, nor Medicare supplemental coverage (“Medigap”), nor standard health insurance policies cover long-term care unless you are impoverished. That’s why long-term care insurance is so important. Since premium costs are based on your age and health at the time of purchase, the younger and healthier you are when you purchase a policy, the lower the premium you’re apt to pay during the life of the plan.

As you evaluate long-term care insurance, keep the following variables in mind:

  • Coverage Parameters. Policies will differ in the types of services they support. Be sure to choose a policy that best meets your particular needs.
  • Benefits Payout. How much does the policy pay per day for care in a particular setting? How does the policy pay out? (e.g., a fixed daily amount, as reimbursement for the cost of care up to a daily maximum?) Does the policy have a maximum lifetime limit?
  • Eligibility. Does the policy use certain “triggers” to determine benefits eligibility, such as the formal diagnosis of an illness or disability? What is the maximum issue age for the policy?
  • Women May Need More. Longer life spans for women may signal the need for additional coverage.

Finally, keep in mind that most long-term care policies sold today are federally tax qualified, which means premiums paid and out-of-pocket expenses are deductible. Also, long-term care benefits received are not taxed as income up to certain limits.

*Source: MetLife Market Survey of Nursing Home and Assisted Living Costs, 2011.

© 2012 S&P Capital IQ Financial Communications. All rights reserved.

Using an FSA to Help Pay for Medical Expenses

A flexible spending account (FSA), offered as an elective benefit by many employers, permits workers to contribute, through payroll deduction, to accounts that are designated for specific qualified medical or dental expenses not covered under your health insurance plan. All amounts contributed are pretax and funds are not taxed when spent on qualified health care costs.

FSAs are employer-based; self-employed individuals are not eligible. To participate, you usually must enroll through your employer each year, even if you do not want your deduction amounts to change from year to year. Employers generally offer enrollment during open enrollment periods when you enroll for the entire plan year. If you want to change or revoke your election before the end of the plan year, you typically can do so only if your plan permits a change due to circumstances in your employment or family status.

Before contributing to an FSA, you must first designate how much you want to contribute for the year, based on an estimate of your expected out-of-pocket costs. Your employer will then deduct amounts from your paycheck in accordance with your annual election. Although there is no IRS limit on the amount of money you or your employer can contribute to the accounts, each plan prescribes either a maximum dollar amount or a maximum percentage of your salary that can be contributed.

Some key considerations:

  • You do not pay federal income tax or employment taxes on the salary you contribute or on any amounts your employer may contribute to the FSA. However, amounts contributed that are not spent by the end of the plan year are forfeited. For this reason, it is important not to overestimate the qualifying expenses you expect to incur during the year.
  • Eligible expenses include most of the out-of-pocket costs not fully covered by your health plan, including copayments, deductibles, vision care, prescriptions, dental care, tests, and medical supplies, among others. Over-the-counter medications are no longer eligible, except for insulin. See IRS Publication 502 at for a more detailed list of qualifying expenses.
  • In order to use funds set aside in your FSA, you must either submit claims for reimbursement or use the debit card, credit card, or stored value card provided by the vendor overseeing the FSA. For more information on reimbursement procedures or how to file claims, talk to your employee benefits administrator.

Not for Everybody

Whether an FSA will suit your needs depends largely on the out-of-pocket costs you expect to incur and how accurately you can predict them. If you expect to incur no more than a few hundred dollars over the course of the year, it may not be worth the trouble of setting up an FSA. On the other hand, for those with predictable medical costs or ongoing treatments that are not covered by an employer-sponsored medical plan, an FSA can be a good way to set aside funds while lowering your tax bill. Ultimately, the decision boils down to your particular circumstances and needs.
© 2011 McGraw-Hill Financial Communications. All rights reserved.

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