Not all stock market investments are created equally. Some funds perform better than others – how will you decide which type of stock fund makes sense for you? Let’s look at the different types.

* Index funds. They tend to mirror the market. They are made up of collections of stocks that basically “match” the market; if the market goes up, the fund goes up accordingly; if the market goes down, the fund goes down at a similar rate. Different funds are intended to “match” different indexes. An S & P 500 index is made up of a combination of all the stocks represented on the S & P 500. Because they automatically provide diversification, index funds have been the safest way to get a steady return on your investment. That assumes, of course, that the future will be similar to the past – and there is no guarantee that will be the case.

If your retirement plan does not include an index fund, the odds are good that it does include a something similar to an index fund.

* Growth funds. They buy stocks assumed to have the potential to grow substantially in value. Within the growth fund category, you may find sub-categories like:
o Aggressive growth funds, which tend to focus on riskier but potentially higher-return stocks
o Moderate growth funds, a blend of moderately risky stocks
o Value funds concentrate on purchasing relatively stable stocks, often stocks that pay a small dividend which add to the growth of the fund’s value

Many plans offer a lot of other sub-categories. Your plan should describe the goals and level of risk in each sub-category, so you can evaluate those investments based on your willingness to accept risk and your desire for return.

* Small-, medium- and large-cap funds. They are often described by the size of the companies they invest in. One way to define “size” is by market capitalization. Market “cap” does not refer to the size of a company (for example, its number of employees, number of locations, etc), but refers to the stock market value of the company. To calculate market cap, multiply the number of shares outstanding in the company by the price of those shares. The result is the market capitalization value. (For example, if a company has a million shares outstanding, and those shares currently sell for $10, the market cap is $10 million.) Now let’s break each segment down:
o Small-cap funds typically invest in companies that have a market value of less than $1 billion. Small-cap funds do sometimes yield high returns but should also be considered fairly risky investments.
o Mid-cap funds invest in companies that have values ranging from $1 billion to $8 billion or so. Mid-cap funds tend to be less risky than small-cap funds, but also tend to produce a lower rate of return over the long term.
o Large-cap funds invest in companies with market values over $8 billion. Large caps sometimes appear similar to an index fund, because a large cap fund may invest in all the companies in a particular index, like the Dow Jones Industrials. Large-cap funds tend to be less risky, but at the same time tend to provide a lower return on investment.

* Sector funds. They invest in companies in a particular industry, like technology, or pharmaceuticals, or oil companies, or health care, etc. If you think a particular industry is on the verge of rapid growth, investing in a sector fund could be a great way to enjoy a great return while diversifying your investment across a number of different companies in that sector.

* International funds. These invest in stocks from countries all around the world. (By the way – I feel investing internationally is an extremely good idea. A number of countries are experiencing phenomenal growth.)

* Income funds. They invest in stocks that pay a regular dividend. Income funds also invest in bonds that pay interest. Many income funds invest in both. The goal of an income fund is to minimize risk while providing a stable, albeit small, return on investment.

* “Life cycle” funds. These attempt to provide a blend of stocks and other investments designed to match your age and investment goals. The goal is to create a blend of fund types to match your level of risk and desire for return. Different investment funds call their “life cycle” funds by different names. Some examples include:

o Conservative, Balanced, Growth, and Aggressive allocation funds. Each of these tries to be what it is called. A Conservative fund invests conservatively and minimizes risk.
o Destination 2020, Destination 2030, Destination 2040 allocation funds. Each Destination fund makes investments based on when an individual plans to retire. A Destination 2040 is intended for someone planning to retire in 2040.

Again, different investment companies call their “life cycle” funds by different names. Each will describe the goals of the fund. Take the time to determine whether a particular investment meets your needs.

After all, that’s the magic of a 401(k) plan. You don’t have to choose just one type of investment. You can spread your money across different funds to match the level of risk you are willing to take on with the rate of return you hope to achieve.

If you’re new to investing, your best bet is to start by taking a relatively conservative approach. Over time, you should learn as much as you can about stock investing, bond investing, and other types of investing. With more experience you will develop a solid feel for how you wish to invest your money, and also for how much risk you are really willing to face.

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You can accomplish this by way of a ‘trustee to trustee’ transfer. This moves your 401K from where it is now directly into an IRA. These types of direct rollovers are totally tax-free and you’re not held to any tax liabilities. You also have no limit on the amount of cash you can rollover. It’s very important that you choose wisely when making this move from a former employer with your money, as this usually involves quite a substantial amount for most people.

