Six Ways To Keep Retirement On Track

Whatever your age or stage in life, now is a good time to evaluate your Individual Retirement Account and other retirement assets in order to maximize potential results.

Finalize 2009 IRA contributions
If you act before April 15, you can still make contributions to your IRA and may be able to deduct it on your 2009 tax return (if you are eligible). Contributing to an individual IRA may give the benefit of a tax deduction in the short-term and increased retirement savings for the long-term. If possible, make the maximum allowable contribution to your IRA each year.

Consider Roth IRA options effective in 2010
For the first time, beginning in January 2010, taxpayers with adjusted gross incomes of more than $100,000 will be allowed to convert a traditional IRA to a Roth IRA1. Roth IRAs allow non-deductible contributions to grow and be distributed tax free if certain requirements are met. An advantage to converting in 2010 is that you have the choice of either reporting the taxable income in 2010 or delaying the tax payment and reporting the taxable income equally in 2011 and 2012. Converting to a Roth IRA may be advantageous to you, but there are many factors to consider. As with all tax-related decisions, consult with your tax adviser to see if a Roth IRA makes sense for you.

Roll over 401(k) dollars
If you left a job in 2009 or have 401(k) dollars in a past-employer’s plan, consider incorporating the funds into your overall financial plan and combining it with your other investments. A direct rollover into an IRA may help you avoid the mandatory 20 percent withholding, in addition to other taxes and penalties, and keep your retirement planning on track. If you cash out of a 401(k) retirement plan before age 59 1/2, you will pay a 10 percent penalty and income tax on those dollars in addition to reducing the balance in your retirement fund.

Adjust monthly retirement savings
Review your retirement goals and confirm that your monthly 401(k) or IRA contributions are on track to reach those goals. Employer-sponsored 401(k) accounts, especially those with matching funds, are a great way to save consistently and grow your assets. Update your calculations on what you need for retirement and increase your retirement savings where possible. The annual review with your financial representative is a good time to discuss how best to invest the funds for long-term gain.

Confirm beneficiary designations
As circumstances change with time, it is important to update the beneficiary designations of your 401(k), IRA and other investments. Unfortunately, most IRA holders give this issue little thought after initially opening their accounts. Many life events could prompt a change in beneficiaries, such as a death, birth of a child, a marriage or a divorce.

Plan mandatory IRA distributions
People age 70 1/2 or older who own traditional IRAs are required by law to take minimum withdrawals from these accounts and pay resulting income taxes. (Although the government temporarily suspended required minimum distributions in 2009, unless future legislation is passed, they will resume in 2010.) These rules also apply to simplified employee pension (SEP) accounts and Simple IRAs, while Roth IRA owners are exempt from the minimum withdrawal rules. Create a gameplan for these financial distributions, in consultation with your tax adviser and financial representative, and be aware of the income and tax implications for the year ahead.

CLICK HERE TO VIEW THE MAGAZINE ONLINE