One of your available options, is to take your money in cash. This is viewed by most as the absolute worst decision, mainly due to the fact that it involves a lot of crucial tax consequence. It’s a requirement that your former employer hold out a solid 20% of your money for federal taxes, and your cash is going to be taxed just like regular income. From here, they start coming at you from all directions.

There’s always the possibility that you’ll owe even more than the 20%, depending on what tax bracket you fall under. And if you’re under the age of 59, there may be even additional fees involved. You may even turn out to owe more than the initial 20% that was held out for that year. It can definitely go from bad to worse, and these are just a few of the reasons that the cash option if frowned upon. So, just like the 401k contribution limits it’s significant to follow the rules that are in place.

You have the option to leave the money right where it is, with your old retirement plan with your old employer. There are quite a few reasons why this is much better option than the first one of taking the cash. No penalties and no taxes, but not altogether without some drawbacks. It can get very confusing once you begin to try to keep up with and manage different retirement accounts from previous plans. This can cause you to suffer in the light of investment performance. Proper diversity is a major key in investing.

You can transfer your money into your new employers plan, as most of them will allow you to do so. This will save you the headache of balancing too many accounts with too many different figures to be kept up with. By just having one account to deal with, managing it becomes much more simple and easy to do.

By taking your cash and rolling it over into an IRA account, you will solve the problem of having no kind of professional advice concerning your investments. It’s very likely that you weren’t receiving any type of guidance with your old 401K. But once you roll over to an IRA account, you’ll get a BCM financial advisor to help with choosing a diversified portfolio for your investing.

It’s good to know what’s involved in your 401K rollover. If you transfer the cash into a rollover IRA, then you will have chosen the most popular option. By doing this, you increase the amount of control you have over your money, as well as easier management, and an increase in flexibility and the ability to get good sound advice for your investing.

Much like following the rules with 401k contribution limits it’s even more important to carefully follow the 401k rollover rules, as there could be severe tax consequences.

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You may choose to make a trustee to trustee transfer that will move your 401K from the place it resides now straight into an IRA account. When you choose this option, you get the benefit of not being held liable for any taxes. You also don’t have any type of limits on the amounts of cash that you can move. This can be a very important decision, because for the most part this type of move involves a very substantial amount of cash.

Of course, the first option that comes to mind is the ‘cash’ option. Just take the money and run. But this can be a very costly move. In fact, most investors consider this act to be the very worst of all your options. It will include lots of tax liability. Your employer is required to hold out a good 20% right off the top for federal taxes. Then your cash is going to be taxed like it was regular income. And it just gets worse as you go on.

You may find out the you actually owe MORE than the 20% that was taken out by your employer. This depends on your tax bracket. If you happen to be under age 59, then additional penalties may be applied, up to 10% more. So you can see how things can go from bad to worse whenever the cash option is chosen. Not to say that in some circumstances it’s not beneficial, but all things considered, it’s usually not a good choice.

After dismissing the cash option, you can consider leaving your money where it is. Just let it sit with your old employer’s plan. This can be a much better option than the cash option, because of dodging the tax liabilities and the penalties. But it doesn’t come without some of it’s own downfalls. Managing separate accounts can be quite confusing and quite frankly, a headache to do. It diminishes your ability to properly invest and focus on what you need for your account.

You may also opt into your new employers retirement plan. Most new employers will allow you to make the transfer from an old account into their plans. This saves a lot of headaches for you and gives you more flexibility in managing your money. It’s just much easier to focus on one account as you watch it grow and make decisions for increasing it for the most outcome.

When you roll your account over to an IRA you solve a lot of problems. It’s almost a sure bet that with your old account you weren’t getting any professional financial advice. But when you step into an IRA account, you’ll receive a licensed advisor to help advise you on how to manage your money and help you build a good portfolio with good investing.

Choosing to rollover 401K retirement funds is usually a good idea. By transferring your cash into an IRA, you open yourself up to guidance in your investing, and save yourself all the headaches of penalties and taxes that will cost you plenty. It provides more control and easier management. It definitely is the best choice of the ones we mentioned above. Just make sure you follow the all important 401k withdrawal rules and you’ll have no headaches.

If you are ready to rollover 401k funds to a qualified IRA account be sure to follow the 401k withdrawal rules, as there are some painful tax consequences if you slip up.

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There could be. It depends on the investment opportunities offered by the account provider and at what age you plan to retire. If the plan is a standard one, rather than a Roth-401k, there could be a disadvantage, too.

Let’s take a look at your options.

Roth-401ks have only been available since 2006. Roth IRAs have been around since 1997. Traditional IRAs were written into the tax code in 1986. Standard 401k plans were actually an off-shoot of a tax law that had nothing to do with retirement plans.

Section 401 (k) of the Internal Revenue Code states that employees are not required to pay income taxes on what is referred to as “deferred” compensation. That is why the company that you work for can make a contribution, in your name, into your 401-k retirement plan, without increasing your taxable income for the year.

Section 401 (k) was added to the Code in 1978 and went into effect in January of 1980. Of all of the plans, it has been around the longest, nearly completely taking the place of company sponsored pension plans.

You see, there are “no” disadvantages of 401 k plans, as compared to old fashioned pension plans, at least from the company’s perspective. Since, you’ll probably never have the option of choosing a standard pension plan, there’s no reason to look at the advantage/disadvantage of one of those plans.

But, you could be offered the option of a Roth-401k, if the company has amended the plan to include that option. Most people feel that the Roth account is a better option, but not everyone feels that way.

The biggest advantage of Roth plans is that qualified distributions are never taxed and earnings from investments made within the account are never taxed. Some people say that the benefit may never be realized, if the account owner dies before retirement. While that’s true, any of us could die before retirement age. Does that mean that we shouldn’t save for retirement?

If you are going to say that dying young is one of the disadvantages of 401 k Roth plans, then you would have to say that you may as well spend all of your money, today. I like this saying: live in the moment, but plan for the future. If you don’t, you could end up a burden to your children or society. No one wants that.

There are no other “real” disadvantages of 401 k Roth plans. There are some perceived draw-backs, in that contributions to the Roth plans are taxed as regular income. Contributions to the standard plans reduce your income for the year, thus “possibly” lowering your taxes.

The main thing to be sure of, regardless of what retirement plan you choose, is that the investments made from within the account are fully diversified, not restricted to stocks, alone.

Some investment types, such as real estate, have higher earning potentials than others. There are disadvantages of 401 k plans that are not fully diversified. But, that’s the subject of another article.

To get started on accomplishing your retirement goals, choose a real estate turnkey company to invest your self-directed IRA money in real estate.

This is the best investment strategy considering today’s economic environment for building a secure financial future.

Isn’t your financial future worth it?

Ed Gosselin researches retirement investment strategies while advocating IRA real estate turnkey solutions as a means of diversifying your portfolio while maximizing your returns.

Learn more about retirement investment strategies to accomplish your financial goals, by visiting his website http://higher-ira-returns.com.

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Do you want to pay taxes now or after you retire?

Contributions to all traditional “non-Roth” plans are tax deductible or reduce your taxable income for the year that the contribution is made. Distributions, on the other hand, are taxed as regular income. In other words, after you retire, when you begin to take money out of the account, it will be taxed as regular income.

Many people are in lower income tax brackets after retirement. People aged 65 and over get to take additional income tax deductions. So, if your earnings are high and you expect to be in a lower income tax bracket after retirement, the traditional plans may be for you.

One of the disadvantages of 401k plan and traditional IRA usage for some people is that they continue to pay income taxes, after retirement. The wealthier you are after retirement, the more advantageous the Roth plans.

Do you want to begin taking distributions by the age of 70 ½?

People are working longer and living longer. They are healthier and more active. It is not unusual today to see people working past the age of 70.

One of the disadvantages of 401k plan and traditional IRAs is that account holders must begin taking regular distributions by the age of 70 ½. If they are still working, the distributions add to their annual income.

So, they often pay more taxes than they want to. If they don’t really “need” the money, they have to decide what to do with it; put it in a savings account, find another investment, etc.

There’s really no way to know how you will feel at the age of 70, but with Roth plans, there are no required distributions. You can save it for later life or leave it to your beneficiaries.

How much do you want to contribute on an annual basis?

There are maximum annual contributions to any tax-advantaged retirement account, regardless of the type. But, the maximum annual contributions to 401Ks are higher than the maxes for traditional accounts.

There is now a Roth-401k and a Roth-IRA, but the maximum annual contributions are the same, whether the account is a Roth or a traditional type.

Any disadvantages of 401k plan usage may be outweighed by the higher maximum annual contribution and the employer matched contributions. If your earnings are high and you want to save more, 401ks are the way to go.

Does your account provider limit your investment choices?

Now, that you have learned about the advantages and disadvantages of 401k plan usage, you might want to investigate all of your investment options.

Some account providers limit the types of things that you can invest in.

With today’s markets, the average number of years that people are living after retirement and the inflation rate, you cannot afford those limits.

To get started on accomplishing your retirement goals, choose a real estate turnkey company to invest your self-directed IRA money in real estate.

This is the best investment strategy considering today’s economic environment for building a secure financial future.

Isn’t your financial future worth it?

Ed Gosselin researches retirement investment strategies while advocating IRA real estate turnkey solutions as a means of diversifying your portfolio while maximizing your returns.

Learn more about retirement investment strategies to accomplish your financial goals, by visiting his website http://higher-ira-returns.com.

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Remember, these things have happened to other people.

So, they could happen to you.

#1. You fail to redeposit the funds within 60 days.

The check could get lost in the mail. You could have some kind of family emergency. You might be in the process of moving and somehow lose the check. All of those things have happened to account holders at one time or another. Something interferes with them finding a new account provider and the next thing they know, they are in trouble with the IRS.

Failing to open a new account and redeposit the funds within 60 days is one of the 5 biggest 401k rollover mistakes, because, when if it happens, the entire value of the account will be taxed as regular income for that year.

The IRS will make exceptions, in some cases. For instance, victims of hurricane Katrina were given a full year to redeposit the funds. But, unless there is a blanket exemption like that one, the process is long and drawn out. The best thing to do is to pick a new account holder, before you initiate a roll-over and take precautions to insure that the check is deposited within the 60 day period.

#2. You take more than one roll-over in a 12 month period.

That does not mean more than once per calendar year. That means more than once during “any” 12 month period. I am personally familiar with an investor that rolled over his account, found himself happy with the results, but then found another investment with higher returns. He initiated another roll over 11 months after the first.

That is one of the 5 biggest 401k rollover mistakes, because the funds must be included with your income for that year.

In other words, you pay more taxes.

#3. You choose to take a roll-over instead of a transfer.

A transfer and a rollover are different transaction types. For people that have already decided on a new account provider, one of the 5 biggest 401k rollover mistakes is simply to take a rollover, instead of making a transfer.

When you are not the “middleman”, the first two mistakes cannot happen.

#4. You put the funds into a Roth, instead of a traditional account.

This is only a mistake if you are aware that you will need to include the account value in your annual income tax return. Contributions to a regular 401K are not taxed as regular income for that year.

Contributions to a Roth are, but qualified distributions from within a Roth are never taxed. Learn the rules, before you consider going from a traditional account to a Roth.

#5. You fail to consider all of your investment options.

Failing to consider all of your investment options, which could include self-directing into real estate, may be the biggest of the 5 biggest 401k rollover mistakes.

If your account is not earning 12% per year or more, then you might want to try something different.

To get started on accomplishing your retirement goals, choose a real estate turnkey company to invest your self-directed IRA money in real estate.

This is the best investment strategy considering today’s economic environment for building a secure financial future.

Isn’t your financial future worth it?

Ed Gosselin researches retirement investment strategies while advocating IRA real estate turnkey solutions as a means of diversifying your portfolio while maximizing your returns.

Learn more about retirement investment strategies to accomplish your financial goals, by visiting his website http://higher-ira-returns.com

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There are two numbers you need to collect before determining your personal maximum contribution limit. First, find out how much of your salary your employer’s plan will allow you to contribute. For example, if your employer has set up a plan that allows you to contribute up to 10% of your salary and you make $45,000 for 2009, then your employer’s limit will be a yearly contribution up to $4,500.

This is not necessarily your personal limit because there is also a maximum contribution level set by the government. Your limit will be the lower amount between your employer’s allowance and that set by the government. The government rate is really a guideline for those that make well over $100,000, as it is usually set quite high.

As far as the 2009 401k limits, the IRS has determined that no one can contribute more than $16,500.

For our example, since the employer’s limit is lower, that would be your contribution maximum for all of your 401k plans for the year. The government set limit would not apply to you.

Also, there is something called a “catch up contribution” for anyone over the age of 50. This allows for an extra $5,500 over the course of the year. This is as of the latest 2009 401k limits. Again, this is collective over all of the 401k plans held.

The 401k contribution limits change every year and are a reflection on the changing cost of living in the country. It is important to check each year to determine how much you are allowed to contribute and how you wish to split up the total amongst all of your 401k investment plans.

When it comes to your 401k plan there are a number restrictions and rules in place. One such rule is the contribution limits. You may check the site for the most recent 2009 401k Limits, as well as other retirement accounts like the IRA.

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The maximum amount allowed to be contributed is different every person, depending on two different numbers. First, you have to determine what percentage of your income your employer’s plan will allow you to invest. This will be in percentage form. For example, someone who makes $45000 a year and has a plan that states they can contribute up to 10% of their income would be allowed to contribute up to $4, 500 in 2009.

You have to find out this amount from your employer, but it is not necessarily going to be your personal maximum contribution. The IRS also sets a maximum contribution which no one in the country can exceed. This is just one number that applies to everyone, but it is aimed more at those who make in excess of $100, 000.

The IRS 401k rules mandated 401k contribution limits for the current year at $16,500.

In our example above, the $4,500 set by the employer is lower than the IRS mandated number. This would mean the IRS number does not apply and the employer’s limit must be followed.

If you are over the age of 50, you also have the option of participating in an optional catch up contribution. This allows you to contribute up to $5,500 extra since you are closer to retirement age. Once again, this amount has to be reached collectively across all of your 401k and Roth 401k accounts.

The current year’s 401k contribution limits are a direct reflection on the standard cost of living in the country. This rate changes every year, so it is important to keep up with it to ensure you are contributing the right amount to all of your accounts.

You’ll want to make sure you don’t exceed the 401k contribution limits when making your contributions. Similarly, when it comes to the 401k rules there are certain things set in place, so always consult a qualified advisory before making a major move.

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One part of personal finance I’d like to discuss here is retirement planning. You need to prepare for your retirement. Since you no longer have your main source of income at that time, it’s essential that you are financially prepared for it.

Fortunately, there are good programs that can help you prepare for your retirement and one of them is 401k. 401k is a retirement plan offered by many employers across the country and there are three reasons why it is good for your personal finance.

First, the plan is set up in such a way that discourages you to withdraw the fund before your retirement. You will get costly penalties if you do that. This helps you overcome the temptation of using the fund for something other than your retirement.

Second, many employers offer employer match for your contribution up to a certain amount. For example, if you contribute $500 to your account, your employer may give you another $500 and you will end up having $1000 added to your account. This is something you can’t get with other investment options and that’s why you need to maximize your 401k contribution. Make sure that you contribute up to the limit of your employer match. This way you get all the “bonus” that you can get.

Third, your 401k contribution is not taxed. You will only be taxed at the time of your withdrawal. It means that you will have more money to invest in your account. Because of the compounding effect, this extra money will end up making you a lot more in the long term.

Alex is a writer who writes about personal finance. Visit his site on 401k rollover.

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In actual fact, this retirement investing option is an employer-sponsored account. Your employer or company has the full discretion to grant you benefits as their employee by optionally selecting to match up part or all of your contribution by means of making additional contributions in your account or grant you with profit sharing benefits in your retirement account.

If you want to personally choose the type of investments for your account, you may want to consider a participant-directed plan, which will allow you to select from an assortment of investment vehicles such as mutual funds, money market investments, stocks, bonds and even other non-conventional assets. You may also find your company offering the opportunity to buy stocks from their corporation. You have all the right to transfer your money among the allowed investments any time.

Keep in mind that a 401k account is tax deferred – meaning all of the contributions you will make will be carried out on a pre-tax basis or no income tax will be withheld on your income in the year it was added to your account. Your contributions and any capital gains, growth or interest in them will only be taxed when you withdraw the money.

Generally, private sector corporations sponsor this retirement plan to their employees. That’s why your employer is in charge of creating and formulating your retirement plan. Under the Internal Revenue Service’s (IRS) definition, this account is a form of defined contribution. In other words, it is a salary reduction retirement savings option, where you should choose a portion or percentage of your salary to be added to your plan while your account reflects the scope of your employer matching.

You may be afraid that you will not obtain the full value of your retirement account once your employer enters bankruptcy phase. During this situation, you should feel relieved that 401k plans are secured and protected due to the policy that delineates your right as an employee to get hold of all of your contributions, wherein your contributions must accumulate to your sole advantage.

If you decide to leave your current job, your retirement account can stay active with your previous employer, but you should make sure that you’ll withdraw your funds starting the 1st of April when you reach 70 ½ years of age.

Like any other opportunities, there is a setback when having a 401k account as your exclusive retirement savings plan. One of which is that the contributions you make are not becoming diversified, especially if you invest your funds in the company you’re working for. Due to this, the rates of return of your retirement plan will remain mediocre for the rest of your life.

For more information about 401k Accounts, please visit: http://www.retirement-planning-center.com/401k.

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